Vale's US$3bn railroad deal set to drive Brazil's freight expansion

An ongoing agreement between the Brazilian government and mining company Vale, involving investments of 17bn reais (US$3bn), is expected to drive the development of nearly 1,800km of freight railroads across the country.

With the funds from the agreement, the government aims to advance the concession contract for a 1,708km segment of the east-west rail corridor, which includes sections of the FICO and FIOL railroads. The money will also support the construction of a 72km section of rails between Cariacica and Anchieta in Espírito Santo state.

The country's audit court, TCU, has granted preliminary approval for the advance of the agreement and over the next 90 days, the transport ministry and Vale's representatives will provide legal details to secure the final approval of the deal, the ministry stated in a release.

Earlier this year, President Luiz Inácio Lula da Silva's administration announced the agreement with Vale as part of the early renewal of the company's existing concession contracts for the Carajás and Vitória a Minas railroads.

Under the agreement, Vale has committed to paying 17bn reais to the government.

Of this total, 6bn reais will be allocated to constructing the railroad between Cariacica and Anchieta, while the remainder will be invested in the FICO-FIOL systems.

Details

Authorization from the TCU is critical to ensuring that these funds can be rapidly deployed to advance freight rail projects.

"The idea is that these resources are not integrated into the federal government budget because that would create a very slow process of new approvals for the money to be used in the projects. The idea is to raise these resources and inject them directly into the railroad projects, and that depends on the approval from the TCU," a government official told BNamericas on condition of anonymity.

"These resources will be used to guarantee investments in the initial phase of these rail projects. Later, the remaining funds for these projects will be covered by private companies through a concession contract. This model was chosen because the private sector has been reluctant to assume the risks of these projects from the outset," the official added.

Once final approval from the TCU is secured, the government plans to auction the FICO-FIOL concession.

The 35-year concession contract for this railroad involves projected capex of 28.5bn reais and opex of 80bn reais.