January 22, 2018

Concession renewals to unlock Brazilian rail investment

Written by  Renata Passos
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FOLLOWING several years of struggle, Brazil’s difficult economic situation finally appears to be coming to a head, bringing much-needed relief to the country’s embattled railway industry. After all, demand for freight wagons and locomotives is linked to the performance of the rail freight business. But with the recovery now underway, and with the renewal of freight concessions starting, more money is likely to be available to invest in new equipment.

According to Mr Vicente Abate, president of Brazil’s Railway Industry Association (Abifer), 3903 freight wagons were produced in Brazil in 2016, but last year, production dropped by 35% to about 2500 units. As far as locomotive production is concerned, around 100 units were built last year, compared with 109 in 2016. Abate says he expects locomotive production to recover in 2018. “The best expectations are in the renewal of concessions, because it will lead to immediate investment,” Abate says.

 

The freight concessionaires have formally requested an early extension of their contracts with the regulator, Brazil’s National Land Transport Agency (ANTT), which was backed up by a law passed in early 2017. The original concessions to operate and maintain sections of the rail network were awarded to private companies in the mid-1990s during the privatisation of the national railway network.

ANTT says the current concession contracts are outdated and place only limited obligations on the companies so it is renegotiating the concession contracts earlier than planned in order to have stricter terms and clearer goals. ANTT also wants to create a favourable regulatory environment, which will lead to the immediate realisation of new investment in exchange for an extension of the concession term.

The Paulista Network, which is currently operated by Rumo, has already had a public hearing for its proposed new concession. However, ANTT asked the concessionaire for several changes to its business plan and intends to publish a new schedule.

In addition to Rumo, four other railway concessions look set to be renewed: MRS Logistics, Carajás Railroad (EFC), Vitória-Minas Railway, and Central Atlantic Railway. The five railways together total 12,675km and handle about 457 million tonnes of freight per year, representing more than 90% of total rail freight traffic in Brazil.

Significant expansion

According to the National Association of Railway Carriers (ANTF), its members invested Reais 58.3bn ($US 17.1bn) between 1996 and 2016. ANTF’s executive director, Mr Fernando Paes, says there has been a significant expansion of the national rolling stock fleet since privatisation. In 1997, there were 1154 locomotives, but by December 2016 the fleet had grown to 3182 units, an increase of 176%. In the same period, the number of wagons increased from 43,816 to 111,125, a rise of 154%.

With the renewal of the concessions, investment is forecast to reach Reais 25bn between 2018 and 2023. An expansion of capacity is envisaged, with the construction of new yards and new sections of line, track upgrading, resignalling, and fleet expansion.

At least four new railways will be added to the Brazilian network in the next few years. Three are federal government projects under the Programme of Investment Partnerships (PPI) and comprise the North-South Railway (FNS), Ferrogrão, and the West-East Integration Railway (Fiol). A fourth project, the Paraense Railway, is being promoted by the state of Pará.

The bidding schedule should start with a new sub-concession for the south-central section of the North-South Railway. Total investment is estimated at about Reais 3bn during the 30-year sub-concession, including rolling stock, which is beyond the value of the bid price for the concession.

The concession includes the 1537km line from Porto Nacional, in the state of Tocantins, to Estrela D’Oeste, in São Paulo state. The 855km section between Porto Nacional and Anápolis has been completed, and the remaining 682km, between Ouro Verde and Estrela D’Oeste is being constructed by state-owned Valec. More than 90% of the line has already been built and completion is expected in the first half of 2018.

Public consultation for the construction of Ferrogrão was expected to be completed on December 15. The new railway will be 1142km long and will create a new railway export corridor in Brazil, connecting the grain-producing region of the Midwest - between Sinop, in the state of Mato Grosso, and Itaituba, in Pará - with the Port of Miritituba, on the right bank of the Tapajós river. The cost of the concession is estimated at Reais 14bn.

Fiol is intended to connect the northern and northeastern regions of Brazil. The 1527km line will run from Figueirópolis, in Tocantins, to Ilhéus, on the coast of Bahia. The route will mainly serve the grain producing area of western Bahia and aid the exploitation of iron-ore in the Caetité region. Valec is in charge of the project, and 70.3% of construction has been completed so far and Reais 1.95bn invested. It is estimated that a further Reais 1.14bn is needed to complete the works. Technical studies for the sub-concession are still being worked out.

While the northern section of the North-South Railway is still on the drawing board, the northern state of Pará, is pushing to complete a feasibility study for the Paraense Railway. The 1316km line will run to the east of the state, parallel to the North-South Railway, and the objective is to improve the flow of freight between the midwest and northern regions of Brazil.

The Paraense Railway is a much bigger project in Pará than the North-South Railway, and is expected to cost Reais 14bn, which includes the new railway and port expansion. The state is now seeking private partners to implement the project, and is hopeful of making progress in 2018.

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