Railways: Various possibilities, many questions

The Brazilian federal government’s package of concessions establishes R$ 91 billion (US$ 45.5 Bn) of total investment - of which R$ 56 billion (US$ 28 Bn) is to be invested over a period of five years - in 12 new railway concessions for a total of 10,000 km of railway lines.

Upon launching the Program of Investment in Logistics, in August of this year, Brazil’s federal government managed to attract the attention of investors interested in participating in infrastructure projects, but not all the questions that have arisen have been duly answered, and there are issues that cause concern in the private sector. The package of concessions foresees a total investment of $ 91 billion (of which R $ 56 billion in five years) in 12 new railway concessions, adding a total of 10,000 km of railway lines. The only trouble is that part of this extension consists of certain segments of railway lines that are already under concession under contracts that are presently in effect. These segments will be reassumed by the government and new calls for tenders will be made under a new mode of concession.

Some of these segments are considered unproductive, which means that their present concessionaires would not be interested in keeping them. But others, in contrast, are productive and handle a high volume of transport business, such as the segment of access to the port of Santos which is presently operated by MRS Logistics that holds the rights to operate the segment until the mid-2020’s. The same is true regarding certain segments in the Brazil’s South Region railway grid which is under concession to América Latina Logística (ALL). To make its project feasible, therefore, the government will have to address touchy negotiations with the existing concessionaires who believe that the changes will cause a financial imbalance in the current contracts.

By changing the model of concessions, the government says it plans to do away with monopolies since, currently, each railway operator has exclusive operating rights in their territories, setting their own rates and terms/conditions of operation. Whoever wants to operate in another operator’s network has to pay the right of way. The changes are said to be in line with the expectations of major users of railroads. The ‘Associação Nacional dos Usuários de Transporte de Carga’ (ANUT - National Association of Freight Transport Users), which represents companies such as ArcelorMittal, CSN, Gerdau, Usiminas, Votorantim Cements and Braskem, complains of a lack of clarity as to the parameters used in establishing the fees charged by concessionaires. They claim that those who depend on transport have been jeopardized by the lack of competition.

The country’s granting authority now wants to engage a concessionaire and, then, purchase that concessionaire’s total cargo hauling capacity. Step two of the plan would involve reselling the capacity of the rail network to multiple operators, thereby stimulating competition between them in the various stretches of the railways. The goal, according to the government, is also to lower the fees charged and increase the quality of service provided.

At a press conference, commenting on the government's proposals, Bernardo Figueiredo, who is the president of the government's ‘Empresa de Planejamento e Pesquisa’ (EPL - Planning and Research Company) that is coordinating the issue, dismissed the possibility of paying indemnifications to those companies holding the concession contracts. He stated that [said companies] will be offered credits for moving of materials on future railroads in exchange for turning in their segments. Grandes Construções magazine attempted to speak to the management of the ‘Associação Nacional dos Transportadores Ferroviários’ (National Association of Railway Transporters)  to comment on the proposals, but the executive director of the organization, Rodrigo Vilaça, was traveling abroad, getting to know the models of concessions adopted by other countries, and had not returned in time to be interviewed.

In a recent interview for Valor Econômico - a major financial newspaper, Vilaça is said to have declared that companies would not agree to return the areas under concession. “That was the way the government put it. It can take back the network at any point during its concession. But there are constraints, settlements regarding what was done, what wasn’t done and should have been done,” says Vilaça. “I don’t think the government knows how or what it will do yet. We must await a few clarifications.”

New concessions in two steps 
The 12 railway segments listed by the Brazilian Ministry of Transports for which concessions will be granted to private enterprise are: Ferroanel (Belt Railway) of São Paulo - North Network (segment between the cities of Jundiaí and Manuel Feio) and South Network (between Ouro Fino and Evangelista de Souza); access to the Port of Santos, from Ribeirão Pires to the entrance to the port; Railroad from Lucas do Rio Verde (MT) to Uruaçu (GO) and Uruaçu-Corinto-Campos - segments of the Transcontinental Railway;  Rio de Janeiro-Campos-Vitória Railway; Belo Horizonte-Salvador Railway; Salvador-Recife Railway; Segment between Estrela D’oeste-Panorama-Maracaju; Segment between Maracaju and Mafra; São Paulo-Mafra-Rio Grande do Sul Segment, and the Açailândia-Vila do Conde Segment.

Among the government’s priorities to solve the problem of logistics in the Brazil once and for all, the construction of the segments between Rio de Janeiro-Campos-Vitória (ES), Belo Horizonte (MG), Salvador (BA); the Transcontinental Railway; the North-South Railway and renovation of the SP-RS railway, works estimated at R$ 50 billion (US$ 25 Bn).

In order to put its program into practice, the government has divided the project timetable into two stages: Group 1 consists of 2.6 thousand kilometers in extension with the projects for the Ferroanel  (Belt Railway) of São Paulo; Access to the Port of Santos; Lucas do Rio Verde-Uruaçu; Estrela D’oeste-Panorama-Maracaju; and Açailândia-Vila do Conde. The feasibility studies will be done by December 2012, the public hearings will be held in January and February 2013, the publication of notices (tender details and invitations to bid) will be in March, tender bidding will be in April and contracts will be signed between May and July 2013.

In Group 2, with its 7.4 thousand kilometers  in extension, are the projects for the segments of Uruaçu-Corinto-Campos; Salvador-Recife; Rio de Janeiro-Campos-Vitória; Belo Horizonte-Salvador; Maracaju-Mafra; and São Paulo-Mafra-Rio Grande do Sul. The economic and environmental feasibility studies began in August 2012 and are expected to be ready in February 2013. Public hearings will be held in the months of March and April, the publication of the publication of notices (tender details and invitations to bid) will be in May, tender bidding will take place in June and contracts will be signed between July and September 2013.

Present situation 
Brazil has 15 projects underway (seven in the area of freight transportation and eight involving the transportation of passengers) which add up to 4,849 kilometers of railways under construction. Besides those already underway, Brazil has several projects that are still on paper, adding up to several thousands of kilometers of railway lines.