Hungary announces first tender for Budapest-Belgrade railway upgrade

Hungary announces first tender for Budapest-Belgrade railway upgrade
The journey time to Budapest's Keleti railway station from Belgrade will be cut from eight hours to three.
By bne IntelliNews November 28, 2017

Prime Minister Viktor Orban praised the economies of the 16 Central and East European countries as being the “engine” behind Europe’s economic growth and said their cooperation with China is a “real win-win situation” at the opening ceremony of the China-CEE “16+1” summit in Budapest on November 27.

In his speech at the business forum attended by some 1,000 businessmen, a third from China, Orban said Central and Eastern Europe has become the most competitive investment environment on the continent. Europe must not turn inward or else it will lose on opportunities for development, especially “at a time when it faces historic challenges which it cannot meet unless it has powerful allies”. “The star of the Orient is high” in the global economy; with the Chinese economy soaring, Europe will need to involve the East “technically and financially” to develop further, he said.

The cooperation between CEE countries and China has rattled Brussels, the Financial Times wrote. “This sub-regional approach is meeting a great deal of suspicion not only in Brussels but also in the capitals of many member states,” it quoted a European diplomat as saying. One major concern is that China’s push for guaranteed contracts for its companies will undermine the EU’s single market rules on public procurement, another source told the FT.

Since taking office in 2010, the Hungarian government has made a priority of its “Eastern Opening” policy, aimed at strengthening ties to the fast-growing region in the Far East, partly shifting Hungary’s economic and political focus from Western Europe to Asia.

The declared goal to lift Hungary's exports to this region to account for third of the total has failed to materialise. Even though Hungary's trade to China grew 25% y/y to $2.25bn in 2016, it is only a tiny fraction of the country's total exports of $94bn.

Chinese companies have invested $4.1bn in Hungary so far, the bulk of which came from the $1.6bn investment of the Chinese chemical company Wanhua, when it acquired BorsodChem in 2011.

Hungary has also strived to diversify its debt financing and looked to China as an obvious choice. The state debt manager in July sold 1bn yuan-denominated bonds (€130mn) on China's interbank bond market, which marks Hungary's cheapest-ever foreign-exchange debt sale, as the three-year bonds were priced to yield 4.85%.

In 2015, Hungary became the first European nation to formally agree to China’s One Belt, One Road (OBOR) initiative, one centerpiece of which is the planned 350km high-speed Chinese-funded railway connecting Budapest to Belgrade. The $3bn investment is set to be the first part of a much larger rail route linking the Chinese-run Greek port of Piraeus with Europe’s heartland.

The largest infrastructural project in Hungary was kicked off on November 27 when the first round of the tender on the upgrade of the Hungarian stretch railway line was announced. The project involves the upgrade of the 152km railway line stretching between the south of Budapest and the Hungarian-Serbian border, to allow speeds trains to reach 160 km/h. The time to reach Belgrade with passenger trains from Budapest will be reduced to less than three hours from the current eight hours. The project could start in 2020. 

China's Exim Bank has offered to finance 85% of the HUF550bn investment with a 20-year dollar loan with a planned interest rate of 2.5%. Opponents say the investment is disadvantageous for Hungary as based on the estimated returns it will recoup its costs in 2,500 years.

Chinese Premier Li Keqiang on November 27 announced the establishment of a billion-dollar investment fund to be tapped mainly by the 16 CEE countries, according to Xinhua news agency. The fund is the second phase of the Investment Cooperation Fund (ICF), which was established in 2013.

Since then the fund has invested in many projects including a wind farm in Poland, a solar panel company in the Czech Republic, and a manufacturing company in Bulgaria, according to the fund's website. The fund’s vision is to become an outstanding private equity fund in Central and Eastern Europe and contribute to the sustainable development of the economies in this region.

The Chinese Premier and the Hungarian Prime Minister will hold official talks on November 28 when some half a dozen bilateral agreements will be signed.