Government ensures funding for railroad

After altering for second time the conditions for highway concessions, the government implemented a new mechanism for making railway concession auctions more attractive, revealed Empresa de Planejamento e Logística (EPL) Chairman Bernardo Figueiredo yesterday. An escrow account will be created for each concessionary, in which, annually the total payments due to it in the period shall be deposited.


The government should deposit the payment in advance and release the money every three months. It’s a way to assuage businessmen fears concerning “defaults” on the part of Valec, federal government-owned railway company.


The businessmen are wary because, according to the proposed model, Valec will purchase 100% of load capacity of each auctioned line. Thus, it will be concessionaries’ only direct customer. The state company, in turn, will resell to the market the possibility of carrying cargo through that railroad.


According to Figueiredo, other measures have already been taken to mitigate the so-called “Valec risk “. Concessionaries will be able to use receivables from the state company to repay loans that they should take from National Bank of Economic and Social Development (BNDES), Caixa and Banco do Brasil. In addition, they should receive in advance 15% of the revenue due during the concession.


Return. However, other points of railway bids may also be amended, after the government raises the internal rate of return of the highways this week from 5.5% to 7.2% per year.
This change reduced the profitability of the railroads, since the rate is 6.5% for them. In the case of the bullet train, it is 6.32%. “It became an ugly duckling,” Figueiredo quipped.
In the case of roads, the negotiations with the private sector are closed, said Figueiredo. Requests such as the revision of the requirement for completion of duplication in five years or reduction of sections to be bid were discarded. There is the possibility that auctions occur by portions.


“We shaped the process for the candidates who are less competitive, but at the auction we will look for the most competitive,” said Figueiredo. “If there are investors who are not yet competitive, then so be it.”


However, Figueiredo acknowledged that further delays may occur because the Brazilian Federal Court of Accounts (TCU) still needs to be heard. If all goes as planned, the first auction should be held in September, a year after the announcement of the logistics program.


Figueiredo admitted that the analysis made by some businessmen that the simultaneous allocation of a large set of investments will put pressure on inflation may be correct. “If we have to pay a higher price, it will be on a temporary basis,” he said. “This will be compensated later, by reducing the cost of transports.”


Fund. While endeavoring to define the highway, railway and the High Speed Train (HST) concession conditions and the call for bids final texts, in parallel the government is trying  to convince pension funds and international investors to form a sort of neutral fund in partnership with BNDES and other public banks to act as partners of the concessionaires which win the auction for these projects.


Informally called the “Bride Fund”, this powerful group would always act as a strategic partner of the competitors that win the auctions, providing higher cash capacity and funding negotiating capacity for the concessionaires. “The fund can serve in various concessions, always associating with the best partner, i.e. the winner. This can help bring more midsize competitors to the process,” said Figueiredo.


The composition of this fund must be set in the coming months, because the conditions for its participation in the projects would have to be agreed with all competitors prior to the implementation of the auctions.


Parameters
100% is the amount of cargo capacity that Valec will purchase of each


Bid  line
15% is the share of the revenue due to be received by concessionaires

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