Brazil marks milestone in unlocking freight rail investments

The Brazilian government took a key step forward in its attempt to expand investments in freight rail projects, one of the most complex areas for attracting the private sector.

The President Luiz Inácio Lula da Silva administration announced an agreement with mining giant Vale on the early renewal of the company's concessions for the Carajás and Vitória a Minas railways.

The accord is expected to generate fees of 17bn reais (US$2.74bn) to be invested in freight rail projects in the coming years.

In 2020, Vale reached an agreement with the previous Jair Bolsonaro administration to extend the concession contracts from 2027 to 2057.

However, when Lula took office in January 2023, the administration considered the amount paid by Vale too low and began talks on a higher fee, which resulted in the new agreement to pay the extra 17bn reais.

The Carajás railway connects the states of Pará and Maranhão with São Luís port and is used by Vale to transport iron ore. Vitória a Minas passes through the states of Minas Gerais and Espírito Santo, also transporting iron ore.

The deal is considered crucial for the government to raise resources for freight rail projects.

"The early renewals of railway concession contracts are positive, as it is the simplest and fastest way to secure funding for projects in the freight railway sector," Roberto Guimarães, former treasury secretary and current planning and economics director at industry and infrastructure association ABDIB, told BNamericas.

Unlike sectors such as highways, sanitation and even passenger rail transport, which in recent years have received significant funding through concessions and PPPs, investments in freight railways have suffered.

There is a limited number of private companies operating the routes, which are considered extremely long in a country of continental dimensions. 

Also, as projects require large capex from the early stages, they are seen as high-risk by companies and financiers in the private sector, as cash flow only materializes after the completion of the entire works, which takes years.

"We know that in the case of freight railways, there are not many options. The government has to take charge and make significant investments at the beginning of the projects, and only with more advanced projects is it feasible to consider a concession model," transport minister Renan Filho told BNamericas recently.

Also read: Brazil's ambitious plans for freight railways

The agreement with Vale, which still depends on approval of audit court TCU, is the key step the federal government was waiting for to advance on the final details of a national freight rail plan.

Through this plan, the government aims to announce the priority freight rail projects that will receive public funding.

Other projects

The agreement is not the only initiative in the freight rail sector where Vale's participation is expected to be crucial.

Last year, Eurasian Resources Group put its iron ore miner Bahia Mineração (Bamin) up for sale, attracting interest from a consortium led by Vale, with the participation of local mining company Cedro Mineração and development bank BNDES, a person involved in the talks told BNamericas.

The evaluation of the company continues, and a decision on the sale is likely to take place this year.

The acquisition of Bamin by the Vale-led consortium is seen as important for the logistics sector. Bamin is expanding the Pedra de Ferro iron ore mine in Bahia state and building the Porto Sul deepwater port and a section of the east-west railway known as FIOL.

To complete the entire Bamin logistics project, including the FIOL railway, at least US$5bn is needed, according to the same person.