Brazilian "bullet train" fired off once again

Government publishes new call for tender in the hope of attracting domestic and foreign investors

Interview with Bernardo Figueiredo, President of ‘Empresa de Planejamento e Logística S.A.’ (EPL) - a government-owned planning and logistics company company

Brazil’s ‘Agência Nacional de Transportes Terrestres’ (ANTT - National Agency of Land Transports) finally published, on December 13th, the Call for Tender Notice for the Exploration of Public High-Speed Passenger Rail Service or ‘TAV’ (Portuguese for ‘Trem de Alta Velocidade’ or High-speed Train). The system calls for the establishment of a high-speed rail link between the cities of Rio de Janeiro, São Paulo and Campinas. According to the call-for-tender notice has scheduled the auction that will determine the group that will be responsible for the operation, maintenance and upkeep of the bullet train system in Brazil for September 19th, 2013 at the headquarters of the Bovespa - the São Paulo Stock Exchange - in the city of São Paulo - Brazil. On the occasion, the envelopes containing the bidding companies’ financial proposals, which must be submitted by August 13th, will be opened. The criterion of judgment at this auction will be the ‘best’ offer.

Since earlier calls for bids which attempted to attract groups interested in taking on the project as a whole did not arouse the interest of companies, Brazil’s federal government decided to split the process into two parts: one to choose those responsible for manufacturing the trains and operating the system, and another to define the company responsible for the construction of the permanent way, with all concrete structures - bridges, overpasses, tunnels, etc - required along the route’s design.

In relation to the draft of the call-for-tender notice published last September, the new text has kept the maximum fare at R$ 0.49 (approx. US$ 0.24) per kilometer, but the minimum value for granting of the project has increased. In the original project, the minimum amount to be paid by the contender was R$ 66.12 (US$ 33.06) per ‘train kilometer’ equivalent (a unit corresponding to the circulation of a train of the same length as the ‘reference’ train over a one-kilometer long segment) and has now increased to R$ 70.31 (US$ 35.15). The ‘train kilometer’ equivalent is the amount to be paid per kilometer to be traveled by a set of railroad cars 100-meters long in any direction along the railway.

Among the technical specifications that were already established in the call-for-tender notice is the requirement that trains be designed to reach speeds equal to or over 300 km/h for express services between the ‘Barão de Mauá’ station (in the city of Rio de Janeiro) and the ‘Campo de Marte’ station (in the city of São Paulo), and speeds equal to or over 250 km/h for other services. As regards the infrastructure, the line should be designed to allow speeds equal to or greater than 350 km/h.

Further according to the call-for-tender notice, on the 29th of January and the 19th of March 2013, meetings will also be held at the headquarters of Bovespa to answer and clarify any questions involving the process.

A few days prior to the publication of the notice, Bernardo Figueiredo - president of the ‘Empresa de Planejamento e Logística S.A.’ (EPL), spoke at a press conference held in São Paulo about the government’s expectations regarding the endeavor. Figueiredo, who had participated at the last public hearing on the project demonstrated he was very confident that, this time, Brazil’s ‘bullet train’ would succeed in attracting investors and suppliers in Brazil and abroad so that it could get off the drawing board and into the real world.

Besides Brazil’s High Speed Train (henceforth for the sake of familiarity referred to as ‘TGV’), the president of EPL spoke about the beginning of work on the São Paulo ‘Ferroanel’ (Rail Beltway), scheduled for July or August 2013, and about the ‘Program for Investments in Logistics’, which calls for the investment of some R$ 91 billion (US$ 45.5 billion) in the development of ten thousand kilometers of railway lines.

Grandes Construções - The government launched, in August, the ‘Program for Investments in Logistics’ providing for the concession of 10,000 km of railway lines under 12 new railway concessions. But the fact is that some of those concessions include segments of railroads that are already assigned to concessionaires today. Those segments should be reclaimed by the government and new calls for tenders issued. And some of those segments are considered productive by the companies that hold contracts for their exploration. How is this situation being handled? What do the current holders of concessions think about that?

