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Foreign Investors Are Eyeing Brazilian Railways

Holders of railway concessions in Brazil intend to continue investing, and even plan to invest heavier than they have been over the last 10 years, since privatizations have been reintroduced.

According to information supplied by the National Association of Railway Transport (ANTF), operators are going to invests over 10 billion reais (US$ 4.6 billion) in the system by the end of the decade.

"Within a strategic plan, the forecast for this year is for investment of 2.351 billion reais (approximately US$ 1.1 billion). From 2007 to 2010 investment should exceed 2 billion reais (US$ 930 million) a year," stated the executive director of the ANTF, Rodrigo Vilaça.

Since 1996, companies have invested 11 billion reais (US$ 5.1 billion). According to Vilaça, future investment is also going to be concentrated on recovery and maintenance of railways, purchase of railcars and locomotives and on technology.

In all there are eight private companies operating in a total of 11 grids all around the country. There is another company, state-owned company Valec, which operates the only railway that still belongs to the government, the North-South railway. The Ministry of Transportation, however, intends to execute a tender for the sub concession of the line in the first half of this year.

Heavy Investment

One of the concession holders that intends to continue investing heavily is MRS Logí­stica, which controls 1,674 kilometers of the Southeastern Grid of the former Federal Railway Network (RFFSA) in the southeastern Brazilian states of Minas Gerais, Rio de Janeiro and São Paulo.

"Last year investment totaled 400 million reais (US$ 186 million) and this year it will total 650 million reais (US$ 302 million). By 2009 we should invest around 2.9 billion reais (US$ 1.3 billion)," stated company president Julio Fontana Neto.

According to him, the capital will be invested mainly in the purchase of material for operation on tracks and in technology. In the first months of 2006 the company has already purchased 250 railcars and ordered 50 locomotives to GE, each costing US$ 2 million. In March, the company signed a US$ 70 million contract for the replacement of their sign and telecommunications system.

"Within the infrastructure area we are duplicating stretches and building patios for trains," stated Fontana. The company is currently working, for example, on the duplication of 100 kilometers of railway lines between the cities of Barra Mansa and Sepetiba Port, in Rio de Janeiro.

With this, the company intends to reach 2010 with a capacity for transport of between 250 million and 270 million tons of cargo. For comparison purposes, last year all the holders of concessions in Brazil transported 392 million tons and MRS alone, 108.5 million. The licensee generates 3,100 direct jobs and had revenues of 2 billion reais (US$ 930 million) in 2005.

Partnerships with Clients

Another company forecasting heavy investment is América Latina Logí­stica (ALL), which manages 7,185 kilometers of the former RFFSA railway lines in Rio Grande do Sul, Santa Catarina and Paraná, in southern Brazil, and São Paulo.

Between 1997 and 2003 the company invested 100 million reais (US$ 46.5 million) a year in their operations, another 188 million reais (US$ 87.4 million) in 2004 and 255 million reais (US$ 119 million) in 2005. This year the company intends to invest 250 million reais (US$ 116 million), plus another 200 million reais (US$ 93 million) in customer funds to be used for the purchase of railcars.

According to the financial manager at ALL, Carlos Augusto Moreira, since 2004 the company has been working in the following way: it invests in the purchase of locomotives and in the maintenance of the grid, and its customers purchase the railcars.

"Since then, 40 locomotives and 1,000 railcars have been added a year and we intend to maintain this average," stated Moreira.

And this model of partnership with clients is going very far. In October 2004, ALL signed a contract with Bunge Alimentos to transport agricultural products in bulk for a period of 23 years. The agreement forecasts the transport of 50 million tons from 2005 to 2010 and another 220 million between 2010 and 2027.

The agreement should generate annual revenues of between 270 million reais (US$ 126 million) and 350 million reais (US$ 163 million) for ALL. After 2010, the value should rise to 400 million reais (US$ 186 million).

More than a railway logistics company, ALL also has a fleet of 1,986 trailers and trucks. "A country like Brazil must use all integrated models," stated the president of the Brazilian Association of Railway Industries (Abifer), Luí­s Cesário Amaro da Silveira.

The company says that its differential is the offer of different logistics services: railway and highway transport and storage services. Another differential is that ALL is the only Brazilian operator to have railway lines outside the country, a total of 9,212 kilometers in Argentina. The company employs 3,000 people and had revenues of 1.2 billion reais (US$ 558 million) in 2005.

