Perspectives for the Brazilian Railway Sector in 2011

The year that has just started promises to be the best of those experienced during the last few decades for the Brazilian Railway Sector, with expectations of record investments. In addition to private projects and the High-speed train linking the cities of São Paulo and Rio de Janeiro, the Federal Government, through the state-owned company Valec – Engenharia, Construções e Ferrovias S.A., has three large railway projects under development that promise to change the face of Brazilian logistics. Valec, for example, intends to accept bids for the construction of almost 3,000km of lines in 2011, to: continue the work on the North-South Railway and the first portions of the West-East Railway and Center-West Railway, an investment of approximately R$ 1.3 billion. The rail tracks will be imported since Brazil does not have the means to meet the demand. In order to provide an incentive for the investment, Law No. 11.033/2004 exempted rail tracks and locomotives from the payment of taxes (such as: IPI, PIS/Pasep, Cofins and Importation).

North-South Railway.

Initially planned to cover 1,550 km, passing through States of Maranhão, Tocantins and Goiás, North-South Railway, with length extended by Provisional Measure No. 427, dated May 9, 2008, incorporating the Açailândia-Belém and Anápolis-Panorama sections, in total of 3,100 km. The North-South Railway was planned to improve integration, covering 21.8% of the country, where 15.5% of Brazil’s population live. 571 km of railway are ready and in operation and another 720 km are expected to start operation within this year.

West-East Railway.

The West-East Railway will link the State of Tocantins to the coast of State of Bahia (1,490km), assisting the transportation of mineral and agricultural production. It will be connected to the North-South Railway and the Carajás Railway. The construction of the first section of the West-East Railway, between Ilhéus and Caetité, is expected to start within this year, with a total length of 530 km. Work on the other two sections between Caetité and São Desidério (413km), and between Barreiras and Figueirópolis (547 km), construction should start in 2012.

Center-West Railway.

This railway will link the States of Rondônia, Mato Grosso and Goiás, with a connection to the North-South Railway. It represents the first part of the Transcontinental Railway Project which will cross the heart of South America from the coast of Rio de Janeiro to the border between Brazil and Peru. The project is in its environmental licensing stage, with construction works expected to start within this year.

Railway Public Bid.

The public bid of 244 thousand tons of rails for the railways North-South and East-West Railways, earlier this year, had winner which offered the lowest price of R$ 723 million, or R$ 2,963 per tone of rail. The delivery of the rails shall start in 11 months after the contract is signed.

Right of Way Project (“Direito de Passagem”).

In addition ANTT (National Land Transportation Agency) introduced a project to regulate the Right of Way and mutual transportation, aiming to integrate the Federal Railway System. The project foresees free negotiation between the concessionaires for Rights of Way, thus integrating and expanding the railway network. This project is under Public Consultation stage and is set to encourage the development of the Brazilian Logistics Sector.

Investment in the sector.

Investments in the Railway Sector between 2000 and 2009 was of R$ 20.8 billion and the amount transported by the network rose from 288.1 million tons to 532.7 million tons. Over the last 13 years the number of locomotives in operation almost tripled, jumping from 1,154 to 2,919, whilst the number of wagons doubled from 43,816 to 92,814. For 2011, Valec alone has an investment budget of approximately R$ 2.4 billion, a figure which represents more than 10% of the total invested by all companies of the sector over the last 10 years.