Investment in railroads should be recalculated

Pressed by the private sector, the government is recalculating the investments under the railroad concession program. Entrepreneurs have sent to the Ministries of Finance and Transport the following message: either values are reviewed or there will not be interested parties.

The risk is too great and the account is not right, said a businessman of the sector. Either the government changes the capex (investment estimate) or everything will be empty.

For the first sector to be auctioned, a railroad linking Açailândia (state of Maranhão) to the port of Vila do Conde (state of Pará), investment of $1.34 billion were estimated. But, according to the accounts of the private sector, the work will cost at least $1.95 billion. This difference means, in practice, less profitability for the company to assume the concession.

It is as if, instead of the 8.5% fixed as Internal Rate of Return (IRR) for that sector, it was close to 6%. It is difficult for an investor to enter a risky venture like this to have a return on that level, said a member of the private sector. To earn 6%, there are easier things, which do not depend on work in the forest, on IBAMA, on the Brazilian Court of Audit, on Funai. For the sector to be attractive, the proposal of the sector is that the IRR is maintained at 8.5% and the investment forecast is increased.

The problem is repeated for other sectors to be bid. In total, investments of $39.49 billion are planned in 10,000 km of railroads.

Signs of failure. The low interest of entrepreneurs in railroad concessions is discussed by government officials in private conversations. They see signs that the auctions may fail, but the order is to continue with the preparations.

In the coming days, the finance minister Guido Mantega will receive the President of the National Union of Heavy Construction Industry (Sinicon), Rodolpho Tourinho. He should submit new guarantee mechanisms to ensure concessionaires that the government will buy 100% of the freight capacity of the new tracks, as promised. These instruments are being developed by the Treasury Secretary Arno Augustin.

The director of the Agência Nacional de Transportes Terrestres (ANTT – National Land Transport Agency), Carlos Fernando do Nascimento, denied that investments in the branch between Açailândia and Vila do Conde are underestimated. We assess that it is sufficient to establish the infrastructure, he said.
He explained that the values were the subject of discussions with the Brazilian Court of Audit (TCU) and it did not detect error in the estimates, either up or down. Moreover, there are other mechanisms for rebalancing contract.

He said the notice to bid will be published on August 19, and the auction will be held on October 18. It is expected to auction at least three more sectors this year.

The government considers the discussion on the IRR of the railroads closed, which was the center of the criticisms of the private sector. It will be set to every sector, in a range between 7.5% and 8.5%, depending on the complexity of the work. For the sector between Dourados (state of Mato Grosso do Sul) and Estrela d’Oeste (state of São Paulo), it is 7.5%.

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