Even Ports

MRS and ALL are companies that even operate railway lines within ports, making it possible for the cargo to arrive at the vessel. MRS, for example, operates lines in the ports of Sepetiba and Santos (respectively in Rio de Janeiro and São Paulo), and ALL in the port of Rio Grande, in Rio Grande do Sul, São Francisco do Sul, in Santa Catarina, and Paranaguá, in Paraná.

Another company that operates in Santos port is Brasil Ferrovias, which controls Ferronorte, in the states of Mato Grosso and Mato Grosso do Sul (in midwestern Brazil), and Ferroban, in São Paulo. Brasil Ferrovias is responsible for transporting a significant part of the agricultural produce of Mato Grosso, one of the main agricultural producers in the country, to Santos Port.

Brasil Ferrovias

Ferronorte was the brainchild of businessman Olacyr de Moraes, who was once considered the "King of Soy" in the country. The railway goes from the border of São Paulo and Mato Grosso do Sul to the city of Alto Araguaia, in the south of Mato Grosso.

Under financial difficulties, Brasil Ferrovias underwent financial restructuring and last year was practically taken over by the government, with the Brazilian Development Bank (BNDES) taking over control of 46.6% of the company capital, together with pension funds of state-owned companies.

Brazil Ferrovias and Novoeste, a railway that crosses São Paulo and Mato Grosso do Sul, reaching the frontiers with Bolivia and Paraguay, were recently tendered. The bids are still being analyzed by the shareholders.

Expansion

More than investment in maintenance, railcars and technology, holders of railway concessions are going to invest in projects for expansion of the grid, which in theory is the responsibility of the government. Among them are companies that are strong in other sectors, like mining company Vale do Rio Doce and ironworks Companhia Siderúrgica Nacional (CSN).

The greatest projects currently being studied and to start being executed in the near future is that of Transnordestina. The line will have a length of 1,860 kilometers, being 905 new and 955 already existing and controlled by Companhia Ferroviária do Nordeste (CFN), but which need to be modernized.

"The line has a metric gauge, small angles, curves and steep ramps, causing the train to lose speed," explained the director of the Transport Planning and Policy Evaluation Department at the Ministry of Transportation, Francisco Luiz Baptista Costa.

When ready, the line will connect the region of Elizeu Martins, in the northeastern Brazilian state of Piauí­, to the ports of Pecém, in Ceará, and Suape, in Pernambuco, both also in the Northeast.

The cost of the works is estimated at 4.5 billion reais (US$ 2.1 billion), being 300 million reais (US$ 139 million) invested by the CFN itself, which is controlled by ironworks CSN.

Another 250 million reais (US$ 116 million) should come from other private partners; and 3.95 billion reais (US$ 1.8 billion) from public financing sources, like the Fund for Investment in the Northeast (Finor), the Fund for Development of the Northeast (FNDE) and the Brazilian Development Bank (BNDES).

The objective is to simplify the flow of agricultural and mineral production of the Northeast. In its first year in operation, it is estimated that the railway should transport 17 million tons of cargo.

Vale, the Largest in Brazil

Another company that is going to invest together with the public sector is Vale do Rio Doce, which is not only the greatest exporter of ore in the world, but is also the largest railway operator in Brazil.

"At the time of decadence of the sector in Brazil, Vale railways were the only ones that were always adequately maintained," stated the president of the Brazilian Association of Railway Industries (Abifer), Luí­s Cesário Amaro da Silveira.

Together with the government of the state of Espí­rito Santo, Vale intends to invest 700 million reais in the South Coastal, a branch of the Center-Atlantic Railway (FCA), which will have a length of 165 kilometers and should transport ironworks products, pulp, ornamental stones and cement.

Vale already controls CFA, and with 7,840 kilometers is the greatest railway in the country, in extension, crossing seven states and the Federal District, where the country capital is located; the Vitória – Minas Railway, which has a length of 905 kilometers in Minas Gerais and Espí­rito Santo (SE); and the Carajás Railway, which has a length of 892 kilometers in the states of Pará (N) and Maranhão (NE).

North-South Heads Further South

The government is also promising its own investment in expansion of the North-South Railway,  the only one that belongs to a state-owned company. The railway is currently 215 kilometers long between Açailândia, in Maranhão, and Estreito, close to the frontier with Tocantins, in the Midwest.

According to Baptista da Costa, another 100 kilometers will be put into operation up to Araguaí­na, in Tocantins, up to the end of the year. "Investment should total 100 million reais (US$ 46.5 million) this year," he said.

