Railways: lack of public funds stops expansion – 07/15/2023 – Market

Even with the global pressure for the energy transition and the reduction of pollutants, the expansion of railroads in Brazil should follow well behind road projects in the coming years.

Currently, according to ANTT (National Land Transport Agency), there are six rail concession projects underway in the country by the federal government. At the same time, there are 21 road concessions being prepared.

A survey by Abdib (Brazilian Association of Infrastructure and Base Industries) points out that there are 19 infrastructure auctions planned in Brazil for 2023 and 2024, and only one of them is rail — the intercity train of the Government of São Paulo.

In an interview with the newspaper Valor Econômico, in June, the Minister of Transport, Renan Filho, estimated that there will be around R$ 70 billion for public investment in roads and railways over the next four years. Renan said that most of that money will go to roads, as most of the railroads must be built with private funds.

The Lula government should launch a new PAC (Growth Acceleration Plan) by August, which should bring together several already announced concession projects and some new initiatives.

On July 3, President Lula (PT) went to an event for the start of the Fiol (West-East Integration Railway) works, in Ilhéus, Bahia. The work is done under concession and should be ready in 2027. Lula said that this will be the first work to integrate the new PAC.

The first stretch of Fiol is 537 km long and goes from Ilhéus to Caetité, in southwest Bahia. The complete project foresees taking the tracks to Figueirópolis, in Tocantins, where there will be a connection with the North-South railroad, in a route of 1,527 km. The other two stretches are still awaiting the concession process.

The increase in public investments in infrastructure, however, depends on more space in the Budget. “In order to continue with investments in both modes, it is necessary to approve the proposal for the Sustainable Fiscal Regime [arcabouço fiscal] and tax reform. The intention is to maintain the level of public investment in highways and gradually increase in railways, which today are mostly under private administration,” said the Ministry of Transport, in a note.

In June, the Lula government launched a new road concession policy. The Transport portfolio is now working on a similar policy for railways, which should review the concession and authorization processes, to attract more investment and increase legal certainty.

Among the measures is the creation of a National Policy for Passenger Transport and an Innovation Laboratory. According to ANTT data, Brazil currently has around 32,600 km of railroads built.

In 2021, the federal government created the Marco das Ferrovias, which brought the authorization model. The government only gives approval to rail construction projects by the private sector, without taking steps such as holding auctions or investing public funds.

This year, ten terms of adhesion have already been signed. The list, however, includes short stretches, such as a 12 km railway in the port of São Luís, in Maranhão, and projects that still need to raise funds, such as a high-speed train between São Paulo and Rio de Janeiro.

According to ANTT, since 2021 – when Marco das Ferrovias was sanctioned by former president Jair Bolsonaro (PL)–, more than 30 adhesion contracts have been registered.

For Gesner de Oliveira, economist and professor at FGV (Fundação Getulio Vargas), the authorization system helps to attract private capital, as it excludes the need for a more complex and time-consuming process, as is the case with concessions.

He says, however, that caution is needed with the model. “When the new railway landmark was approved, the private sector’s investment plans grew significantly. We have to look carefully, because they are investment intentions. An intention is one thing and another is when there is actually an investment commitment.”

Roberto Guimarães, Director of Planning and Economy at Abdib, assesses that shorter railroad projects, which have a reduced cost, attract private money more easily. For larger railroads, however, the ideal is for investments to be divided between companies and the government.

“The private sector alone cannot afford a structuring railway that is 800 or 1,000 kilometers long. The investment cost is very high. Railways are more expensive, but the return is better. If it is more expensive, private capital cannot go it alone”, affirm.

According to the Ministry of Transport, the amounts invested via the Union Budget in the railway modal have been falling in recent years. While in 2014 the amount was more than R$2.8 billion, the number shrunk to R$342.6 million last year. The creation of the spending ceiling is pointed out as one of the main reasons for the drop.

An alternative that has been used by the government to fund new works is to negotiate early renewals with railroad concessionaires. Vale, for example, agreed to build the first section of the Fico (Midwest Integration Railroad) as part of the agreement to extend two other contracts.

In addition to the fiscal concern, specialists point to a neglect of the rulers themselves with the railway sector. According to them, as the works usually take longer than the term of office of the politician in office, there is little interest in taking them forward.

“There has to be a public policy of the State, not of the government, because they are longer processes and that pass from one government to another. If the leader is not re-elected or has a successor, he understands that he should not continue the project. it’s very bad”, says Vicente Abate, president of Abifer (Brazilian Railway Industry Association).

Ferrogrão exposes environmental barriers in the infrastructure sector

Infrastructure works, such as railways, also face environmental obstacles. Ferrogrão —which intends to ship products such as corn and soybeans from Mato Grosso to Pará— is an example. Located in the middle of the railroad path, the Jamanxim National Park would need to have its area altered so that the railroad can be built.

During his term, former President Michel Temer (MDB) even changed the boundaries of the forest, but, in March 2021, Minister Alexandre de Moraes, of the STF, suspended the law in an injunction.

At the end of May, the minister released the resumption of the analysis of studies of the work, which is 933 km long and has not yet started. He determined, however, that Cesal (Center for Alternative Litigation Solutions), an organ of the Supreme Court, present suggestions for the solution of the case within 60 days.

Juliano Assunção, director of the Climate Policy Initiative, affiliated with PUC-Rio, says that the construction of Ferrogrão could cause a potential deforestation impact of around US$ 1.9 billion (more than R$ 9 billion), if no measures of mitigation is implemented.

“We cannot bring up environmental discussions only when the work is already tendered. The basic point is to think of a process in which we introduce filters of greater granularity as we advance in the project stages, avoiding the implementation of poor quality projects. “

Still according to the researcher, there is also a problem in defining the area of ​​influence of the work, which, according to him, is restricted to the surroundings of the construction. “In the case of a railroad like Ferrogrão, this provides a narrow view of the real impact, both in the positive sense of income generation and employment and possible social and environmental risks”, he says.