Archive for feasibility assessments

Maybe as many as 15 Years of Weak Crude and other energy prices

“WHAT IF:

What if the world is shifting from an “investment phase” of a 30-year commodity cycle to an “exploitation phase?” 

How does this professional assessment of future markets cause you as a railroad or freight carrier to change from Plan A to maybe Plan B or even Plan D?

 

From Bloomberg, Sep 17, 2015

A glut of crude may keep oil prices low for the next 15 years, according to Goldman Sachs Group Inc. That is a very long period.

This strategic commodities report cites in part Jeffrey Currie in an interview at Lake Louise, Alberta.

Goldman’s long-term forecast for crude is at $50 a barrel, he said. He also observed that “the risks are to the downside given what’s happening in the other commodity markets and the macro markets more broadly.”

Lower iron ore, copper and steel prices as well oil and natural gas –PLUS weaker currencies in commodity-producing countries — have reduced costs for oil companies, according to Currie.

The world is shifting from an “investment phase” of a 30-year commodity cycle to an “exploitation phase,” with shale fields as an important source of output, he said.

To read the entire article, go to http://bloom.bg/1JcGYJu

A proposed inland Australian rail freight line MIGHT NOT make economic sense –

The proposed 1,700 Kim’s of new freight railway has a capital cost estimate to build it.

IF BUILT, then it has all kinds of job creation and “soft” society economic benefits that surround the project scope like an angel’s halo.

However, there is no published traffic mix forecast. There is no train operations projected income statement for the generalized scope of possible future rail business.

There is instead a “build it, and they we come” conceptual expectation. The “they” being shippers.

There is no information about commercial rates and the shippers ability or willingness to pay those rail rates.

But there is an acknowledgement that the government will have to write the checks to pay for the capital cost.

In summary, there is very little due diligence as to the economic feasibility of this inland route as an investment. This is the kind of planning that made the recently built north-south Australian rail building project a financial disaster.

I suspect that none of these Australian inland rail proponents could ever hold a job working as rail planners for the big profitable North American rail companies like Canadian Pacific or Union Pacific.

What do you think of the projects financial feasibility prospects?

http://www.macrobusiness.com.au/2015/09/an-inland-rail-freight-line-makes-economic-sense/ Sent from my iPad

Mongolia Ovoot mine – A long Shot? Or Now Better Odds? //The Australian

“We were out there with a stranded asset and now we’re the centrepiece of an international rail corridor — it couldn’t have gone any better,” Mr McSweeney told The Australian. He is the Aspire executive chairman. He voices a strong positive outlook that with recent ministerial agreements that there is now a stronger guarantee of rail financing to service the otherwise isolated northern mine.

as of early September, what do you think as a possible investor?

There are plenty of long-term rail corridor high level ministerial agreement rail corridors around the globe… … most of which lack commercially attractive financing. They are often described as a “wish list” of new projects.

A broad gauge line between Russia and Vienna is one of many such grand designs that are unfunded. Adding capacity to the existing single track un-signaled Russia-China 1,100 km long UBTZ rail line is another now more than a half decade long delayed “wish lists” of freight projects. These and other examples refortify the economic logic that “Political support is not the same as monetary investment”.

At capital costs of $2.5 million to $4 million a kilometer (over relatively flat rural terrain), these proposed rail projects generally require as much as 20 to 30 million net tons of bulk cargo annual movement in order to earn sufficient operating profit to pay off the railroad construction debt and interest capital costs.

Passenger trains? They generally around the world don’t cover their annual operating costs from passenger revenues and almost never cover their share of allocated capital debt and interest payments. Talking about adding passenger capability is only adding costs — not profits.

When finally available for this suggested Mongolian – Russian project, a detailed independent operational and market feasibility report should provide clearer due diligence evidence of these rail corridor prospects. Without that independent assessment, it is prudent for investors to beware.

The current mine projections may be either true or false. I suggest that investors consider the entire opportunity and risk profile.

As one example, Russia RZD has very high capital rail rehabilitation and domestic rail requirements previously announced as strategic initiatives. Where in priority of RZD rail company cash flow do these Mongolian corridor capital needs fall compared to competing RZD domestic Russian rail corridors?

For added background, see: http://m.theaustralian.com.au/business/mining-energy/aspires-ovoot-mine-to-benefit-from-china-russia-trade-corridor/story-e6frg9df-1227516860479

Are high speed rail projects a good or bad deal? // Or mainly poorly researched investments?

Here is a short excerpt about rail project due diligence from the files of The Economist. They published this investor alert back in 2012. I am recirculating it in case you missed it.