Bernardo Figueiredo – In the program, we have three segments of railways that must be returned: one is the line connecting Recife-Salvador-Belo Horizonte, which involves the ‘Centro-Atlântico’ Railway (FCA) and the ‘Transnordestina’;  another line is the connection between São Paulo and Porto Alegre, which is under concession to ALL Logística; and lastly, the segment connecting Rio and Vitória. When the program was launched, there was already an agreement, and the concessionaires agreed to return their concessions. What we have to do is to develop a methodology for calculating whether reparations are due to the concessionaires or to the granting party, which is the government. No return has been formalized yet and we have a schedule to do so. There is also a small segment which provides access to the Port of Santos and is assigned to Portofer - the rail concessionaire of the Port of Santos. But this will be subject to negotiation with the ‘Companhia Docas do Estado de São Paulo’ (Codesp).

GC: Are these segments considered profitable by their operators? If so, wouldn’t this compromise the economic and financial equilibrium of the concession contracts?

Bernardo Figueiredo – These segments are not used. They are old segments where the circulation of trains is not competitive. Imagine a railway linking Porto Alegre to São Paulo with almost no utilization. And it’s not because of a lack of a market.

Grandes Construções – Is the government considering the possibility of paying reparations to the concessionaires?

Bernardo Figueiredo – There are two possibilities: either the government pays reparations or the concessionaire may have to pay for having abandoned these segments. The Recife-Salvador stretch, for example, has been inactive for over 12 years. There, we will probably be reimbursed by the concessionaire. The same is true as regards the Rio-Vitória segment which is out of operation. It may also not be a very large indemnification, for one side or the other, simply because the contracts did not impose any obligation to invest in the lines. But there is a methodology that the National Agency of Land Transports (ANTT) is applying, and I think this issue has been pacified [sic].

Grandes Construções – Will the breaking up of monopolies in regional operations apply to contracts already in force or will it only apply to the new contracts?

Bernardo Figueiredo – No. Only to the new contracts. In the existing concessions, there will be two situations that will minimize the issue of the existence of monopolies. In June 2011, the ANTT adopted a series of resolutions, including one that allows users to organize transportation whenever this happens, even if it involves a network that is already under concession. If the concessionaire does not want to provide the service, users can take on this role and the concessionaire is forced to accept and receives payment for the granting the ‘right of way’. This is one way of breaking the monopoly. The other is that, with the new concessions, we are creating a network and these railways for which concessions are granted are considered points of passage in the network. At the launch of the Program for Investments in Logistics a letter of intent was signed by all concessionaires, Valec and ANTT, to establish a major operating agreement to regulate all the sharing of the grid. With that, the trains will be able to circulate over all of the networks. In practice, this will mean the end of the monopoly through the exercising of the right of way.

Grandes Construções – The government also intended to reclaim another stretch operated by MRS, which provides access to the Port of Santos - considered by the operator the “filé mignon” or ‘choicest cut’ of the São Paulo network, but which is acknowledged as a bottleneck for arrivals and departures from the port. At first, the concessionaire was not willing to surrender the segment. What was the outcome of this situation?

Bernardo Figueiredo – That was the original idea. We had talked to the concessionaire about this possibility, and it would agree. But we realized we don’t need to, and it isn’t even worth it. We'll make two new railways, which are the northern stretch and the southern stretch of the Ferroanel (Rail Beltway). We will take over the network inside the Port of Santos - which is federal and which I referred to earlier - that is subject to a contract agreement with Portofer, but that constitutes no problem for a rescission. And what we are actually going to do is to take over the management of traffic in this region. Thus, both the movement of trains in the network operated by MRS, when it enters the São Paulo metropolitan train system, as well as the movement of trains that belong to ALL, coming from Campinas (SP), will have a single operational control. With that, we will optimize the operation and avoid disputes between concessionaires.

Grandes Construções – Until the beginning of this year, the federal government was involved in complex negotiations with MRS Logística to render the São Paulo Ferroanel project feasible. The concessionaire, which holds the concession to the network in the region, was until then identified as a preferred partner for a PPP (Public Private Partnership) involving the Ferroanel. How did the negotiations turn out? Will MRS enter as a partne of the state in the construction of the Ferroanel (São Paulo Rail Beltway)?

Bernardo Figueiredo – No.  It will no longer be a partner. MRS can buy rights of way whenever it wishes, and if it wishes to pass along the new line.

Grandes Construções – MRS will be the main party to benefit from the construction of the Ferroanel, isn’t that so?

Bernardo Figueiredo – Everyone will benefit. It so happens that the construction of the Ferroanel will increase MRS’s capacity to pass trains through São Paulo. But the company will have to pay to do so.

