Battle of Titans in mining

The world steel giant Arcelor Mittal is leading an alternative plan for the transport of the production of iron ore of the mining companies at Serra Azul (MG) and which, with the new regulatory mark of the railway segment, to be signed within the next few days, can be put into practice. The company, which has been active in the region since 2008, plans to invest – together from small companies like Minerita and JMN – some US$ 50 million in the purchase of trains and implementations of terminals in the state of Minas Gerais.

This means that these companies shall be able to operate their own trains and pay MRS, the company which has the concession for the railway connection between Minas Gerais and the port of Itaguaí, in Rio de Janeiro, only the value for traffic rights on the tracks, a kind of toll. At present, the companies need to pay the full value of the freight and say that the price paid to MRS is twice what the concessionaire charges its partners, these including Usiminas, Vale and CSN.

Prepared in 2008 by the National Land Transport Agency (ANTT), the decree which changes the rules for the exploration of the railways has two aims: to make the sector more competitive and also to encourage investments in the railway network. The current rules have been in place since 1996.  Within the Government, there were expectations that the text could be signed this Wednesday, as part of the “Brazil on Rails” seminar. However, the trend is now for the act to be put off, so as not to put the President in a difficult situation before the entrepreneurs, who want further discussion about the issue and are the sponsors of the event. Four Ministers were expected to be present, as also the candidate of the Workers’ Party (PT) for President, Dilma Rousseff.

MRS says that freight is “fair”

Once the decree has been signed, the mining companies in Serra Azul plan to invest US$ 50 million in the acquisition of four trains with 132 carriages and also invest in the construction of two railway terminals at Brumadinho and Sarzedo, both in Minas Gerais. According to José Francisco Viveiros, former President of Arcelor Mittal Serra Azul and now a consultant for logistics affairs at the company, these train units may be ordered either from Brazil or abroad, as from 2011.

– This is an alternative to the high freight costs we now have to pay – says Mr. Viveiros, who also runs the Association of Mining Companies in Serra Azul (Amisa), made up of five mining companies.

He stresses that the key aim of the association is still that of bringing down MRS’s fees, this being a long-standing aim of the companies, which took on a new forma with Arcelor’s arrival to this market in 2008. Until then, the situation had had the small companies on one side and the big names – Usiminas, Vale, CSN and Gerdau, partners of MRS – on the other. In 2008, Arcelor bought out London Mining, in Serra Azul. Even though their activities on the Brazilian market are still small, Arcelor is a heavyweight in the world steel business. In addition, Amisa includes Minerita, JMN, Usiminas and MMX. These last two companies have also been active in Serra Azul since 2008, but prefer to maintain neutrality in this issue.

In February this year, Arcelor sent ANTT a request for arbitration about MRS prices. In this request, the company alleges that the concessionaire charges US$ 10 per ton transported for its partners and US$ 20 for non-partners. Six months on, this request has not even arrived at the management of the ANTT, according to the agency itself. This delay may make the alternative plan of the mining companies more accomplishable than the results of this battle.

– Railway concession is a public service, and clients must not be discriminated – says Mr. Viveiros.

The president of MRS, Eduardo Parente, rebuts the criticism:

– It is only natural that clients with larger volumes and a long-term commitment may dilute fixed costs and investments necessary for rail operations.

In his opinion, the plan of the mining companies “has no substance and is just a strategy to bring prices down and also transfer the risk of the business from the clients to the railway”. About the arbitration of the freight prices which is now in progress at ANTT, Mr. Pereira says that “the freight prices as currently charged are fair”. He also states that, in the first meeting called by the agency to solve the issue, what was agreed is that Arcelor would show their willingness to take on medium-term commitment, which as yet has not been done, “making any kind of negotiation impossible”.

Fights also in the port

The new regulatory model proposed by the Government follows European standards and is like the one for the road system. It generates the figure of the “capacity manager” which is a company that shall manage the railway, being remunerated based on the traffic along the network. It is different from the current model in that the companies shall not have monopolies for the services using their railway lines.

Another new development is the implementation of the “rail operator” who can take their locomotives and carriages to wherever there is cargo, regardless of which network is to be used.

– We have created a railway transport system with options, and the market is now going to fight it out for goods transport. The new model makes competition possible – says the Director-General of the ANTT, Bernardo Figueiredo.

If the decree shall allow the mining companies in Serra Azul to solve their railway transport bottlenecks, there is a similar problem in the ports. Nowadays, the mining companies export through the private terminals of Vale and CSN, at the port of Itaguaí in Rio de Janeiro. However, there is a limit on shipments. At the Vale terminal, this limit is set at 15% of the volume handled by the company in the previous year, which means some 3 million tonnes in 2010. At CSN, the limit is 2 million tonnes, which means a total handling limit of 5 million tonnes per year, while production in the region comes to 16 million tonnes per year. For this year, the mining companies are expecting a tender process for a new terminal at Itaguaí with a capacity of 25 million tonnes per year. In addition, Arcelor is trying to buy the Porto Sudeste port facility in Itaguaí, from the group headed by Eike Batista.

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