Government redesign Investment Program in Logistics

The government made a general redesign of the package of concessions for railroads, which was announced six months ago. In the coming days, the preliminary version (draft) of the first notice to bid of concession will be launched, which will undergo a public hearing and may still change: the construction of a stretch of about 530 kilometers between the city of Açailândia (state of Maranhão) and the Port of Vila Conde (state of Pará). In practice, it is an extension of the North-South Railroad, now operated by Vale between Açailândia and Palmas (state of Tocantins).

Given the novelty of the new model that will be applied in the railroads – yet little understood by the market –, this stretch will act as a sort of pilot project for the ambitious concession plan. The rules used in the lot Açailândia-Vila do Conde will be the same as the other bids. The market is anxious to know these rules. Therefore, the government opted to launch only one notice to bid at first, in order to discuss the details of the new model with private investors and know if there is a need for future adjustments.

The original package of concessions provided 12 lots, which totaled 10,000 km in length, in two phases. The first six lots, with 2,600 km, should have its studies published in January, and the auctions were scheduled for April. This schedule had a slight delay. Except for the stretch Açailândia-Vila do Conde, now the government is studying the possibility of making the whole process simultaneously to the six other lots, which will be auctioned in the second half.

The goal is still to sign all contracts until the end of 2013, but the design of lots to be granted will also change, with the inclusion of two important stretches: Palmas (state of Tocantins)-Anápolis (state of Goiás) and Ouro Verde (state of Goiás)-Estrela D’Oeste (state of São Paulo). They will not be built by the private sector. Both of them are already in advanced stages of implementation by the state-owned company Valec. Altogether, they add 1,535 km of rails to the original plan of the government, which decided to grant them to the private sector, because Valec has no experience in the operation.

The concessions of these two stretches – both in the North-South Railroad – will not be made in isolation, but powering two other lots, which should be more attractive. The stretch Palmas-Anápolis will be part of the lot between Lucas do Rio Verde (state of Mato Grosso) and Uruaçu (state of Goiás). The stretch Ouro Verde-Estrela D’Oeste will be incorporated into the lot that goes from Estrela D’Oeste to Maracaju (state of Mato Grosso do Sul).

Future concessionaires of the lines will have five years to build the new stretches. When the use of the railroad to transport freight reaches 70% capacity, a trigger will be activated to perform expansion work – first with railroad siding in the most critical points; then, as these siding increases, with the effective expansion of the tracks.

As already known, the state-owned company Valec will buy the full freight capacity of the railroads, eliminating the risk of demand for the future concessionaires. Then it will resell in the market the right of way through these railroads, via public offering. The point that was not clear it is how to dispute the bids.

Whoever offers Valec the lowest train rate per kilometer traveled will win each auction. This dispute system resembles the highway’s, in which the government sets a maximum toll rate and competitors submit bids with a discount to this value. The higher the discount, the less Valec will have to pay for the purchase of the carrying capacity of the railroads. It reduces spending in the first time of concession, before obtaining revenue from the resale of the right of way.

The former president of Valec José Eduardo Castello Branco, who resigned in September, had already estimated the spending of the state-owned company at up to $2 billion per year on the purchase of 100% of the carrying capacity of the new tracks. He said the expense would be greater at the beginning of the concessions, since then the state-owned company will recover the investment with resale to the companies interested in transporting freight or passengers.

In the new design of the government, the concession of the stretch Açailândia-Vila da Conde will have its final notice to bid in April, if approved by the Brazilian Court of Audit (TCU). The auction would be held at the end of the first half. There is no provision to neither change the term of the contracts – 30 years – nor substantially change the financing conditions, as happened with the highways, but other arrangements can still be made.

Three short length lots in São Paulo – the northern stretch and southern stretch of Ferroanel, as well as the rail access to Santos – may not be launched as single concessions. The government is considering strengthening other lots with these corridors. The southern section of Ferroanel, for example, can enter the same concession of the railroad between São Paulo and Rio Grande (state of Rio Grande do Sul).