Railroad investments

The railroad system is expected to receive through 2010 investments of about R$ 12.5 billion, according sale estimates made by the Brazilian National Economic and Social Development Bank (BNDES). Of this total, R$ 5.3 billion already has been earmarked for projects.
Since last week, with the announcement that one all Brazil’s main railroads, América Latina Logística (ALL), would receive a R$ 1.12 billion BNDES loan, it can be expected that the investments announced go beyond mere intentions, as is habitual at the end of the year or at the beginning of new government terms of office.

 With the privatization of the Rede Ferroviária Federal (RFF) in 1997, the domestic railroad system began being operated by a number of concession holders, among them ALL, MRS Logística, Ferroban, Ferroeste, Ferronorte, Ferrovia Centro-Atlântica, Companhia Ferroviária do Nordeste (CFN), Novoeste and Ferrovia Tereza Cristina, as well as Vale do Rio Doce, which owns the Ferro Carajás and Vitória to Minas lines. However, these concessionaires have complied with only a part of the investment program foreseen in their contracts. Some became illiquid or were merged into other groups, such as Ferroban, Ferroeste and Ferronorte, which was transformed into Brasil Ferrovias.

Only in 2006 did the sector consolidation process receive decisive stimulation. ALL transformed itself into a publicly traded corporation, purchased Brasil Ferrovias and in May took over control of more than one-half of Brazil’s railroads. At the same time, MRS Logística became stronger, transporting 115 million tons/year, two times more cargo than the RFF did in 1996, before privatization.
Between 1996 and 2005, there was a 72.6% rise in the amount of cargo transported, according to data published by the Ministry of Transportation. However, the weight of the railroad sector in the overall transportation matrix is still small, on the order of 25%, compared to 58% for highway transportation — whose cost is higher — with the remainder divided between river transportation (13%) and air and pipeline transportation (4%). In developed countries, railroad transportation is responsible for 60% to 80% of the total amount of freight that is shipped.

 The number of rail cars in operation increased from 67,700 in 2002 to 90,100 in 2005. That year, some 7,500 cars were built in Brazil, which was 20 times the average of the 1990s. The BNDES technicians currently forecast that annual rail car production will stabilize at around 4,500 units, a volume identical to what was produced in 2004, compared to 2,000 in 2003 and only 294 in 2002.
ALL’s R$ 1.12 billion funding line is the largest loan ever made by the BNDES to a company in the railroad industry. It represents 40% of the R$ 2.87 billion in capital expenditures scheduled through 2009. The objective is to raise the rail network acquired from Brasil Ferrovias up to the standards of productivity of the company’s southern lines in Paraná, Santa Catarina and Rio Grande do Sul.

Thus, it represents an effort to modernize rail transportation that involves heavy investments not only in rolling stock such as cars and locomotives but also in logistics, computers, container loading and storage facilities  and, furthermore, elimination of railroad bottlenecks such as grade crossings in urban areas. In areas where slums are growing up along tracks, trains must reduce speed to as slow as 5 km/h in order not to risk the lives of the population.

It is not enough for the BNDES to open its coffers and become a major financing agent of railroad investments, as its president, Demian Fiocca, announced, saying that the bank intended to loan up to 50% of the industry’s requirements. Also necessary will be assurances from state and municipal governments to de-obstruct areas contiguous to the tracks and to facilitate the expropriation of new areas for expanding the railroad network.

Fonte: O Estado de S. Paulo