Marcos Lutz, CEO of Cosan, 45 years old, certainly faces the biggest challenge in his career: the reconstruction of ALL, a railroad group with 13,000 kilometers of concessions and a lot to fix. It will be necessary five years at least to put the railroad on track, renew its fleet of locomotives and cars, upgrade its tracks to gain operational efficiency and reasonably meet the demand for hundreds of clients. The investments bundle provided in this period reaches R$ 7 billion. Other R$ 2 billion is budgeted for the following years.
The new company arising from the merge of ALL by Rumo Logística, controlled by Cosan, will set its new management within a month. It is already set that two super-executives will be just below the CEO – one of them responsible for Rondonópolis-Santos corridor, which carries more than 60% of the load drained today, and the other by narrow gauge operations, which are in the south, connected to the ports of Paranaguá, São Francisco do Sul and Rio Grande.
They will have operational vice-president positions and their names should be revealed in the next few days. Lutz explains that the division is due to the type of operation of the lines. The Rondonópolis-Santos, for example, where grains and sugar are transported, requires urgent action, especially in Araraquara (SP) stretch to the border with the State of Mato Grosso do Sul.
The last regulatory approval for the merger is expected until the end of March. Antaq (agency that regulates waterway transport) gave the green light yesterday. On Monday, the process will be forwarded to the Secretaria Especial de Portos (Special Secretariat of Ports – SEP) for the final approval. The business has been approved by the Administrative Council for Economic Defense (CADE), which imposed some restrictions, and ANTT (which regulates land transport).
After this procedure, the two companies merge, getting the usual shareholder approvals of both. The ALLL3 stock of the concessionaire shall cease to be traded on BMF&Bovespa and Rumo3 ticker will take its place.
From this moment on, as the senior names of the new management team are defined, let’s roll up our sleeves and start rebuilding a project to meet all loads with railroad vocation, said Lutz, in an interview to Valor.
The executive has been involved with the railroad business at Cosan since the end of 2011, when a plan of joining ALL was defined. As it was Christmas Eve, it was named “Projeto Noel” (Santa Project) to prevent leakage of information. The offer to buy a stake in the railroad occurred in February 2012.
According to the executive, less than half of the potential load of reception is intended to the ports of Santos and Paranaguá. Our goal is that the entire grain loading, such as soybeans and corn, from Mato Grosso to Santos is transported by train. A good number goes by truck. He estimates that this may occur in up to six years.
The extension of the deadlines of three concessions from ALL is an important factor for the business to gain the size of planned investments and go through a deep transformation, said Lutz, who is of the head of Cosan since 2009. They mature from 2026 (Malha Oeste – Western Network). In 2027, the Malha Sul (Southern Network) ends and, in 2029, the São Paulo network (Malha Paulista). Ferronorte, in Mato Grosso do Sul, stands until 2079.
The government and ANTT will receive a detailed design of the new ALL from Cosan. We will show its importance to the country and to meet the load demand. According to the executive, the heavy amount of investments needs more time to return of capital. With five years or so, no bank will lend me money to invest, he says.
The railroad capacity will double within six years. It will reach 50 million tons only in the corridor between Rondonópolis and the port of Santos.
Lutz tells that he will have to redo everything and it will be like replacing a airplane turbine in the air. He will need to work in more than 1,500 km of tracks without stopping the load flow. Among the bottlenecks to be worked with more urgency, he points out a number of actions on access to the Port of Santos in order to move the trains arriving to the terminals more quickly.
The new company will also seek a long-term commitment relationship with its customers – large trading of agricultural, pulp manufacturers and fuel distributors commodities, among others. In general, ALL did not adopt this practice. The customer’s complaints in relation to the railroad services is common knowledge.
We are going to offer more efficiency and meet agreed volumes in the contracts, says Lutz. Thus, he says, it is a win-win situation. The commercial focus of the new company is to seek more distant loads (grains from Mato Grosso) and then develop the sugar market further.
The period of seven years expected to receive up to R$ 9 billion establishes the replacement of almost everything, from locomotives of higher capacity and greater efficiency (currently, there are thousands in operation), the most part of the cars (20,000), large part of the tracks, construction of new and expansion of existing yards along the track. The plan establishes operation with 120-car trains.
A team of 20 people consisting of technicians from ALL and Rumo – who worked neutrally due to the rules of Cade – was dedicated in the last nine months to a full inventory of ALL and Rumo assets. They pointed out existing bottlenecks and the value of investments for the new railroad. It’s a crucial transformation to both companies, with troubled histories, says the executive.
In 2009, Rumo signed an operation contract in the track of ALL, from Campinas to Santos, making an investment of R$ 1.1 billion (value at that time). In exchange, it would receive the transportation of sugar. The plan has taken a bad course, ended up in court and was solved only with merge of the two companies early last year.
In the next six months, the new company will have to implement a series of actions required by Cade in the act of approval of the merge to meet competition standards: a compliance supervisor, a committee of Related Parties and issue periodic reports of its operations.
ALL, acronym of Logistic Latin America in Portuguese, headquartered in Curitiba (Paraná, Brazil) was created in 1997, when a group of investors bought the concession of the Malha Sul (Southern Network) at auction, in the privatization of the former RFFSA. Then, the company expanded to Argentina (where it only lost money and left in 2013), and to São Paulo and Mato Grosso. Currently, it governs two companies: Brado and Ritmo.
The concessionaire reported net income of R$ 2.97 billion, with net income of R$ 138.8 million in the nine months of 2014. The ratio between net debt and operating profit (EBITDA, which was R$ 1.47 billion) is 2.45 times, slightly upwards since 2009.
In addition to load collecting terminals in São Paulo and boarding at the port of Santos, Rumo will add up 1,300 employees to ALL, which employs about 8,500 people.
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