Peru Awards Rights to Build $5.7 Billion Lima Subway Line

Peru awarded a contract to build the capital’s first subway line to an international consortium led by Spanish builder ACS Actividades de Construccion y Servicios after two other groups pulled out of the bidding.

Investment promotion agency Proinversion accepted Consorcio Nuevo Metro de Lima’s bid to build and operate the line, which will require $5.7 billion of investment, Transport Minister Carlos Paredes told reporters in Lima.

The trainline will run through a 35-kilometer (22-mile) tunnel with 35 stations linking the port area of Callao to Ate in the east, cutting journey times to 45 minutes from at least two hours by bus, according to Proinversion. The project, known as Linea 2, is designed to ease traffic in the city of 8.7 million people where economic growth is putting more cars on the roads every year.

“The biggest infrastructure project ever undertaken in Peru starts today,” Paredes said. “It’s going to improve the competitiveness of Lima and Callao and the quality of life of millions of Peruvians.”

ACS and Fomento de Construcciones y Contratas, both Madrid based, have 25 percent and 19 percent stakes in the consortium respectively. Milan-based Salini Costruttori (SAL) has 19 percent, while two units of Rome-based Finmeccanica have 12 percent and 15 percent respectively, Salini said in an e-mailed statement.

Salini is building metro lines in Doha, Rome, San Francisco, Santiago and Sydney. The firm is among the companies in a dispute with the Panamanian government over cost overuns in the expansion of the Panama Canal.

Pulled Out

Proinversion said March 21 that two other bidders pulled out as their budgets for the project exceeded a limit set by the government.

Consorcio Metro de Lima Linea 2, which comprised units of Brazilian construction firms Odebrecht, Construtora Andrade Gutierrez, Construtora Queiroz Galvao, and Lima-based Grana y Montero, said it decided not to bid as the agency didn’t accept any of the changes to the project that they had sought.

Paredes said the government had estimated Linea 2 would cost $6.6 billion, a figure that included additional trains should demand exceed expectations.

The government will cover $3.7 billion of the cost of the construction and trains, and spend $490 million on expropriations, while the consortium will invest $1.47 billion.

The government provided geological studies for the project and will bear any cost increases related to geology during the construction phase, Paredes said. The consortium is responsible for any other additional expenses, he said.

Engineering Doubts

The Peruvian Chamber of Construction and Engineers Association had urged the government to cancel the bidding and redesign the subway to include sections of overhead railway and tunnels closer to the surface to cut costs.

Oscar Rafael, president of the Engineers Association’s Lima branch, said in an interview on March 26 that Linea 2 could be built for $4.3 billion. Building deep tunnels, using driverless trains and giving the entire project to a single group instead of auctioning contracts for different aspects of engineering pushed up the cost and increases the risk of construction delays, Rafael said.

Peru’s government plans to finance the subway using loans from multilateral lenders and proceeds from bond issuance, Finance Minister Miguel Castilla said in a Jan. 23 interview.

Odebrecht and Grana y Montero are building the second phase of Linea 1, a 34-kilometer overhead railway running north-south through Lima. The line is scheduled for completion by June.

Starting Work

Consorcio Nuevo Metro will probably start work on Linea 2 in May and complete the line in 2019, the year Lima hosts the Panamerican Games, said Christy Garcia, head of railway projects at Proinversion. The group will operate the line for 30 years.

The subway is designed to carry 660,000 passengers daily and users will initially pay 0.75 cents, rising to $1 later, Garcia told reporters. The government plans to build four more metro lines in the capital, she said.

“You can’t solve Lima’s problems with one line,” Garcia said. “There’ll be a network of lines complemented by other forms of transport.”

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net Philip Sanders, Robert Jameson

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