The theory is that …”new-build rail projects are horribly likely to come in way over budget and to be used much less than expected.”

Their researchers discovered a 2009 paper by Bent Flyvbjerg of Oxford’s Saïd Business School entitled “Survival of the Unfittest: Why the worst infrastructure gets built—and what we can do about it”. That paper presents data on predicted and actual costs and ridership for 58 rail projects around the world.

On average, these rail project costs ended up 50% above predictions, and the ridership usage was 50% under.

Due diligence!

What due diligence?

For many of these complex rail projects—for example the much delayed Brazil bullet train — require precision engineering. The Channel Tunnel linking Britain and the European mainland, and the Great Belt Rail Tunnel linking two Danish islands were this type of complex project. Both of these ended up costing around double the initial budget.

AND… initial revenues did not hit the promised targets suggests the research.

In the case of the Channel Tunnel, the due diligence overlooked the competitive response. The English Channel ferry operators reduced their unit costs by modernizing their boat fleets and won the initial price wars.

The poor revenue oversight might reflect the use of too many engineers for the initial competition due diligence and too few economists.

http://www.economist.com/blogs/americasview/2012/08/high-speed-rail-brazil

Technical hurdles as CSX pushes towards intermodal growth with No U.S. Master Rail Plan

An 11 year plan. 7 years just to get permitting and financing in place. ====================

The Virginia Avenue Tunnel in Washington DC. is a $400 million project. CSX broke ground on in May.

The Virginia Avenue Tunnel is a critical project in the CSX broader $850 million National Gateway initiative. It is a public-private partnership between CSX, six states and the nation’s capital city. National Gateway is in effect a multiphase, 11-year undertaking to move more freight by rail between selective East Coast ports and the Midwest states. CSX is the plan developer and leading champion.

The entire Gateway Project involves double-tracking some CSX existing routes and increasing the vertical clearance for some tunnels and bridges. A CNBC report by Morgan Brennan for CNBC points out that seven of those years have been dedicated to permitting and complying with regulations. (@MorganLBrennan)

Interestingly, this is a private rail company strategic plan. The government agencies are helping finance and modify or delay the project with regulations and permits. But the government is not the leader.

WHY? CSX is looking to quadruple its rail freight carrying capacity in the 110-year-old single-lane Virginia freight rail tunnel. The tunnel is about one mile long underneath part of the city of Washington, D.C. Technically, a second parallel track will be added to allow two trains to pass at the same time. The vertical clearance height will also be increased to allow for double stacked container trains. To increase the vertical height, the tracks will actually be lowered. Today, CSX trains are restricted to the less efficient single-level intermodal train operations.

A change to double stack can have a 35% or better productivity. Reports indicate that the most challenging part of this engineering feat will be to construct these changes while the tunnel continues to allow some two dozen trains to pass per day.

The entire $850 million National Gateway initiative mirrors a similar bold move completed earlier by the Norfolk Southern for 1) its Norfolk to Ohio double stack corridor project and 2) its Shenandoah Corridor public-private partnership plan.

IN CONTRAST

In much of the rest of the world, these kind of plans are created by the government. In the U.S. business model, it is the reverse process. Private investor lead companies are the lead champions.

The entire North American double stack container train revolution was initiated in 1983 by a commercial deal between American Presidents Lines the ocean carrier and the Union Pacific railroad. Later on, various state and local governments joined in with the private railroads to expand the stack train network.

The federal government has also gotten involved. But there is no giant federal and state government master plan at work. And yet, more than 20% of the U.S. network is today stack capable.

Even without a government master plan, the United States (and Canada) are the world leaders in modern doublestack container train movements.

Investors take up hedge risk in high speed Spain-France project. // What could go wrong?

To the chagrin of a creditor group that includes Avenue Capital Group, BlueMountain Capital Management and Neuberger Berman, the rescue of a troubled very high speed passenger railroad whose loans they bet on has failed to materialize.

The group bet on a funding to save a premier advertised Spain to France high speed rail line. TP Ferro was a 2003 joint venture between Spain’s Actividades de Construccion & Servicios SA and Eiffage SA of France. They won a prestige 50-year concession for a 44-kilometer rail line to link Figueres, in Spain, and Perpignan, on the French Mediterranean coast. The goal was to fund that small link to connect Barcelona and Madrid to the rest of Europe’s high-speed train network. What could go wrong?

Quite a bit actually.

Delays and geo-polotical issues with the rail project has left them holding losses in TP Ferro Concesionaria SA. And according to Bloomberg reporters the investors have little recourse promise from the the Governments in Spain and France. Neither government wants to lend a hand to international investors, banks and construction companies.

