Switching track: Lula to rely on PPPs to drive rail investments

Brazilian president-elect Luiz Inácio Lula da Silva is expected to rely on the public-private partnership (PPP) model to drive investments in freight rail projects.

"In general, I see the new federal government as having a bias towards joint investment models involving the public and private sectors, such as PPPs for structured projects and not just public or just private investment solutions," Camila Affonso, a partner at infrastructure consultancy Leggio Consultoria, told BNamericas.

"In theory, the PPP model would work perfectly in the railway sector, but in practice the story is different," Luis Baldez, president of the association of cargo transport users (ANUT), told BNamericas.

"For a PPP to be successful, a financial contribution is needed from the public sector and, given the fiscal restrictions that arise from time to time in Brazil, no private sector company has much security to be involved in a PPP in the rail sector, which are projects that involve large volumes of investments and are also long-term initiatives," he added.  

According to Baldez, the cost of building 1km of rail in Brazil is around 15mn reais (US$2.9mn).

Since 2019, under the administration of President Jair Bolsonaro, the country has paved the way for investments in the rail sector by making rule changes to attract investments by private-sector firms.

These efforts have included the government moving to renew various concession contracts early, obliging companies to advance investments, as well as creating the so-called authorization regime.

This is a legal framework that authorizes private sector players to build and operate short-line rail networks under rights-of-use issued by the government. This system has been in place since the end of 2021.

Previously, companies interested in building such projects had to go through a lengthy tender process that was organized by the government and could take years.

Since the new regime was brought in, a total of 32 contracts have been signed with firms, involving a projected total of around 150bn reais in investments in new rail lines.

However, according to Maurício Muniz, a current member of Lula's government transition team and a former secretary of the PAC infrastructure program, most of the contracts signed under this new system are speculative and will not necessarily result in new investments.

The transition team has prepared a document calling for more PPPs in the rail sector instead of other models, Muniz was reported as saying by daily O Estado de S. Paulo. 

The transition team includes dozens of professionals and politicians from various areas and was appointed by Lula after his election at the end of October. The suggestions made by the transition team will not necessarily be followed by the president-elect, who takes office on January 1 for a four-year term.

Under Lula's new administration, the current infrastructure ministry, which is responsible for rail projects, will be divided into a transport ministry and ports and airports ministry, with the former taking charge of railways and highways. However, Lula has not yet confirmed the name of the new minister.