Brazil’s first privatized rail concession expires after 30 years as government prepares new auction

Malha Oeste, the first railway concession awarded to the private sector during the privatization of Brazil’s former federal rail company RFFSA, reaches the end of its 30-year contract on Tuesday, June 30.

The federal government is now preparing a new tender for the 1,900-kilometer network, with an auction expected by the end of this year.

Three decades after Brazil launched its rail concession program under former President Fernando Henrique Cardoso, Malha Oeste is returning to the market in search of a new operator. The concession, which began in 1996, later became marked by the concentration of freight traffic on only a few stretches and the deterioration of much of the network.

“Today, Malha Oeste is not operating on any stretch, but its potential is significant and will be restored through a new auction model that provides for investments throughout the concession,” Transport Minister George Santoro told Folha.

In May, ANTT, Brazil’s land transport regulator, approved the studies for the new auction model and sent the project to the Federal Court of Accounts, known as TCU, for review.

State-owned planning company Infra S.A. commissioned new surveys to reassess the liabilities owed to the federal government by current concessionaire Rumo and calculate the compensation to be settled by the company. Field inspections are under way along several stretches of the railway to close the assessment. Rumo has also filed a lawsuit challenging the compensation claims.

Rumo said the railway faced a “structural economic and financial imbalance” only months after the concession began, a situation it said was formally recognized by the courts and undermined both the economic viability and operating capacity of the line.

The company said talks are now under way for the assets to be returned to the federal government.

Malha Oeste is the first railway from the former RFFSA network to complete the full 30-year concession cycle and return to the market for a new tender. Other rail networks have had their contracts renewed ahead of schedule.

Isadora Cohen, a partner at ICO Consultoria, said there had been an attempt to renegotiate the contract with Rumo, but the changes required were so extensive that the government opted for a new tender.

“The main challenge remains attracting investors to a project the market has already seen as loss-making. The government had to completely redesign the concession to try to make it viable,” she said.

A railway with more than a century of history

Malha Oeste’s route dates back more than 100 years, when it was known as the Noroeste do Brasil Railway. It was one of Brazil’s major integration projects, designed in the late 19th century. Construction began in 1905 in Bauru, São Paulo, at a time when much of the Center-West was still isolated from the rest of the country.

The federal government wanted to consolidate the occupation of what was then Mato Grosso, which would only become Mato Grosso do Sul in 1977 after the state was divided, strengthen its presence in the region and reduce dependence on river routes linking the interior to countries in the La Plata Basin.

For decades, the railway was the main connection between Brazil’s Center-West and Southeast, carrying passengers and goods across a region where roads were scarce and trips could take weeks.

For most of its history, Malha Oeste was more important as a passenger route than as a freight railway. For almost 90 years, its trains carried thousands of people between São Paulo, the interior and the border with Bolivia. At its peak, the service included sleeping cars and dining cars.

From the Brazilian border, passengers could continue into Bolivia on the line later known as the “Death Train,” running between Puerto Suárez and Santa Cruz de la Sierra. The tracks began in São Paulo, crossed the Pantanal wetlands and reached Bolivia.

The railway’s decline began with the expansion of highways. From the 1970s onward, trucks and buses increasingly competed with rail transport. Federal investment declined, and the infrastructure aged.

By the 1980s, the situation was already considered critical, and passenger transport was in decline. In 1993, three years before privatization, passenger service was permanently discontinued. From then on, the line operated only with freight. Freight operations also stopped at the end of last year.

Today, most of the railway’s 1,900 kilometers are underused. The stretches with the greatest potential are linked to iron ore transport in the Corumbá region of Mato Grosso do Sul and pulp in Três Lagoas, also in Mato Grosso do Sul. So far, the government’s plan does not include passenger service.

“Malha Oeste remains an important railway for moving production from Mato Grosso do Sul to the Port of Santos, but its geometry is somewhat outdated and allows for lower speeds. In many stretches, the infrastructure will essentially need to be rebuilt so it can operate efficiently again,” said Mauricio Portugal, an infrastructure lawyer and Folha columnist.

For Santoro, the railway also suffered from an earlier privatization model in which project revenues were not reinvested in the railway itself and no investment targets were set.

“It lost competitiveness even as its area of influence went through an economic boom in agribusiness, mining and pulp. The new project values the asset by providing for structural investments and a connection with the MRS network through the São Paulo Ferroanel. That will highlight its original vocation, bringing the Center-West region into the ports of the Southeast,” the minister said.

The government expects to hold the new concession auction in the fourth quarter of 2026, between October and December. The model provides for about R$29 billion in investments over the life of the contract, along with R$3.6 billion in public funding to recover degraded stretches.

Although the historic network covers about 1,973 kilometers, the new concession will focus mainly on the 1,625-kilometer stretch between Corumbá and Mairinque, São Paulo.

The 355-kilometer branch between Campo Grande and Ponta Porã had initially been left out of the plan, but was later included in the modeling at the request of the Mato Grosso do Sul state government. Its operation will depend on the alternative chosen by the auction winner. The stretch may be restored and operated commercially, but it will not be a mandatory part of the new concession.

Source: Folha de São Paulo

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