Avenue, BlueMountain and Neuberger Berman bought some of TP Ferro’s 445 million euros ($492 million) of loans at about 70 cents on the euro last year. Now that is valued at about 50 cents, according to two people familiar with the matter. The rail company filed for insolvency proceedings on July 17 after the governments turned down its bailout requests and an international tribunal rejected its bid for compensation.

WHAT NOW?

If TP Ferro’s debtholders, which also include lenders Banco Bilbao Vizcaya Argentaria SA, ING Groep NV and Bankia SA, fail to reach an agreement with the owners and governments to restructure the debt in court, the working theory is that the company will be liquidated and its concession to operate the railway will end. That would leave TP Ferro with no assets.
Bloomberg notes that about 92 percent of companies that enter insolvency proceedings in Spain are liquidated, according to rating company Axesor’s most recent data.

For a more detailed report log onto Bloomberg and read the entire report “Hedge Funds Near End of the Line for Bailouts on Railway Bet”, by Luca Casiraghi and Katie Linsell.

http://www.bloomberg.com/news/articles/2015-07-28/hedge-funds-near-end-of-the-line-for-bailouts-with-railroad-bet

BRAZIL — more signs of severe economic recession from a Bloomberg report

The reported numbers are from a story authored by Christiana Sciaudone

August 17, 2015

“In the midst of its deepest economic and political crisis in a generation, Brazil is contending with a business climate so punishing that major projects across numerous sectors are being frozen or shrunk, while small businesses slash prices and shift focus.”

“Political instability is enormous, and it’s paralyzing Brazil,” said Eduardo Fischer, co-chief executive officer at homebuilder MRV Engenharia & Participacoes SA, in an Aug. 5 interview.

In Brasilia, the nation’s capital, “decisions and actions that need to be taken are being delayed, questioned or defeated, and nothing happens.”

Multiple economists are predicting that the Brazil economy will contract about 2 percent this year,.

National unemployment is at a five-year high.

Brazil’s real is the worst-performing major currency in the world this year.

The airline has seen corporate demand drop by as much as 40 percent.

Embraer, the best-selling regional jet aircraft manufacturer had been counting on new products to boost revenue…    … and is also awaiting payment of $370 million…  Its production of new models can be expected to see a year long delay…  or longer.

Brazil’s auto manufactures also have watched demand plummet, with sales down 20 percent in the first half of this year compared with the same period in 2014…

Both GM and Volkswagen AG are temporarily shuttering local factories and putting workers on leave.

Long ago announced new Brazilian railway projects…  …can expect more delay and uncertainty in this economic climate.

So far, the recently announced BRICS new development bank is offering no solutions.  And a once promised Brazilian foreign aid to Ethiopia railways looks to be unofficially “unlikely”.

Much of this was predictable if proper due diligence has occurred during the many project reviews.  The signs of risks were there.

For a full report — log onto http://www.bloomberg.com/news/articles/2015-08-18/from-planes-to-cafes-brazil-s-economy-on-hold-as-crisis-deepens

MARC replacing electric locomotive commuter fleet with Tier-4 diesels

Tier 4 compliant diesel-electric commuter locomotives seen as more efficient than straight electric locomotives. Diesels will run under the electrified catenary wires of the Northeast Corridor between Perryville MD and Baltimore starting around 2017. The MTA plans to ask Maryland’s Board of Public Works for permission to piggyback on an Illinois DOT contract with Siemens to acquire the locomotives, for an estimated $58 million.

Amtrak, which has been maintaining MARC’s electric locomotive fleet since 1983, will no longer be able to provide the service as of June 2016 because it has retired its own HHP8 locomotives and is phasing out its AEM7s as new Siemens ACS-64 electrics enter service.

The Charger locomotives, which are based technically on the Siemens Eurosprinter, Eurorunner, and Vectron locomotive platforms, feature a 4,400-hp-rated 16-cylinder Cummins QSK95 diesel engine. The QSK95 complies with U.S. EPA Tier IV emissions regulations.

MARC’s four EMD/ASEA-produced AEM7s, like Amtrak’s, are approaching 30 years in age. Its six-unit HHP8 fleet, also like Amtrak’s, is only about 15 years old but has suffered from reliability and availability problems. According to a report in the Baltimore Sun, MTA says that replacing the electric fleet with diesels will improve MARC’s service reliability…” The existing electric locomotives operate only on MARC’s Penn Line (Northeast Corridor).

MARC’s electric fleet has a reported reliability rating of between 40% and 50%.

MARC’s diesel fleet, most of which was replaced about five years ago with 26 MP36PH-3C units from Wabtec subsidiary MotivePower Industries, has a reliability rating of 85%.

