New legal framework to possibly allow ‘paper railways’

Since the adoption of a new legal framework for the sector, the Jair Bolsonaro administration has celebrated a wave of billionaire investments in railroads. However, some of the projects belong to firms with a social capital that appears irreconcilable with the proposed endeavours’ magnitude.

A study conducted by Valor indicates that at least five large projects that have already been authorized by the Ministry of Infrastructure, with a total length of 3,200 kilometres and nearly R$ 50 billion in promised investments, have been registered by companies with less than R$ 1 million in capital.

One of such companies is Macro Desenvolvimento Ltda., founded in November 2020, which signed contracts for two new rail stretches: Presidente Kennedy (ES)-Sete Lagoas (MG) and Sete Lagoas (MG)-Anápolis (GO). Together, both rail lines total 1,326 kilometres. The project’s expenditure is R$ 29.6 billion, yet the company’s capital is inversely proportionate to the project’s stake: just R$ 10,000.

Regardless of contradictions like the one mentioned above, billionaire investments in railways have been used as propaganda material in official ceremonies and on social media to endorse President Bolsonaro’s list of supposed achievements. The president will seek reelection in October.

These ventures are based on Law 14,273, approved by the National Congress in December last year and sanctioned days later by Bolsonaro, giving private parties authorization grants to build and operate new railways.

The authorization regime exempts private parties from participating in complicated bidding processes that often take many years. Instead, they can simply submit a project to the government at their own risk, which then signs an “adherence contract.” The compatibility between a company’s social capital and the size of a project is not among the requirements that companies must meet to have their proposals approved.

According to market executives interviewed by Valor, the new framework has led to the proliferation of so-called “paper railways.” In other words, despite official approval, railway projects are not being implemented successfully. Moreover, without enough capital to make projects viable, companies run after investors (usually foreigners) willing to inject resources and assume the risk.

The “death rates” of many such projects are likely to increase given the many uncertainties regarding their financing. Despite this, the government keeps arguing that the new legal framework has been revolutionizing the sector. The law was preceded by a temporary measure (MP 1065), introduced in August, establishing legal support for project presentation.

The temporary measure on railway authorizations became part of the federal government’s actions window as soon as it was approved. In early September, the Executive branch held a ceremony with Bolsonaro to launch the program Pro Trilhos, aimed at projects under the new contractual regime.

In February, the Presidency’s Special Communication Secretariat, on its official Twitter account, announced that Pro Trilhos had the potential of bringing together R$ 240.8 billion in investments, with 79 different new railroad requests from the private sector, on top of generating 2.6 million jobs.

Macro Desenvolvimento, which promised to build the two 1,326-kilometer railroads, presents itself as a company that “develops business projects and provides solutions,” with experience in initiatives such as a liquefied natural gas (LNG) regasification terminal and thermoelectric plants.

The company acts as a “strategic partner” for Porto Central, a project that has already been authorized and would serve as the point of arrival for the first railroad built by Macro. The partner responsible for the company, Fabrício Freitas, said that new contributions will increase the company’s social capital and foresees a period of up to 12 years to implement the two rail lines.

“The corporate investment model is being validated by our shareholders and investors based on the legal guidelines that we are receiving from specialized offices hired for this purpose. We began the project with a rudimentary model of a limited corporation with lower costs, and we will track contributions and modifications as each phase progresses,” claimed Freitas.

The other companies with a share capital of less than R$ 1 million were contacted by the report to comment on their authorization requests or contracts but did not respond. One of them, Grão-Pará Multimodal, leads a project valued at R$ 5.2 billion between Açailândia (MA) and Alcântara (MA). The route would connect the North-South Railway to a port whose works have not yet started. The company was registered with a capital of R$ 200 thousand.

Source: Valor Econômico

To read the full original article, please go to:

https://valor.globo.com/brasil/noticia/2022/04/06/nova-lei-abre-espaco-para-ferrovias-de-papel.ghtml

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