Railroad industry companies look to 2013 with the expectation that the federal government will give clear guarantees that it will absorb all the risk of lack of demand in the network to be built by 2018. For industry entities, the new railroad concession model, called open access, lacks specific regulatory acts that explain to the market how this guarantee will be ensured over the next few years, regardless of who is the President of the Republic from 2015. The market acceptance regarding these warranties should determine the success or failure of the auctions.
“The private sector will invest billions of reais in railroad, and it needs assurance that such money will be recovered,” said the president of the Brazilian National Association of Freight Transport Users (Anut), Luis Henrique Baldez. The manager requests that proposals are presented to the entrepreneurs in the public hearings of the undertakings, to be held from January. “We will be attentive to the clear definition of modeling. If it gets wrong, it will be very hard to fix it up ahead,” he warns. In his opinion, the new system should lead to drop of, at least, 20% of the average cost of rail transport in the country.
Rodrigo Vilaça, the CEO of the National Rail Transport Association (ANTF), said that he is waiting for explanations of how the operator will act. “We do not have details of this process of buying and selling freight,” he says. To him, it is still unclear how much the government will pay for the new network capacity and what will be the technical standards for the transport of different types of commodities, from iron ore to manufactured products.
President Dilma Rousseff announced in August the package of concessions of 10,000 kilometers of railroads with investments of $44.59 billion, of which $27.44 billion will be over the next five years. In the model, the government, through the state-owned company Valec Engenharia, Construções e Ferrovias S.A., will purchase the full capacity of the network and sell slots to anyone wanting to transport freight. “Surely Treasury money will be necessary in the early years in order to support the difference of freight, because one thing is to buy the capacity from who built the railroad and another thing is to sell it, Vilaça said.
The purchase of the capacity by Valec will serve as a protection against possible lack of demand of the tracks. “The model will attract investment because compensation is certain,” says Bento José de Lima, the Director of Operations of the state-owned company. “If the actual demand is lower than the handling capacity of the railroad, Valec will absorb the difference and it becomes a government grant on behalf of the entire system benefit,” adds Fábio Coelho Barbosa, Manager of Regulation and Rail Concession of Freight of the National Land Transport Agency (ANTT – Agência Nacional de Transportes Terrestres). To Barbosa, however, there will not be low demand in the tracks. “Our studies say we will have utilization rates higher than those today,” he said.
End of monopolies
The purpose of the new model is to end the preferences of concessionaires in the passage of its products by railroads and allow access of several companies to the modal. “Any company that wants to have locomotive and cars can travel upon payment to Valec, and current concessionaires will operate under the same rules,” said Lima, from the state-owned company.
Initially, access to railroads by new operators could open the possibility of the car and locomotive industry to also be benefited by the model. However, the president of the Brazilian Railroad Industry Association, Vincent Abate, explains that company’s growth will depend on the expansion of the network, and not on the number of operators.
“The need for cars and locomotives will come from the expansion of the system, and possibly from the transportation of new types of freight in a certain track; no matter whether there are one or more operators,” he adds.
There are also those who have become dissatisfied with the open access. Vilaça, from ANTF, says that the model goes against what is adopted in countries with efficient logistics matrix – in the vertical integration system, installation and administration of the track are concentrated in a single agent. “We would have participated more effectively in the process and had also the right to evaluate the possibility of investing in which the government was unable to do, so we could get the extension of existing concessions,” he complains.
The general manager of Line and Structure of the Canadian Pacific Railway, Mike Roney, says that the Brazilian government did everything possible to make concessions attractive. “It is always important for investors to believe that there will be long-term priorities and stability,” he said. Even so, he estimates that there are risks of the auctions have few interested parties because of the aggressive deadlines of the bidding process.
It is expected that the contracts of works of the called Group 1, which includes Ferroanel of São Paulo, access to the Port of Santos and another four stretches, are signed by July 2013. For Group 2, a total of 7,400 km of railroads, the signatures should be done for the third quarter. “The time window for the concession may be small for some potential operators,” he said.
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