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New railway projects open to private sectors

By Song Shengxia (Global Times)

13:21, October 18, 2012

Railway and energy experts called Wednesday for the establishment of an effective system to protect the interests of private investors as they enter State-dominated sectors. The request comes as construction begins on new railway and energy projects which are partially funded by private capital.

"In the new coal transportation railway project, for the first time China's railways ministry does not hold the controlling stake of 50 percent. Instead they hold around 20 percent, to allow more private investors to participate," Wang Mengshu, chief engineer of the China Railway Tunnel Group and member of the Chinese Academy of Engineering, told the Global Times Wednesday.

"But for such a large project, it would take a long time, say 12 or 13 years, to recover the investment. Whether investors could profit depends on the operating efficiency of the project. Protecting the interest of private investors in State-dominated sectors is an issue that has yet to be solved," he said.

The Ministry of Railways (MOR) announced Tuesday that construction has begun on the Mengxi-Huazhong coal transportation railway (the West Inner Mongolia-Central China Railway), a 1,750-kilometer railroad connecting Central China with key coal-producing regions including Inner Mongolia and Shaanxi. Part of the project is expected to be completed in 2015.

Investment in the project is estimated at 170 billion yuan ($27.117 billion), of which the railways ministry contributed 20 percent. The remaining 80 percent came from local governments and other enterprises, including 15.7 percent from private capital, the MOR said in a statement sent to the Global Times Wednesday.

A total of 11 companies invested in the project, including China Shenhua Energy Company, China Coal Energy Company and Shaanxi Coal Industry Company.

Zhou Dongzhou, Secretary of the Board of China Coal Energy Company, told the Global Times Wednesday that the company holds a 10 percent stake in the project but said it was hard to predict returns at this stage.

Meanwhile, the China National Petroleum Corporation (CNPC) announced Tuesday that construction had begun on the country's third pipeline transporting natural gas from the country's resource-rich western regions to the energy-deficient eastern regions.

Total investment in the project is 125 billion yuan, with completion slated for 2015, the CNPC said.

The project is open to private capital. China's Social Security Fund, Urban Infrastructure Construction Investment Fund and Baosteel have agreed to jointly invest in the project and the CNPC holds a controlling stake.

The CNPC did not say what portion of the project is funded by private capital. According to a report by the Economic Information Daily, Urban Infrastructure Construction Investment Fund holds a 16 percent stake in the project.

"The project set a precedent for introducing private capital into the country's State-dominated energy sector, but the room for private capital in such energy projects is still very limited," said Li Lingxuan, an analyst with Shandong-based industry research agency SCI.

The private investment comes in the form of funds that can only participate by paying for supporting components, whereas the supply of major construction materials such as pipes and steel will still be dominated by State-owned companies, Li said.

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