Head office takes over CRCC's Light Rail Project
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China Railway Construction Corporation Limited announced on Friday evening that it signed an agreement with its controlling shareholder, the Head Office of China Railway Construction, to hand over the Mecca Light Rail Project to the latter.
The announcement said that from October 31, 2010 onward, all rights and obligations generated from the rail project contract will be exercised and fulfilled by the Head Office of China Railway Construction.
The Head Office will pay the listed CRCC 2.077 billion yuan under the agreement, after which the latter will no longer bear or own any losses or profits from the project.
The agreement, to some extent, helps safeguard the interests of investors as losses were partially transferred from the listed company to the centrally-owned enterprise, according to an online report on the web portal, 163.com.
On 10 February 2009, the CRCC signed the contract of Metro Light Rail Project in Saudi Arabia with the Ministry of Municipality and Rural Affairs of the Kingdom of Saudi Arabia. The parties agreed to adopt the EPC+O&M general contracting model for the project.
The A1-Mashaaer Al-Mugadassah metro light rail project connects religious sites around Mecca and Medina.
CRCC in November 2010 said the light rail commenced operation and achieved 35% of full transport capacity, in line with contract requirements, and full capacity will be achieved in May 2011 after all testing work is completed.
The Project incurred significant losses during the course of implementation as the actual work quantities significantly exceeded the estimated figures at the time of the signing of the contract, the company said in a statement to the Hong Kong Stock Exchange in October last year.
The company said costs would be higher than expected as the client had subsequently raised planned capacity. An underground pipeline network, land expropriation and relocation undertaken by the owner were badly delayed.
The estimated total contract revenue of the project amounted to RMB12.051 billion, and the estimated total costs for the contract were RMB16.045 billion. Together with the finance costs of RMB154 million, the total loss for the Project is expected to be RMB4.148 billion, based on the exchange rate in October 31 last year, the Friday announcement said, citing its announcement in November last year.
Of the aforesaid loss, as of 31 September 2010, the accumulated losses of the part of construction work that was completed amounted to RMB3.462 billion and the expected loss of the uncompleted part is estimated to be RMB686 million.
Bagging the 2.077 billion yuan provided by the Head Office, the listed CRCC's losses on the project stands at 1.385 billion at the time of the agreement.
A key part of the agreement deals with the distribution of any further compensation sum negotiated by the Head Office from the owner. If the sum is below 1.385 billion, all compensation goes to the listed CRCC; if it is above 1.385 billion, then the compensation will first be used to cover the listed CRCC's losses and the rest belongs to the Head Office; if the sum is more than enough to cover the 3.462 billion accumulated losses plus operation costs of the Head Office, the listed company still enjoys the distribution rights for what remains of the compensation.
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