28.09.2021 | ABIFER | ABIFER News
September was “Rail Month” in Brazil, and a series of announcements over the 30 days reinforced minister of infrastructure, Mr Tarcísco Gomes de Freitas’ pronouncement that the country is embarking on its biggest railway revolution for 100 years.
The passage of a new Pro Rail law on September 2 was quickly followed by the News that four companies had bid to build 11 new lines totalling 3300km for a cumulative Reais 53.5bn ($US 10.16bn). A further three projects were added on September 17, taking the total to 5346km in 12 states and Reais 80.5bn. In addition, the government of Matto Grosso signed a contract Worth Reais 8bn with Rumo Logistics to build a 730km line while construction began on a 383km section of the Midwest Integration Railway (Fico), in which Vale is investing Reais 2.73bn.
The railway reforms reflect wider changes to regulations by the government to stimulate economic revival. Brazil is not in great shape right now. The country’s travails during the Covid-19 pandemic have been well-documented; nearly 600,000 people are dead and the government’s failure to contain the virus during the first wave was widely criticised.
The Brazilian economy subsequently endured its worst economic downturn in decades in the first half of 2020 and the government was scrambling towards the end of the year to introduce economic stimulus packages to spark a turnaround.
Things have improved slightly in 2021; vaccination rates are increasing – around 39% of the population were fully vaccinated as of September 24. Yet the situation remains extremely challenging. Short of any flexibility to offer further economic stimulus, the government is now leaning on the private sector to do more of the heavy lifting.
The early renewal of more than 70 concessions which operate ports, airports, roads, railways and urban transit comes with the condition that these companies invest alongside the government to improve infrastructure over the next 30 years. Six rail concessions are set for early renewal which is expected to result in investments of around Reais 50bn.
For example, the Fico Project is tied to the renewal of Vale’s Vitória a Minas Railway (EFVM) concession, which was signed in December 2020. The cross-granting mechanism also applies to Vale’s Carajás concession, again signed in December 2020, and in total Vale has committed Reais 24.7bn across both concessions.Rumo agreed similar terms to renew its Paulista concession in May 2020, which includes an investment of Reais 6bn. Renewal of MRS Logistics’ concession, where it expects to invest Reais 7.5bn, is expected to follow in the first half of 2022. VLI’s Central Atlantic Railway (FCA) and Rumo’s Southern Branch concessions are expected by 2023.
While initially valid for 120 days, the Pro Rail decree was set to be affirmed for the longterm by the Brazilian senate at the end of September. The decree authorises private players to build and operate freight lines under rights of use issued by the government, ending the often drawn out government-led tendering process. It already looks to be working. Along with existing concessionaire VLI, which is bidding for four contracts, new players are entering the fray, including mining firm Brazil Exploração Mineral, industrial group Petrocity Portos, and a Panamanian state-owned infrastructure company. It is unclear whether they will operate the lines themselves or contract this out.
Many of the projects have been on the agenda for a long time. Of the country’s 30,000km network, Mr Vicente Abate, president of the Brazilian Railway Industry Association (Abifer), says around a third is operational and offering efficient transport, with another third largely out of service, and the remaining third short lines, which are targeted for renewal to improve integration with the concessionaires’ networks.
While the freight railways have performed relatively well during the pandemic, the goal is to increase the efficiency and use of the network to the benefit of the wider economy.
The latest approach looks like it might do the trick. Abate says transport investments are expected to increase from 0.5% of GDP currently to 2%, although the full economic impact of the programme is not likely to be felt until 2023-2025.
Brazil’s domestic railway industry is also primed to benefit. Abate says production of freight wagons and locomotives slumped in 2015 in line with an economic recession and the concessionaires’ growing uncertainty about future renewals. From just 1000 freight wagons in 2019, this increased to 1700 in 2020, and around 2000 this year. Abate expects this to grow to 2500 next year and return to 4000 in 2023.
Further reforms could also benefit passenger rail. Abate says there are signs that the government will proceed with a new regulation or law to support the revitalisation of passenger operations. Indeed, the shoots of potential inter-city reform are already evident in an initiative underway in Sao Paulo.
Brazil’s emphasis on private investment contrasts significantly with its neighbour in Argentina, which pioneered privatisation in South America but has since lurched back to state-ownership to limited benefit. If Brazil is successful, it might set the standard for other South American governments as they seek to embrace more sustainable modes of transport while aiding economic growth.
Of course, the great bastion of the private freight railway is the United States. The gradual consolidation of the Class 1s over the last 40 years into seven main players took another turn last month.
Intervention by the Surface Transportation Board at the end of August spelt the end of Canadian National’s bid to take over Kansas City Southern, leaving the path clear for its rival Canadian Pacific to revive its takeover offer, which was accepted on September 17.
CPKC promises to introduce the first Canada-United States-Mexico railway, an enticing prospect. Yet tying together two vast organisations is no simple task. Like the situation in Brazil, the hard work is only just beginning.
Fonte: Rail Jornal – Kevin Smith