Railroad concession: Know the advantages and disadvantages
Brazilian railroads have gone through stages of growth and reduction throughout their history, since the mid-19th century, when the first railroads began to be built. The railroad concession appeared already in this period.
After its peak, with the urbanization of trains, this type of transport declined, generating an imbalance and dependence on roads as the main means to carry products such as ores, grains, meat and steel, a logistical challenge for the country.
After the decline, the railroads represent a resumption of investment and open themselves to the inclusion of new technologies, qualified service, agility and economy with transport, all through public concessions.
This railroad concession is nothing more than a contractual privatization, a partnership between companies that are in charge of managing the networks in order to recover them and return export routes and keep products that move the economy.
In this article you will understand what a railroad concession is, and how it works:
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How a railroad concession works
The Brazilian railroad concession began in the 1990s, when the state-owned companies RFFSA and Fepasa presented big losses to the public coffers, low number of jobs and several structural problems.
The first, Rede Ferroviária Federal S/A, was founded in 1957, when the countrys railroads were unified, under the Federal Government's domain. With the objective of maintaining the railroad and train networks, the company had a collection of eighteen companies in the transport sector, including Malha Norte and Sudeste.
The exception of this national union of railroads was Ferrovia Paulista S/A (Fepasa), founded in 1971 with the same purpose of keeping the rail transport modal active in the industrial and agronomic sectors. However, with many management and investment problems, the two state-owned companies allowed their railroad infrastructure to decay.
Therefore, with trains, rails and filling stations in deteriorated conditions, it did not take long for transport to become inefficient to the point of reducing labor and falling into disuse.
The strategy that the government adopted was to grant the facilities and services of these railroads to the private sector, with transport, industry and export companies. Export corridors and internal product axes were respected.
Under the domain of the private sector, investments increased and the networks were gradually restored, to which today the rail modal accounts for about 25% of Brazilian transport.
Advantages and disadvantages
Under the domain of the private sector, investments increased and the networks were gradually restored, to which today the rail modal accounts for about 25% of Brazilian transport.
However, the railroad network is at an introductory stage, in which there is an urgent need for more investments for its renovation, both in infrastructure and in superstructure.
Even offering an alternative to road transport, as it represents a reduction in costs on long journeys, trains still do not have a large share in the country's demand. This is due, in part, to their inflexibility. The current network is unable to explore new paths in order to increase the efficiency of its services.
In this way, what should be a cost reduction is actually an increase in rates and a low-requested service. Contrary to the competitiveness that would guarantee the quality of the modes, there is a prevalence of road transport, which has more offer and ends up costing less than rail transport, even when dealing with long journeys.
This model of railroad concession needs to move to a new stage, the integration between its companies and intermodal integration. The first integration would resolve the differences between investments in different railroads, so that they have the same technological quality and can be connected to shorten stretches.
While the second integration would result in a scale between transport modes throughout the country, with stations where transitions between one modal and another take place, allowing for better product flow and high efficiency, in which highways actively participate in short and railroads, long distances.
Rail concessions in 2021
The first step for the growth of Brazilian railroads is to increase investments to expand the network and transport capacity. Several projects are already in the initial phase and are forecasted that in ten years the rail modal will correspond to 30% of Brazilian transport. According to the Ministry of Infrastructure, in 2021 this value will be 15%.
The most important initiative so far this year is the concession of sections of the East-West Integration railroad (Fiol).The first stretch was auctioned in April, in which Bahia Mineração (Bamin) received a 35-year concession. There are also plans for two auctions involving parts of Fiol, which should take place by 2023.
Fiol's railroad concession will bring investments that will renew and expand the railroad, connecting some sections with already active railroads, as in the case of the third section to be auctioned, which connects with the North-South railroad in Figueirópolis, Tocantins.
Another initiative of the Federal Government with the Partnership and Investment Program in railroad concessions is Ferrogrão, the railroad that will connect agricultural production in the north of Mato Grosso to the ports of Pará. The expectation is that this work will move around R$20 billion in investments, totaling a long-term project, with an estimated 60 years to expand, according to the Ministry of Infrastructure.
Meanwhile, already active partnerships are being renewed, with rail concession contracts in advance for the companies Rumo and MRS. The first extends over 1900 kilometers between Santa Fé do Sul and the Port of Santos, both in the state of São Paulo.
Along with the renewal of Rumo, MRS is expected to renew its contract in 2021 for another 30 years. Its railroad system connects the states of Minas Gerais, São Paulo and Rio de Janeiro, with an extension of over 1600 kilometers, to supply the transport of iron ore, among other products.
Conclusion
So far, we have seen how the railroad concession works, its advantages, disadvantages and contextualized the scenario of concessions from 2021 onwards.
This type of partnership between the private sector and the government has been taking place since the 1990s, when the scenario of national railroads was precarious and generating public debt. From this transition onwards, the country's networks are crawling towards a process of reformulation, with planning integrated with other modes of transport, internal and external.
Far from ideal, railroads arouse the interests of the state and companies to scale the modes of transport and facilitate the flow of agricultural products to the interior of the states and boost exports.
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