HIGH-SPEED RAIL - RUNNING LATE, BUT ON TRACK

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 003687

SIPDIS

SIPDIS

STATE FOR EAP/TC
COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT
TREASURY FOR OASIA/LMOGHTADER

E.O. 12958: DECL: 10/30/2016
TAGS: ELTN ECON TW
SUBJECT: HIGH-SPEED RAIL - RUNNING LATE, BUT ON TRACK

REF: A. 05 TAIPEI 490


B. 05 TAIPEI 3779

C. 05 TAIPEI 4125

D. TAIPEI 240

E. TAIPEI 729

F. TAIPEI 1283

G. TAIPEI 1697

H. TAIPEI 3414

Classified By: AIT Economic Section Chief Daniel K. Moore, Reason 1.4 d


1. Summary: Taiwan's high-speed rail will begin
operations in December 2006. Its financial situation
seems to have stabilized in the year since it obtained
additional funding from the Taiwan authorities in
September 2005. As it draws closer to operations, the
high-speed rail appears to have left earlier political
controversy behind. End summary.

Final Delay - December 2006 Opening
--------------


2. (SBU) The Taiwan High-Speed Rail Corporation (THSRC)
will not meet its target date to start operations in
October of 2006. It now appears that the high-speed rail
will begin regular service in mid-December. The October
2006 goal was set a year ago after an earlier
postponement by one year (ref B). THSRC is working with
the Ministry of Transportation and Communications (MOTC)
to complete the necessary testing and certification.
Both THSRC and MOTC believe that they can complete these
processes by the end of November. THSRC plans a two-week
promotional period before regular service begins during
which it will offer trips to selected individuals and
groups, including shareholders, business partners, and
government leaders. It has scheduled a grand opening
ceremony for December 7.


3. (C) Initially, THSRC will operate 19 trains per day in
each direction. By the end of the first year of
operations, it plans to run 88 trains per day. THSRC
Vice President Arthur Chiang told AIT/T the firm projects
passenger loads will reach 60 percent of capacity during
the week and 80 percent of capacity on weekends for each
989 seat train. (Note: We calculate these projected
passenger loads would mean more than 400 million
passengers per year would ride the high speed rail. This
far exceeds the 9.6 million passengers who rode Taiwan's
domestic air routes last year and approaches the 531
million passengers who rode all of Taiwan's railways.
End note.)

Financial Stabilization
--------------


4. (C) THSRC's financial situation also appears to have
stabilized in the year since it sought additional support
from the Taiwan authorities in September 2005. (ref C)
Allen Hu, a Section Chief at MOTC High-Speed Rail Bureau
told AIT that MOTC believes further financial support
from the Taiwan authorities will not be necessary. He
reported that THSRC was in discussions with a foreign
bank for a US$200 million loan and with a foreign entity
interested in investing NT$20 billion (US$600 million) in
the firm. He predicted that this additional funding
would sustain the firm through the first six months of
operations.


5. (C) THSRC's Chiang told us that THSRC believes it will
start to earn a profit in 2008. He said the firm plans
to list on the Taiwan stock exchange within the first few
years of operation. However, he emphasized that the firm
currently has no timetable for going public.

Comment - End to Controversy
--------------


6. (C) After the announcement of the most recent delay,
some opposition People First Party (PFP) legislators
criticized MOTC's supervision of the project. However,
political controversy surrounding the project, which
peaked after the government provided additional financing
last year, seems to have mostly evaporated -- especially
compared to the furor that has surrounded MOTC's contract
with Far Eastern Group to build an electronic toll

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collection (ETC) system for Taiwan's highways (ref E).
As the high-speed rail nears operations it appears to be
leaving its political difficulties behind.
YOUNG