Railroad between Açailândia-Barcarena will have a profitability of 8.5%

The government yesterday set the return to investors in the concessions of railroads, scaled according to the engineering risk bound to the project.

The first railroad that will be auctioned, between Açailândia (state of Maranhão) and Barcarena (state of Pará), will have an Internal Rate of Return (IRR, profitability) of 8.5%, higher than the rate set for the highways and even for the High Speed Rail. An explanation lies in the possible difficulties of building the track in an area of the Amazon rainforest.

The 477-kilometer railroad, which will help transport the production through the Port of Conde, in the state of Pará, was classified by government technicians as high risk, hence the greater return value. The other stretches are under review, but the government has set a rate of return of 7.5% for the projects with lower engineering risk and tends to set those with medium risk at 8%.

Private investors negotiate the details with the government. According to a qualified source from the economic team, there is interest from companies to participate in the auctions, despite the accumulation of offers at the end of the year. The team of President Dilma runs in the backstage to end the technical part involved in the bidding of highways, ports, and the airports of Galeão (state of Rio de Janeiro) and Confins (state of Minas Gerais). The auction of the giant pit of Libra, in the pre-salt area, gas and investments of the power industry are in the queue as well.

Bidding. The first highways should be auctioned later this month or early August. The government believes these concessions to replace the mainspring of economic growth. Since the beginning of the financial crisis in 2008, the federal technicians have molded programs to stimulate consumption.

In August, Dilma Rousseff announced the concession of 10,000 km of railroads and 7,500 km of highways to support the growth in investment, reducing the need for greater household consumption as the driving force of the economy. Only with the railroads, the government hopes to boost investments of $40.63 billion.

Consumption. According to calculations of Dilma’s staff, the rate of growth for household consumption has decreased because of debts and lack of credit from banks to refinance debts. There is still room for growth, but this should occur more slowly. Another diagnostic from the federal government: consumption has been changing, with the inclusion of housing, private health plans and service packages, such as Internet and cable TV, increasingly present.

Fearing the impact on inflation, the government should keep tax cuts. A source cited payroll exemption, reduction of Cide (Contribution for Intervention in the Economic Domain) on fuels, cutting taxes on the market basket, tax waiver with Simple program for small and medium enterprises, and Reintegra, which returns credits to exporters, as irrevocable items. Instead of restoring taxes in these cases, the government will announce a blockage of funds from the budget in the coming days. The cut should be between $4.46 billion and $6.69 billion.

The current focus of the government’s internal negotiations for the cuts is the items of expenditure: third party contracts, room nights, flight tickets, rentals, material of daily use and computer equipment. There is order to preserve the health and education programs, but some state investment should be affected by delays.