Transnordestina Railway starts to clinch goods contracts

Responsible for the project of the Transnordestina Railway, the National Steel Company (Companhia Siderúrgica Nacional – CSN) started to close the first contracts for transporting goods for this railway with a total length of 1,728 kilometers. Even though the partial start of operations is only planned for the end of next year, the company has already signed memoranda of understanding for the handling of at least 16 million tons of liquid cargo, particularly iron ore and gypsum.

Valor has confirmed that the main agreement was with the Bemisa Group, the mining division of the Opportunity Group of banker Daniel Dantas. The company has the exploitation rights of a vast area in the southeast of Piauí, around the municipality of Paulistana. The exploitation of this reserve, estimated at 1 billion tons, only became economically feasible with the arrival of the railway that shall pass through the region.

This is the main agreement that has been signed so far by the company Transnordestina Logística (TLSA), a company controlled by CSN. However, there are also talks under way with gypsum producers of the region around Araripina, in the state of Pernambuco. According to Edison Pinto Coelho, the executive director of TLSA, the memoranda, taken together, plan an initial handled volume of 2 million tons per year, and this figure can get up to 16 million tons per year when the railway is operating at full capacity.

He explained that the high price of iron ore on the international market has encouraged the exploitation of land in the state of Piauí, which has not yet started. The positive outlook has given further incentive and the market is now moving to have this logistics option. The pleasant surprise is that this movement is much higher than originally estimated, said the executive, who said that he was not allowed to disclose the names of the clients.

Through a special note, Bemisa has just informed that their production in Piauí shall commence in 2015, with 5 million tons of total volume, reaching twice this volume two years later. Founded in 2007, the company has its main projects in Mato Grosso (phosphates), Goiás (nickel), Bahia (iron ore) and Minas Gerais (iron ore).

According to Mr. Coelho, the favorable market outlook ended up making ores the most significant cargo in the Transnordestina portfolio, surpassing the production of grain in the cerrado area of Piauí and Maranhão, which grows every year. In addition to these two products, the railway shall also transport fruit, petroleum products, fertilizers and alcohol. The Transnordestina Railway shall be able to handle 30 million tons per year, a volume which can be doubled with the installation of intermediate yards and new locomotives.

The current forecast of TLSA suggests that in November 2012 there shall be the commencement of operations along the stretch that shall connect the municipality of Eliseu Martins, in the state of Piauí, to the port of Suape in Pernambuco. According to the director of the TLSA, this branch line is 37% completed, well ahead of the connection between Missão Velha (Ceará) and the port of Pecém (Ceará), which is only 2% complete and with construction work practically at a standstill. The planned date for opening this latter branch line is between April and June 2013.

Apart from delays caused by the slow compulsory purchase process, the section in Ceará is also suffering from scarce funding. According to Mr. Coelho, the Federal Government’s delay in releasing additional funding, for the readjustment in the final cost of the railway, is holding back the construction work. Originally budgeted at R$ 5.4 billion in 2008, the Transnordestina Railway had its cost updated to R$ 6.5 billion, mainly due to the higher costs of labor and materials.

However, the new funding level has not yet been approved by the Ministry for National Integration, and this prevents the transfer of the sum corresponding to the readjustment. The proportional increase in financing is currently under analysis, and this has caused some problems, says the executive.

According to the financial engineering as defined, CSN would be directly responsible for 25% of the total costs. The Federal Government would chip in with 19.2% as direct participation in the capital of the TLSA. The remaining 56.8% would be financed by the BNDES (4.2%), the Bank of the Brazilian Northeast – BNB (3.3%) and the Northeast Development Fund (49.3%).