How to put the railway transport back on track?

It has been a long time that the railway transport goes by fits and starts in Brazil. Highways prevailed over tracks for decades, which were a much more appropriate option in a country with such a big territorial extension as ours. As a result we have a network of approximately 29 thousand km. For comparison, South Africa, which is a little bit smaller than State of Pará, has 31 thousand km of rail network. United States has a rail network of 200 thousand km of extension.

We have erroneous matrix transportation and this affects our productive and logistics capability, according to economist Carlos Campos, Ipea Planning and Research technician. ”Although the railroads construction is more expensive than highways construction, after concluded they are a low cost alternative. Generally speaking, the railway transport cost is almost half of the highway transport”, he says.

So, how to put Brazilian logistics on the track? In Campos’ opinion, the answer to that question depends on a review of the railroad sector regulatory framework. On an interview to the website Caminhos para o Futuro (Pathways to the Future), Campos commented the goals outlined on PIL (Program for Investment in Logistics). The second stage of the program, launched in June 2015, plans investments at the order of BRL 86.4 billion on railway transport – amount above the forecasted for roads (BRL 66.1 billion), ports (BRL 37.4 billion) and airports (BRL 8.5 billion).

Almost half of the amount estimated to the rail sector has as destination the Bioceânica line, which shall link Brazil Central Western and North areas to Peru, which would enable to drain the agricultural production to Asia by through the Pacific Ocean. It is estimated that the project receives BRL 40 billion. However, for the plan to materialize it is necessary that the private sector shows interest in establishing public-private partnerships. The problem, according to Campos, is that, when the subject is new railroads, the companies do not feel safe about the management model proposed.

CPOF: Bearing in mind the rail sector, how do you assess the first phase of PIL (launched in August 2012)?

Campos: First, I think it is important to make a historic retrospect. The federal government conceded almost the entire rail network to the private sector in 1997. It was about 30 thousand kilometers, i.e., less than existed at the decade of 1950 – time when the highways were privileged, since their construction was easier and more practical than the rail construction. There was a shy operational improvement, but no railway network expansion.

When PAC (Program for Growth Acceleration) was created after 2007, the idea was to expand that network with public resources. But there were many difficulties. Maybe not due to shortage of funding, but due to shortage of planning, problems with environmental licensing, projects management, etc. As the plan had no sign of continuation, it was then decided to leave it to the private sector and then PIL was launched. For that, it was necessary to change the Brazilian rail sector regulatory framework. On the first concessions, the company was “owner” of the line and undercarriage (locomotives and wagons). Now, for this new rail network, there would have a separation: the company which builds the railway is not the same which operates it. The private sector did not trust this idea, so it did not go forward. PIL increased in relation to airports, but progress was zero regarding the expansion of the Brazilian rail network.

CPOF: Hence, what may change with the second phase of PIL?

Campos: There were not big changes. The idea is the same: to attract private investment and make it constructs the expansion of the rail network. But who would manage the competition between the operators would be Valec [public company linked to the Ministry of Transport). And there is skepticism regarding Valec capability of managing this project.

Private sector would build the new railway line, which means an enormous investment. Valec would hire companies to operate this railway line. And, with the income resulting from this rent, it would pay the company which built the line. The private sector does not believe that Valec is capable of ensuring that, in the event of not having income, it would support the difference.

In addition to that, the fiscal crisis turns the public investment difficult. BNDES (National Bank for Economic and Social Development) also has difficulties and does not have the same financing situation as it had on the first stage of PIL. The perspectives are not good.

CPOF: But, is not there a demand for those sections already? In what lines is the financial return more probable?

Campos: For several lines there is already an ensured demand. There are two more attractive. The first is the expansion of North-South of Açailândia (MA) towards Barcarena (PA). Several studies have already been done for that line. The major demand would be ore transportation produced by Vale, as well as soybean transportation, which would go to ports surrounding Belém [PA]. The second line goes from Lucas do Rio Verde (MT) towards Campinorte (GO), to enter the North-South railway. That area is surrounded by soybean, which would turn the investment viable.

CPOF: How do you assess Bioceânica proposal?

Campos: Bioceânica is a group of some of those railways, including the one which goes through Lucas do Rio Verde. Several sections are being studied, but it will not happen within several years.  If the first part is turned viable [from Lucas do Rio Verde to Campinorte], there would be about 900 km – small section with regard to the total (estimated in 3.500 km). And, if it started right now, this section would be concluded at the end of this decade. Bioceânica would be an option for 2030, at least.

CPOF: Some of the Brazilian contractors are under investigation at Operation Car Wash. How does this affect the railway network expansion plans?

Campos: Having the major contractors in the country involved in such a scandal brings bad consequences to PIL as a whole. Companies which have always been at the head of these processes now shall have difficulties to provide services to the public power. As an answer, it has been executed a Law Project to facilitate the participation of foreign companies in Brazil.

CPOF: Chinese have already shown interest by Bioceânica, signing agreements with the federal government.

Campos: True, but I am not so secure about their participation yet. I would instead wait a little further.

CPOF: If the railway network is not expanded, what are the major economic impacts to the country?

Campos: I see two major consequences. One of them is a huge impact about transportation costs. This affects our competitive capacity at exportation businesses, especially for commodities. Secondly, the network limitation leads to a productive expansion limitation in Brazil. The agriculture frontier grows towards North area, a region which needs more waterways and railways. If we had a better logistics structure, the agricultural production would have grown further more than it had grown.

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