Grandes Construções – How much will be invested in the two segments?

Bernardo Figueiredo – I don’t have a definite figure on that. But it is between R$ 2 billion and R$ 3 billion (US$ 1 Bn to US$ 1.5 Bn).

Grandes Construções – And when will construction work begin?

Bernardo Figueiredo – We expect to publish the notice of concession for the endeavor in February 2013. We are working with DERSA - Desenvolvimento Rodoviário S/A (Editor’s note: DERSA is a company of the Government of the State of São Paulo that is responsible for the project and for the construction of the São Paulo ‘Rodoanel’ Beltway), and the forecast is to start work at the North segment of the Rodoanel between July and August 2013. We have to have the works concluded by 2015 to free up the railway lines operated by the CPTM within São Paulo for the transportation of passengers. That is the commitment that we have to the government of São Paulo.

Grandes Construções – With the actual accomplishment of the projects foreseen in the two packages of measures published by the government to attract investments in infrastructure, what will the transport matrix in Brazil be like? Will railways tend to assume a role of leadership?

Bernardo Figueiredo - The transport matrix will be better off than it is now. But it is difficult to define that. What is the participation share of railways in that matrix today? Some say about 20%. But considering that, among the cargoes shipped by rail, iron ore accounts for 70%, what remains in terms of general cargo? About 6%. Therefore, in the market for general cargo, of manufactured goods, railways only have a 6% share.

Grandes Construções – And what would be a good figure for that share?

Bernardo Figueiredo – I am unable to say without a reliable study of origin-destination; without being familiar with the market. But I can tell you qualitatively and, certainly, railways need a larger share than that. We are going to study that.

Grandes Construções – Regarding the High-Speed Train (TGV or ‘Trem de Alta Velocidade’), the government recently held the last public hearing to discuss the project with society and with potentially interested parties. What is your perception of the temperature of the market? Is there significant interest in the project among major players in the high-speed rail industry? Can the economic crisis in European countries inhibit the participation of the world’s major suppliers?

Bernardo Figueiredo - The interest is great and the crisis, to the contrary, does not inhibit that interest. The crisis in their countries increases their appetite for big projects here. Where are they going to sell high-speed trains today, in today’s world? Only in Brazil. They are all interested. We need to distinguish the investor from the supplier and even from those who come in playing both roles. But, one way or another, interest in the project is great because the project is very good. All major railway operators worldwide, companies such as the SNCF (Société Nationale des Chemins de fer Français, a French public company, responsible for the commercial operation of rail services for passengers and goods, including high-speed rail), and Renfe (Red Nacional Ferrocarriles Españoles, a state-owned  Spanish railway and operator of the Talgo bullet train), are unanimous in saying that, if there’s a place in the world where a high-speed rail project makes sense, that place is in Brazil, in the Rio-São Paulo-Campinas line.

Grandes Construções – Has the new model of concession for the project made it more palatable for suppliers and investors?

Bernardo Figueiredo - The configuration of the project has not changed much. What we did was to separate the risks. We will now grant the concession to the system separately, and the amount we will receive by doing so will be used in building the infrastructure. So it seems to be a balanced project.

Grandes Construções – What is the present status of the TGV process?

Bernardo Figueiredo - We are at this time, awaiting the decision of the ‘Tribunal de Contas da União’ (Brazilian Court of Audit) on the new model of concession so that we can start the tendering process. If no demands are made, we should be announcing the call for tender for the concession of the operation of the system by December. But this is not the critical path of the project. The critical path is the construction of the infrastructure. We are preparing to launch, in January 2013, the first phase for contracting of the engineering design project. We will hire an integrating company which will help us to hire the entire executive and engineering project.

Grandes Construções – When is construction work expected to begin?

Bernardo Figueiredo – Our schedule calls for the beginning of construction in 2014 and we are going to try to do this in a way that enables us to have the system ready by 2018, even though the contract deadline for the conclusion of this first phase is 2020.

Grandes Construções – Then, there will be two grants of concessions, right?

Bernardo Figueiredo – Right, one for the concession of the system’s operation and another for the construction of the infrastructure.

Grandes Construções – One issue that has been under discussion in the project for the TGV is the stop in Aparecida do Norte, a city located in the region known as Vale do Paraíba in the state of São Paulo. Critics of the project state that there is no demand in that city to justify stopping the high-speed train there. Is it possible to withdraw this station from the project?

