Hungary eyes Chinese cash to finance new rail line

By bne IntelliNews February 28, 2013

bne -

Launching yet another plan to spend billions of euros worth of Chinese cash - the cheque for which is somehow always in the post - the Hungarian government unveiled a scheme on February 27 to leverage a credit line signed with Beijing last year to finance a new freight rail line, which will be a link for goods traveling from the east to Western Europe.

The 113-kilometre two-track link, which would cross the river Danube with two bridges, is planned to cut the long travel times from the east to the west of the country that are a hangover from communist times. Hungary last built a new rail line in 1948, according to Peter Szijjarto of the Prime Minister's Office, leaving all trains to pass through Budapest.

The new link would solve this issue, he claimed, by bypassing the capital and connecting with existing rail lines on the country's eastern borders with Ukraine and Romania to the western border with Austria. Trains will travel at up to 160 kilometres per hour on the new electric line, the official noted, according to Dow Jones. At present, the average speed of freight transport is 3kph because of technical and regulatory hindrances.

"Our freight rail lines are uncompetitive today when shipping freight from the east to Western Europe. No matter where the freight enters the country, it will be able to bypass Budapest, which is critical for goods to travel from the east - China or the Caucasus - to the west," Szijjarto said.

The project will cost HUF360bn (€1.2bn), the official said, adding that Hungary aims to finance it mostly from Chinese funds. For that it needs to persuade the China Development Bank to raise the €1bn credit line signed in May last year.

Chinese whispers

In April 2012, Chinese Premier Wen Jiabao announced a new $10bn fund to support infrastructure projects in Central Europe, as Beijing sought to increase the leverage of its huge cash reserves through the crisis. However, with CEE yields dropping to new lows in the last few months on the back of high global liquidity, there has been little take up. It was notable, however, that the Chinese announcement was made in Poland, an enthusiast for the EU project which is trying to increase its clout in Brussels, rather than in Hungary, which is moving further and further from the centre of the bloc.

Yet Hungarian Prime Minister Viktor Orban has regularly claimed since he returned to office in 2010 that he is about to seal huge financing and investment commitments from China - part of his favoured tactic to try to play all sides off against each another. Whilst cut off from international markets and forced to talk over a bailout with the International Monetary Fund (IMF) and Brussels, the PM claimed several times that Beijing was ready to buy huge amounts of Hungarian debt.

The funding of several infrastructure projects has also been promised over the past couple of years, all to no avail. A Chinese airline was also supposed to fly to the rescue of flag carrier Malev, but the airline was instead grounded in February 2012 by a demand from Brussels that it pay back state aid. Investment from Chinese companies also remains very limited.

Szijjarto said the project could start in spring 2014 - in a happy coincidence just when Hungary will hold elections - if the Chinese bank agrees to provide the funding. However, he admitted Budapest could also use European Union funds as well should they prove cheaper.

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