Will Brazil continue to see new rail project proposals?

After a wave of requests from companies seeking authorization to build their own railroads after new regulation was enacted in the sector, the Brazilian government expects a temporary slowdown in project proposals.

"The great success of the Pro Trilhos program has been a complete surprise in relation to the high number of requests we've had so far. We have always been supporters of the project. We always thought that there was repressed demand in the railroad segment and the high number of proposals shows we were right," Marcello da Costa (pictured), secretary of the land transportation area at the infrastructure ministry, told BNamericas. 

"It's difficult to predict how many more authorization requests will be made. At the beginning it's normal to see a concentration of large numbers of requests and the trend is that we will reach a stage of maturity with a smaller number of requests," added Costa.

Private sector players are taking advantage of changes to regulations, authorized by President Jair Bolsonaro last year, under which firms may build and operate short-distance freight railways via government-issued rights-of-way. Previously, companies had to compete in tender processes that could take years. The new regulation was called the Pro Trilhos program. 

Since the decree was published, the government has received 79 requests for initiatives from companies involving potential investments of 241bn reais (US$45bn) and 20,721km of lines. The government has so far authorized 13 companies from various sectors to build 22 rail lines across the country. These add up to a total of 6,880km and are expected to involve investments of 103bn reais. 

Once a project is authorized by the government, the companies are responsible for obtaining all the necessary permits for the project, as well as the necessary financing. The estimate is that the projects will take 5-10 years to be completed.

According to the secretary, most of the projects requested so far involve stretches of more than 100km, and the trend is now to ask for permits for smaller projects of just a few kilometers in length to connect industrial zones to existing railway lines, in order to gain scale. 

The large volume of requests by companies for railway projects raised some concerns among market participants about the feasibility of so many projects and the mechanisms that the government could adopt to resolve disputes between companies interested in similar stretches.

"We have established mechanisms to prevent the creation of a secondary market for railroad authorizations, with one company potentially asking for an authorization and trying to sell it in the future. First, the process is open to all companies, so there's no need to have other parties do it. Second, we set deadlines for companies to obtain the necessary licenses for the projects and if we see that they're not progressing, if it's not justified, we can revoke the permit," said Costa.

Regarding potential disputes between different companies over a similar stretch of rail line, Costa said: "In the case that two or more companies request authorization for the same stretch, the company that obtains the licenses and financing first would be ahead, but this doesn't stop another company from building a railroad next to it, or these companies will even talk with each other sometimes to share the project." 

A dispute over a line has already taken place. Two major logistics companies, Rumo and VLI Multimodal, requested authorization to build private railways in a similar area, crossing Água Boa, in Mato Grosso state to Chaveslândia, in Minas Gerais state.

PASSENGER TRANSPORTATION

The Pro Trilhos program is focused on cargo railways and now the government is looking at measures to stimulate investments in projects for passenger transportation. 

In January the government concluded a public consultation to replicate the success of Pro Trilhos in passenger transportation projects. According to market participants, this model can be used for intercity and regional passenger lines.

"We've finalized the public consultation to discuss the topic. We'll establish a document based on this to set guidelines with respect to the passenger transportation area. This is a path that we also want to advance on. We've made progress in cargo transportation, but we also want to make progress in the passenger transportation projects," said Costa.