Bernardo Figueiredo – This is an unchangeable, ‘set-in-stone’ clause in the project. It will not change. This was something that city laid claim to and there is a commitment by government to grant this claim. And I think it makes all the sense in the world. Aparecida generates strong demand precisely in the opposite direction, when there is no demand for the other services: that’s when we have a holiday and people don’t commute to work. When the system has a low demand and the equipment is idle, I can use the equipment to serve the flow from Aparecida.

Grandes Construções – Within the Railway Revitalization Plan prepared by the Ministry of Transports, there is a ‘Program for Salvaging of Passenger Transportation by Rail’, which includes the ‘Regional Trains Project’. The idea is to take advantage of underutilized portions of the existing cargo railway network to establish or reactivate passenger train lines. Twenty-eight (28) segments were shortlisted from the original 64 and 14 of these segments were selected for the preparation of feasibility, technical, economic, social, environmental, and legal studies for the implementation of passenger transportation on a regular basis. To what extent do these projects compete with the project for the high-speed train?

Bernardo Figueiredo – The projects for regional passenger trains, far from competing with the TGV, are complementary to these trains; they mesh with the TGV. The service that regional trains provide the TGV has no ambition to provide, shouldn’t provide, and it is not appropriate for the TGV to do it.

The triumphant return of passenger trains

Regional mobility by rail is closer to materializing with the new lines promised by the state government of São Paulo, connecting the state capital to the interior. The state government of São Paulo approved, in late November, a Public Private Partnership (PPP) for the construction of 432 km of passenger train lines which will interconnect 14 cities to the state’s capital. It is expected that the first trains will be operating in 2016 and the lines will be completely ready in 2019.

The service is expected to handle an average 250 thousand passengers per day.

Following the approval of the PPP, the proposal will undergo public consultation and will then be tendered. Any company can participate in the bidding. The project is expected to be tendered in 2014. The PPP is estimated at R$ 20 billion (US$ 10 billion). Under the project, the government will contribute with 30% of investment and private investors with 70%.

These trains travel at a top speed of 250 km/h and cover segments ranging from 100 to 400 kilometers on average. Today, the country has 28,000 km of railways most of which are underused in the transportation of cargo. And there are only two lines of passenger trains that are operational: Vitória (ES) to Belo Horizonte (MG), and São Luís (MA) to Parauapebas (PA). These lines carry few people, are slow (the average speed between MG and ES is 50 km/h) and operate in the red.

According to the Ministry of Transport, seven foreign companies have shown interest in presenting technologies that can be adapted to use these lines. The idea is to take advantage of the existing rails and make minor repairs to put in new trains carrying passengers. Many of these trains have the technology to travel at over 200 km/h even on old tracks.

In this context, the project of the Companhia Paulista de Trens Metropolitanos (CPTM - São Paulo Metropolitan Trains Company) is farther along. One of the first to materialize should be the São Paulo-Jundiaí line. The contending company or consortium that wins the PPP will have two years to prepare the executive project. The budget for this phase is R$ 150 million (US$ 75 million). The terminal station in São Paulo is expected to be built in the city’s Água Branca borough.

Analyses carried out by different agencies of the federal government, linked to the Ministry of Transports, show there is great state government interest in the resumption of passenger transportation by trains. Both the lines that belong to São Paulo state and the line that belongs to the Federal Government will have their services delegated to private operators. “There is evidence of commercial viability to exploit these stretches. São Paulo, Belo Horizonte and Curitiba are cities with a good flow of passengers; now what we need to do is to assess travel time and the need for demand”, states Hélio Mauro França, executive superintendent of the National Land Transportation Agency (ANTT).

França also revealed that studies are already being done on the possibility of extending the high-speed train line from São Paulo to Curitiba (PR), Belo Horizonte and to the region known as the ‘Triangulo Mineiro’ (MG). “We are moving ahead in the analyses, which include a high-speed line of 416 kilometers from São Paulo to Curitiba; another that would run from São Paulo to Belo Horizonte (MG); and a third line to the north of São Paulo state in the direction of the ‘Triangulo Mineiro’”, said França.

The CPTM also announced that it is conducting studies of regions of Campinas and São José dos Campos, in order to ascertain the need for the construction of rail lines, even though the High-Speed Train project includes these cities along its route.