FCA and LLX negotiate $832.3 million railroad

Vale and EBX are resuming the project of building a broad-gauge railroad in the coast of Rio de Janeiro with investments of $832.3 million. The negotiations are complex and involve Ferrovia Centro-Atlântica (FCA), controlled by Vale, and LLX, Logistics Company of EBX. The State of Rio de Janeiro and the federal government also participate in the talks, which come in the definition stage. The work envisages the adequacy of existing stretches and the construction of new portions.


Corredor do Norte Fluminense, as the project is being called, will have 348 km between Ambaí, in the metropolitan region of Rio de Janeiro, and the Port of Açu, in São João da Barra, north of the State, a LLX project. In an optimistic scenario, when it becomes operational, from 2016, the railroad could transport 18.9 million tons per year, including iron ore, coal, and petrochemical and steel products.


LLX is the most interested in the project, since the railroad will be a pillar for the development of the industrial complex of Açu, where there are plans to install several companies. “The decision to make [the railroad] is taken and there is convergence of interests,” the CEO of LLX Otávio Lazcano said.


FCA also has interest in making a logistics corridor feasible in the region, with the development of new freights, since the company is the concessionaire of much of the stretch where it intends to build a new railroad. This stretch of the FCA is underutilized. But the deal is not that simple, although the two companies have signed two memoranda of understanding. The first one was settled in August 2011 to develop the study of technical and economic feasibility. The second agreement was signed in late April, when President Dilma Rousseff visited the Port of Açu.


Pablo de la Quintana, director of development of LLX, said the second memorandum will contribute to the studies. In three months, the terms of reference may be defined to reach a detailed project and the best way to license the railroad, he predicted. One of the works is to refine the investment, which could be 30% higher than the initial estimate and reach $1.08 billion. The prerogative to license railroads is of Ibama, but as the project is within the limits of Rio de Janeiro, the licensing could be made by the state.


From now on, it is expected to sign a broader letter of intent among private sector, State of Rio and the Federal Government. The terms of this new agreement must be submitted prior to the Transport Minister Paulo Sérgio Passos. With the endorsement of Passos, the protocol would be signed, and it would be possible to proceed to the technical and economic feasibility study. In parallel, the discussion on the institutional model of the railroad must be deepened. For now, it is unclear who would invest in the project, who would be the manager of the network and who would operate the trains.


LLX ensures load demand, but should not invest in the project. One possibility is that FCA could invest, but it involves discussions between the concessionaire and the National Land Transport Agency (ANTT – Agência Nacional de Transportes Terrestres) on overdue consent decrees. FCA could make investments in the new Rio’s railroad network as a way to compensate those consent decrees. A hindrance to the investments of FCA may be the expiration of its concession in 2027, which would be insufficient time to retake the investment in the new network. LLX estimates return of 12% per year for the shareholders with the operation of the new railroad.


Another scenario could be a bid for sub-concession of the new railroad in Rio by Valec, a company linked to the Ministry of Transport. Valec is concessionaire of the Railroad 354, which has a stretch in parallel to the FCA’s in Rio. CEO of Valec José Eduardo Castello Branco ruled out this hypothesis: Valec expects the private sector contributes the resources for the broad-gauge connection to Açu.


FCA stated that the studies developed with LLX consider the analysis of the railroad in both broad and meter gauge. The adoption of one model will depend on economic and financial analysis. The government of Rio and LLX speak only in broad gauge, which will be important to connect the new railroad to the MRS network. MRS said that accompanies the negotiations and has an interest in participating in the operation of the new network.

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