China Railway Construction: "Confidence" in claims to Saudi owners

The vice president has led a trip to Saudi Arabia to discuss the claim, and the final profit and loss of the project is not yet conclusive. China CRCC 601186.　　SH,01186.HK, in a recent interview with the first financial daily, said that in Saturday (October 30), the company has sent a team of Vice president of the company to discuss compensation and claims for light rail projects, the amount of the claim has not been disclosed. "We've been doing all the overseas projects and it's certain that all the other projects are normal except for this project," he said.　　China Railway Construction executives told the newspaper. Since 1979, the Chinese railways in 42 countries in the world, with 187 projects, "At present all of these projects are overall controllable, and previously completed overseas projects, although there are individual losses, but overall are profitable." "In 2009, the Chinese Iron building and the Kingdom of Saudi Arabia and the Ministry of Urban and Rural Affairs signed the SHATMEGASSAFA to Mugodasha light rail contract."　　The total amount of the project contract is about USD 1.77 billion and the project is expected to operate officially November 13, but the project is expected to lose 4.153 billion yuan as of September 30, 2010. "We will confirm the claim amount to the owner in accordance with the step-by-step reporting method, including the terms in the contract and outside the contract." "The executives said that although it is not possible to predict the outcome of the claim, nor to disclose the specific amount of the claim, but confidence in the outcome of the claim," the project is ultimately a profit, it is not conclusive. "One of the big questions after the news of China's iron construction overseas was that the project was doomed to loss at the outset," he said. A chief financial officer of China Railway said to this newspaper that the project is profitable in the initial calculation, "probably has 8%~10% gross profit margin."　　The treasurer said the calculations did not underestimate the difficulty of building overseas, because before the project, China's early projects in Saudi Arabia were profitable, and the loss of the project was truly unique. The uniqueness includes, this is China's first attempt to use EPC+O&M General Contracting mode (design, procurement, construction plus operation, maintenance of general Contracting mode). "Our intention is to" package "way to achieve Chinese enterprises to go out collectively. But in the project operation process, because of language, the general contract mode and so on, both sides have a lot of running-in.　　"The above financial leaders stressed that our overseas projects are better profitability than domestic, generally 2% higher than the domestic." In the actual construction process, the Saudi owners repeatedly change the design drawings and increase the amount of work has become a major factor in the cost of a surge. According to China Railway Construction estimates, the Saudi light rail project in 2009 was expected to loss more than 200 million yuan. The losses were confirmed in the first half of 2010. "The third quarter is the main construction period, the overall development of the building, we gradually increased investment in financial resources, which felt that the cost of progressive breakthrough."　　said the person. In the process, China's iron construction is indeedThere is the possibility of intermediate stop, in accordance with the original agreement, if the project can not be completed, the other party forfeit the performance guarantee, the maximum loss of 1.2 billion yuan, but China's iron building comprehensive factors do not choose to do so. "Stop or continue, we are thinking. "This is the only transport route for 57 Muslim countries and 1.3 billion pilgrims," said the China Iron construction executive. There are millions of Muslims who travel to Mecca during the year, and if the project is terminated or cannot be completed on time, the entire Middle East and Arab markets will know that Chinese companies from China have not completed construction, which ultimately affects the credibility and market expansion of Chinese railways and even Chinese companies throughout the Middle East,　　The Middle East market is one of the most important markets for China's railway construction overseas. In addition, the Saudi side in the construction of the project also pledged that after the completion of the project, the two sides can continue to discuss compensation and compensation issues. "Whichever choice comes with a price, we can stop work, lose the reputation of China railway in overseas market and the follow-up project, and lose 1.2 billion yuan, or you can finish the project first, then talk to the other side of the claim, win the market later, win more projects in the Arab, Middle East, Africa.　　"The Chinese iron construction personage says. In the end, China Railway has chosen to complete the project with all its strength.　　Although most of China's overseas projects are based on local staff, the project has sent a large number of people from the country, the highest peak, the Saudi Chinese iron construction staff of tens of thousands.　　It is understood that as of September 30 this year, the Saudi light rail project in the loss of 4.153 billion yuan, the cumulative total completed losses of 3.329 billion yuan, the estimated unfinished part of the contract (including the three-year operating period) will reach 824 million yuan.　　According to the introduction, by November 13, the light rail project can finally be completed on schedule, after this until 2013, China CRCC will also carry out 3 years of commissioning operations.　　In 2008, China's iron-built overseas income accounted for 7.6%, 2009 was 6.2%, the end of 2009 in the first half of the 4.3%, the main reason for the decline in overseas income is that the domestic market has been maintaining double-digit growth. Despite the impact of the Saudi light rail business, China's CRCC said it would not stop the pace of overseas development. This time we are not going to slow down overseas contracting projects because of the loss of Saudi projects. We will be more focused on risk control and more robust to overseas. "China Railway to build an international business director said.