Road Logistics

Private investment key to Brazil’s US$4.5bn railway boost

Private investment key to Brazil’s US$4.5bn railway boost

A joint study by consultancy Pezco and LL Advogados found that annual railroad investments in Brazil should reach at least 24bn reais (US$4.48bn), with most of the amount having to come from private sector.

While the government wants to boost railway transport, highways still dominate the matrix with 67.6% as railways account for 21.5%. The government plans to increase the railway share through new concessions and early renewals of existing ones.

The country’s stock of railway infrastructure assets corresponds to 2.3% of the GDP but should be double that.

The study authors, Frederico Araujo Turolla (pictured, left) of Pezco and Leonardo Coelho of LL Advogados, talked with BNamericas about the study and provided an overview of the segment.

BNamericas: A Pezco study found the railway sector needs investments of 24bn reais per year. Should these come more from public or private sources? What are the main risks for this scenario?

Turolla: All the investments likely come from the private sector. There is a significant volume of greenfield and brownfield projects that are viable through concessions and even authorizations, which render public resources that are needed for other purposes unviable and even inefficient.

Investments in this sector jumped for two main reasons: concessions, which are already underway (central section of the Norte-Sul railway, first section of the Fiol railway), and new projects that are emerging such as the next sections of the Fico-Fiol, Ferroeste, Ferrovia Pará and Ferrogrão.

The other reason is based on authorizations, which should become more important with the approval of the PLS 261 [bill], but which should take place in states such as in Minas Gerais. The bill is creating a framework for the development of railway projects through authorization.

BNamericas: What are the main regulatory advances in the sector in recent years?

Coelho: The main innovation is the updating of the contractual technology of the concessions, both through early renewal and the most recent tenders. We have brought to the present day the format of partnerships between public and private sectors. Within this, there are several themes that have advanced: investment triggers, risk-sharing, economic and financial balance, access rights, and many others.

Turolla: Contract standards have advanced a lot, with the railway sector incorporating standard clauses and contractual instruments developed in other sectors. In itself, the advance of contracts can be called a regulatory advance, or contractual regulation.

Apart from contractual regulation, the advancement of access instruments like rights-of-way and mutual traffic is very important and has already happened from a regulatory point of view. But it has not significantly advanced in regulatory and operational practice.

BNamericas: Which regulatory issues still need to evolve to make the sector more attractive to the private investment?

Coelho: An advance of PLS 261 is needed, with the possibility of having authorized agents to carry out rail cargo transport and railroad implementation without this depending on a strict concession regulatory regime.

But for that, PLS 261 needs several improvements, rules that simplify the process and clarify the process of returning unused sections in current concessions, and a review of the sectorial regulatory stock, as there are many anachronistic rules that have lost their meaning and would not survive a cost-benefit analysis.

Turolla: Despite the progress in contractual regulation, our study shows that there is significant space for regulating access, highlighting the promotion of access to the system’s backbone, the Norte-Sul railway.

We argue in this study that some cargo will become the object of a competition for the north-northeast exit, mainly for Maranhão port but also others in the region, and the traditional exit of the southeast and south regions. We claim the distinct interests of the operators of…

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