Peru Engineers Group Urges Agency to Cancel Subway Auction

Peru should call off tomorrow’s auction for the rights to build Lima’s first subway line after two of the three bidders pulled out, according to the Peruvian Engineers Association.

The subway, which at $6.6 billion will be Peru’s biggest infrastructure project ever, requires “drastic” design changes to reduce costs, said Oscar Rafael, president of the association’s Lima branch, in an interview yesterday.

The project will have a 35-kilometer (22-mile) tunnel with 35 stations at an average depth of 20 meters, linking the port area of Callao to Ate in the east. Rafael said the line should use a combination of overhead track and tunnels just below the surface, with deep tunnels limited to the section under the colonial center, founded by Spanish conquistador Francisco Pizarro in 1535. That combination could shave $2.3 billion off the cost, he said.

“Even the smallest project should have three bidders and here, with this astronomical figure of $6.6 billion, they’re on the point of awarding it to a lone bidder,” Rafael said. “We want this project to go ahead, but there are a lot of issues that need to be addressed first.”

Peru’s private investment promotion agency is weighing a bid from Consorcio Nuevo Metro de Lima for the 35-year contract to build and operate the line. The group comprises Lima-based Cosapi, units of Milan-based Salini Costruttori, Rome-based Finmeccanica, and units of ACS Actividades de Construccion y Servicios and Fomento de Construcciones y Contratas, both Madrid-based.

Project Changes

Proinversion said March 21 that two other bidders had pulled out as their budgets for the project exceeded a limit set by the government, which will finance up to $5.6 billion of the construction, operating and maintenance costs.

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.

According to Proinversion, tunneling deep underground will be faster than building a line closer to the surface and won’t disrupt traffic during construction. The design reduces the impact on existing buildings, pipes and power cables and limits the need for expropriations.

President Ollanta Humala announced in 2012 plans to build the metro line to ease traffic congestion in a city of 8.7 million people and 1.4 million vehicles. Lima accounts for half Peru’s $200 billion gross domestic product, which expanded an average 6.3 percent annually in the past decade, the fastest pace in South America.

The Peruvian Chamber of Construction has also said the government should redesign the project to reduce costs.

Peru 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.

The price of the country’s sol-denominated notes due 2020 rose 0.034 centimo to 110.659 centimos per sol at 3:35 p.m. in Lima, according to prices compiled by Bloomberg. The yield fell one basis point, or 0.01 percentage point, to 5.81 percent.

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