MARC’s Charger diesel locomotives are expected to be delivered by late 2017.

For more details, go to: http://www.railwayage.com/index.php/passenger/commuter-regional/marc-replacing-electric-locomotive-fleet-with-high-speed-diesels.html?channel=55&utm_source=WhatCounts+Publicaster+Edition&utm_medium=email&utm_campaign=RGN+8.13.15&utm_content=+MARC+replacing+electric+locomotive+fleet+with+high-speed+diesels Sent from my iPad

NY governor Cuomo balks over new Amtrak tunnel to N.J. — Who Pays How Much for It?

“It is always seems to be about who writes the check.”

The existing Amtrak tunnel connecting New York City and New Jersey is a century old and in disrepair. Electrical wires corroded by Hurricane Sandy’s floods prompted hours-long delays last month that highlighted the tunnel’s condition and previewed what could become a chronic problem if nothing is done.

Yet Cuomo, a Democrat, sees little light ahead in this tunnel project. He balked at an invitation from U.S. Transportation Secretary Anthony Foxx to meet with him and New Jersey’s Gov. Christie to discuss the construction of a new tunnel, saying there was “no reason to meet now.” He told reporters recently that the outlook for the tunnel was “not especially bright.” If that’s true, then it’s bad news for millions of commuters, not just the 200,000 people who ride trains through the tunnel each day. Amtrak estimates that the existing tunnel – which has a single track in two tubes, one for either direction – has a life expectancy of about 20 years. The repair option of Closing one tube for a year of repairs would reduce the number of trains using the tunnel from 24 to six per hour at peak times, forcing tens of thousands of people onto ferries, buses, or cars…

A new tunnel would likely take a decade to build. There are several reasons offered by Cuomo as to why he is reluctant to start up the tunnel-boring machine. He said the project wouldn’t work unless Washington committed a sizable investment. An earlier tunnel proposal included $3 billion in federal funds, but was axed by Christie in 2010. 2) Cuomo says the feds are promising only “loans.” Instead of grants.

“If the federal government is serious that this is critical, which it is . . . we need federal funds,” Cuomo said last week. “They need to put their money where their mouth is.” New Jersey governor Christie has said he would support a new tunnel project if part of the cost were borne by the State of New York or New York City, neither of which pledged funds for the previous one. Cuomo’s tunnel stance is a departure for a governor who has seemed to revel in taking on big infrastructure projects. He used federal loans to finance the $3.9 billion Tappan Zee Bridge. Last month, he joined Vice President Biden to announce a $4 billion plan to rebuild LaGuardia’s cramped terminals.

There are several key differences between those projects and the tunnel, Cuomo noted. Private airlines will cover roughly half of the cost of the new LaGuardia. And while the Tappan Zee is a state bridge — it is also an essential part of the the State Toll Road System.

Governor Cuomo differentiates by stating that the new rail tunnel would be owned by Amtrak and used for only Amtrak and New Jersey trains. “It’s not my tunnel,” he told reporters last week. “Why don’t you pay for it?”

I saw this sort of “it’s not our traffic or trains” attitude back in 1998 while interviewing NY State legislative aids in Albany. From up the Hudson River, the view of the NEC and the tunnels is different. Very different.

As for the tunnels connecting to the Long Island rail system — yes that is seen differently from Albany political offices.

Read more at http://www.philly.com/philly/news/new_jersey/20150816_Cuomo_balks_over_new_Amtrak_tunnel_to_N_J_.html#Yh2oY6W1fgotytPs.99 http://www.philly.com/philly/news/new_jersey/20150816_Cuomo_balks_over_new_Amtrak_tunnel_to_N_J_.html

South Africa electric utility dispute with major coal supplier

The dysfunctional issues surrounding the government managed electric utility threatens the so called National Development Plan.

Here is the latest business news from multiple sources. News reports suggest that South Africa’s ailing mining sector has already shed more than 35,000 jobs over the past two years.

Mining company’s complain of the rising costs, particularly for electricity and wages.

Tonight, mining giant Glencore announced that it is placing its Optimum coal operation under “business rescue” due to Eskom’s unreasonable supply contracts. Optimum previously contracted to supply 5.5 million metric tonnes of coal per year to Eskom. ”

Glencore claims that “This has resulted in it supplying the coal at a price significantly below the cost of production for a number of years”.

Meanwhile, South African coal prices for exported coal have reportedly dropped 23 per cent over the past year due to a global glut of the fuel. Eskom is therefore looking to renegotiate the rate it pays for domestic coal.

All of the coal is mostly moved by rail.