After operation of the railway is tendered, it will operate in the sub concession regime. According to Costa, the licensee should build another 425 kilometers up to Porto Nacional, just south of the city of Palmas, capital of Tocantins, and operate the railway as a whole. The tender should take place this half. The cost of this construction will be evaluated at 600 million reais.

"With this the line will have almost 800 kilometers in length and a very large cargo capacity, being able to transport between 2.5 million and 3 million tons, rising to almost 30 million in 15 years," stated Costa.

Last year, the North-South transported 1.4 million tons. "Today the cargo comes from Tocantins and the West of Bahia (NE), but the more it enters the Midwest, the greater will be its capacity for attraction of cargo," he added.

Diversification

Another challenge of the operators is the attraction of other cargo, apart from grain and ore. "Our challenge is to transport cargo in general, containers, cement, petrochemical products, wood and even chilled products. It is very easy, all you have to do is guarantee to the client the operation of the route," stated the executive director at the National Association of Railway Transport (ANTF), Rodrigo Vilaça.

ALL is a company that is already doing that. In October last year, the company started transporting containers on its railway from Paranaguá Porto, especially chilled ones.
 
Foreigners

Railway operations in Brazil are already attracting the attention of foreign companies. Recently, when Brasil Ferrovias and Novoeste were put on sale, proposals by three foreign consortiums were made: Asia Latin Marketing Center (Asila), a trading company that represents seven Korean companies interested in both grids; the Chinese Jianesu Zhongye Iron & Steel; and the Bolivian Ferrovia Oriental. The latter two interested only in Novoeste.

The search for investment abroad is also well accepted by the sector. "We are attracting foreign funds as money is cheaper abroad than here," stated Vilaça.

Anba – www.anba.com.br

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  • Show Comments (3)

  • Guest

    From the USA
    Jet Planes are faster than trains for transporting passengers and GOL airlines is making flying cheaper for Brazilians than the “fast train” service of Japan.
    Good affordable jet service for passengers and good railroads for transporting iron ore. Brazil is running a trade surplus while the USA goes deeper in debt. The real climbs in value while the US dollar falls. Brazil is managing things better than the USA.

  • Guest

    your dumb stupid \”F\”
    THERE IS A RAILROAD SYSTEM IN PLACE IN THE COUTRY…YOU DUMB “F” BUT YOU ARE THE ONLY ONE THAT DON’T KNOW ABOUT IT…
    IT MAKES ALL THE SENCE IN THE WORLD FOR BRAZIL TO UPGRADE THE PRESENT SYSTEM TO COUNTERACT THE PROJECTED EXPORT DEMANDS …THERE ARE STRATEGIC ROUTES THAT WILL DIRECTLY SUPPORT THE PORTS AND AIRPORTS, BUT IT WILL OBVIOUSLY BENEFIT THE RAILROAD TRANPORTATION SYSTEM AS A WHOLE….YOU ASS HOLE!!!
    HERE IS A VISUAL FOR YOU… YOUR COUNTRY IS ALSO WAY BEHIND JAPAN’S SYSTEM…WAYYYYY BEHIND… AMTRACK IS A JOKE NOW ISN’T IT?
    YOU ARE ONE DUMB IDIOT!!!!

  • Guest

    yOU BRASILIANS ARE THE DUMBEST PEOPLE ON THE FACE OF THE EARTH. iNSTEAD OF BUILDING A RAILROAD SYSTEM FOR THE PEOPLE TO TRAVEL AROUND FASTER THAN TAKING A LONG BUS RIDE FOR 24HRS. YOU R GOVERNMENT IS PLANNING TO BUILD A RAILROAD SYSTEM TO HANDLE IRON, ORE, AND STEEL PRODUCTS SO THAT THE RICH FAT BRASILIANS CAN GET RICHER AND THE POOR PEOPLE TRAVEL MANY HOURS BY BUS. WHEN ARE YOU STUPID BASTARDS GOING TO WAKE UP TO REALITY, NO WONDER YOU WILL ALWAYS BE A THIRD WORLD NATION, OR MAYBE A NINTH WORLD NATION. WHEN GOD GAVE OUT COMMON SENSE AND BRAINS, HE WALKED BY BRASILBECAUSE I GUESS HE DECIDED IT WOULD BE A WAST OF TIME TO GIVE OUT INTELLIGENCE AND BRAINS TO SUCH STUPID AND DUMB AS PEOPLE AS BRASILIANS.

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