Government tries to excite investor for railroads

The government called trading companies, mining companies, agricultural producers and investment banks to talk and try to excite them with the railroad concession program. The task, however, is hard.

The challenge is to overcome the distrust of the private sector in relation to two major problems: a financial drawing still considered uncertain and the risks that companies will take when begin to build, from scratch, 11,000 km of railroads within five years. And all this to have a profitability of up to 8.5% per year.

They asked for political support, Senator Blairo Maggi (PR-MT party) said. For us to get excited, call companies, show that there is freight. He was last week in the office of the Chief Minister of the Civil House Gleisi Hoffmann, accompanied by other producers of the region. To them, she said the government is very interested in this program.

Encouraged by the rising dollar and the prospect of increasing its revenues from exports, the rural producers promised to help. We will provide the necessary support, the senator said. In other conversations, however, the reaction was colder. Besides asking for support to producers, the government wants trading companies and mining companies to invest in new railroads. We need to do more studies, said an executive who came to Brasília to hear a presentation by CEO of Empresa de Planejamento e Logística (EPL), Bernardo Figueiredo. Ideal for users, he explained, would be to have the railroad ready and operating at competitive prices. But if we have no other way, we will invest in them.

Loss of confidence

The minister also called economists of some banks to convince them of the consistency of the program. The government relies on foreign investors to finance part of the Investment Program in Logistics (PIL). Gleisi also heard that the government has lost the confidence of the market due to lack of transparency in public accounts. Senator Maggi himself acknowledged that the economic environment is not the most favorable to the venture, mainly because of the slowdown in the activity.

At the same time the government tries to attract new investors to the railroads, it makes adjustments to the program in order to reduce resistance. Technicians are shortening the rail sections that would require very large investments.

This is the case, for example, of the 1,700-km track between the cities of Mairinque (state of São Paulo) and Rio Grande (state of Rio Grande do Sul), which would cost about $10.46 billion. Or the section between Uruaçu (state of Goiás) and Campos (state of Rio de Janeiro), another 1,700 km estimated at $11.72 billion. Or the connection between Belo Horizonte and Salvador, which will mobilize investments of $5.02 billion. This is money anywhere in the world, says a construction company member. He estimates that the subdivision of the lots will give more attractiveness to businesses.

Lower returns

Meanwhile, talks are continuing between the government and the private sector in order to raise the estimated investments of new tracks, as reported by the Estado newspaper on August 4. Potential investors allege that they are underestimated, which is equivalent to say that the possibility of return is lower.

Companies are unsafe because, according the proposed model, they will be responsible for building and operating the track and, once it has been completed, they will sell 100% of freight capacity for the state-owned company Valec. Valec, in turn, resell it to whoever has freight to transport.

On the one hand, it reduces the risk of idle for the railroads. The concessionaire will always receive for the total use. But the question is what happens if Valec has no budget, is privatized or extinguished. It is what the market calls Valec risk. To reduce the risk of construction, EPL will be responsible for obtaining environmental permits for the commencement of works, a task that would be the responsibility of companies.