Track record: private companies in Brazil take the lead in railroad revitalization

Latin Trade, May, 2004 by Silmara Cossolino

Once the workhorse of Brazilian industry, railroads have run down over the past few years from lack of investment. Instead of waiting for the government to invest an announced US$2.7 billion to modernize the sector, which marked its 150th birthday last April, the lines' users have beam improving the country's train tracks themselves.

The largest Brazilian-owned grain Processor, Caramuru Alimentos, has invested $39 million over the last few years in infrastructure, $10 million of which bought 10 locomotives and 300 train cars to improve the company's logistical operations.

"Before the government announced this plan, we were already taking action," says Caramuru Vice President Cesar Borges. "Brazil has grown tremendously, but the infrastructure is not keeping up." Caramuru's sales in 2003 hit $408 million and could climb to $510 million this year. The company can process 1.2 million tons of soy and close to 450.000 tons of corn annually. Exports represent 43% of Caramuru's revenues.

Railroads are important to the Brazilian economy, as they account for 23% of the cargo transportation market in Brazil and carry a third of agricultural products to market each year. The government's revitalization program aims to eliminate railroad bottlenecks and expand the network into agricultural areas of rural Brazil by 2007. While the private sector is eager to lend a hand, it also demands transparency from the government. "People are interested, although the regulatory framework is not clear. It must be transparent and defined to attract investment," Borges says.

Construction company Valec Empresas de Engenharia, Construcoes e Ferrovias advises the government on the plan. Executives at Valec say modernization will not bring overnight results. The government's change in attitude will create competition, although there are many bottlenecks in the sector, Valec executives say. And years of government spending will be needed before the nation's railroads become competitive. In the meantime, it's the private sector that needs to set the pace.

"If you are going to invest this year, then you are going to see results in 2007 or in 2008. There are no investments that can be made to accommodate this year's harvest," says Bernardo Figueiredo, executive director of Valec. "At this level, there are more private investments--increases in fleet sizes--that railroads are making on the order of almost 5,000 train cars annually to increase capacity for agriculture," says Figueiredo. "These are the investments that will generate immediate results."

Across Brazil, companies from different industries are teaming up to handle the increased business that a better railroad system will bring. Soybean transporter Brasil Ferrovias has partnered with clients such as Caramuru and ADM Brasil to buy train cars, locomotives and rolling stock. Brasil Ferrovias has spent $681 million in railroad construction and maintenance to handle the 20% growth in rail shipments and more than 15 million tons of cargo it expects for 2004.

Crossing borders. Valec, meanwhile, is not stopping with Brazil. The company has asked Bolivian, Brazilian, Argentine and Chilean companies to help rehabilitate an existing rail line running from Santos, in Sao Paulo state, to Antofagasta, in northern Chile, passing through Argentina and Bolivia. "We see that the possibility exists," says Figueiredo. "The Bolivian stretch is in fine shape, but the Brazilian and Argentine portions have maintenance problems. It has some limitations in crossing the Andes, but there are no limitations in connecting Brazil, Bolivia and Argentina." Investments are needed, too, in Bolivia to eliminate capacity restrictions associated with getting over the Andes. Nevertheless, "the railroad could be of good use in integrating these countries," Figueiredo says.

Valec's proposal would not be part of the government's $2.7 billion railroad revitalization plan, although it would operate as a Brazilian concession subject to international railroad and transportation oversight regulations.

Figueiredo says that the government is participating and that the project remains a concession. Coordinating the work means the countries involved will have to share information and harmonize regulation and railroad policies. "That we'll have to work on. So in that sense, it is a Brazilian concession," he says. "But it is not part of the government's $2.7 billion investment because we consider it to be a private investment."