SIEMENS

Beaches lined with palm trees and deep jungles – and not a soul in sight. That’s how one imagines the Dominican Republic as it basks in the sunshine between the Atlantic Ocean and the Caribbean Sea. But the island is hardly deserted. Around ten million people live here, almost a third of them in the capital city, Santo Domingo. Until a couple of years ago, overcrowded share taxis and minibuses pushed their way through the city’s narrow streets. The solution envisioned by city planners was a metro network.

Siemens participated in the construction of the city’s first metro line, which entered service in 2009, and since 2010 it has headed the “Eurodom” consortium for the construction of the second line. “The consortium consists of German, French, Dominican, and Spanish companies,” says Miguel Berrozpe, the project’s technical director in Siemens’ Infrastructure and Cities Sector. “The metro line we are currently completing is a real alternative and a future-oriented solution for Santo Domingo’s traffic jams.” On average, people who take the metro save over an hour of travel time each day and collectively reduce daily CO₂ emissions by 70 tons in the process, according to official estimates.

In its internationally advertised call for bids, the state-owned metro association had requested that competing companies include a convincing financing proposal in their bids. “We suggested financing that included an export credit agency. Siemens’ complete bid package, including the product, the price, and the financing, ultimately won over the customer,” says Silke Kleemann from Siemens Financial Services (SFS). An export credit agency, or ECA for short, insures suppliers of goods and services – in this case Siemens – as well as banks against default.

Such agencies provide a sort of safety net for suppliers and banks that are generally located in industrialized nations but that have customers abroad, particularly if they are in emerging markets and developing countries. Here’s how the agreement works: Siemens signs a supplier contract with a customer such as the Dominican Republic that does not have the financial resources to pay cash. But banks will not make long-term loans to high-risk countries without having more security. The solution is to find suitable financing through ECAs, which assume up to 95 percent of the risk of default.

The bank thus only bears a five percent risk. It issues a loan to Siemens for the project, and the customer pays the loan back in installments – in this case, over a ten-year period. If the customer defaults, the ECA steps in. The suppliers for this project were companies from France, Spain, and Germany, along with their respective ECAs, as well as a company from the Dominican Republic. “It was a tour de force to bring together all the requirements of three ECAs, four banks, and three financing contracts, so that in the end the same relevant conditions were included in each loan contract,” says Kleemann. This is how 80 percent of the €166 million needed for the project was financed. The customer was able to put up the remaining 20 percent.

ECA financing has helped Siemens finance other rail projects as well. Examples include electric train sets for the Bulgarian state railroad, high-speed trains in Russia, and the electrification of local rail networks in Indonesia. The trains in Russia were financed with around €300 million, of which €250 million was covered by Euler Hermes credit insurance.

Responsibility for construction of the tracks, the electrotechnical system, including automation, and the communications system for line 2 was given to the Eurodom consortium. Siemens provided the signal and control technology, which included automatic train control, and the operation control system. Siemens will also maintain the metro line for the first three years of its operation.

The new line runs from Santo Domingo’s western suburbs to the densely populated districts along the Osama River. Extensions are planned in both directions, including toward the Faro a Colón, or Columbus Lighthouse, which is named after the man who discovered the “pearl of the Antilles” on December 5, 1492. A metro ticket currently costs 20 Dominican pesos (about half a U.S. dollar) – or only about two thirds the price of a ride on an overcrowded share taxi that can easily take two hours to reach the city center during rush hour. Demand is therefore high. “By 2014 we expect to have around 250,000 passengers a day on both lines,” says Berrozpe. What’s more, the construction of four more metro lines is now being planned.