The auction of the Norte Sul railway (FNS), on March 28,
marks the end of a long hiatus for railway concessions. The
last one had taken place in 2007, more than 10 years ago.
Of the various Brazilian logistic sectors, rail transport
faces the greatest challenges. It presents risks related to
demand, construction, expropriation, the environment, and
issues related to third-party access to the existing
All these issues result in a substantial deficit. Brazilian
railways rank 88th in the global competitiveness ranking, which
evaluates 101 countries on efficiency and development, among
The auctioned portion of the FNS presents a specific
challenge: the railway has no direct link to seaports. It
depends on access through sections operated by other
concessionaires to take its cargo to maritime exits.
According to the existing regulation, access must be
negotiated between the concessionaires, and formalised through
a specific operational contract. If the parties cannot reach an
agreement, the matter is submitted to arbitration before the
Transportation Regulatory Agency (ANTT). The ANTT's decision
can be further challenged in court.
However, third-party access is only mandatory if there is
idle capacity. It is precisely there that conflicts occur. It
is reported that parts of the network are already reaching the
maximum capacity. If there is no idle capacity, the third party
can build an expansion, at its own risk. This solution
represents substantial costs and is not always feasible within
the concessionaire's business plan.
Seeking to mitigate this risk, the ANTT entered into
agreements with existing concessionaires before the bidding
process, establishing a reserve of capacity for the initial
five years of operation of the FNS and capped rates for access.
This was an innovation in the Brazilian railway sector.
Nonetheless, only the concessionaires within the boundaries
of the FNS participated in the auction. Brazilian logistics
company VLI has access to the Itaqui port, along the northern
section of the railway, and through the Ferro Carajás
railway; and another of Brazil's logistics companies, Rumo, has
an exit from the Port of Santos through the southeast
The rail industry, due to its complex and capital-intensive
nature, would ordinarily attract a relatively small number of
competitors, and the third-party access issue may have further
reduced potential interest. Future rail concessions, which have
access to their own exit channels – the FIOL railway
has an exit from the port of Ilhéus, and the
Ferrogrão railway has an exit from the port of
Miritibuba – should attract more players. It is
expected, also, that the renewal of the existing concessions
– with new investment obligations – will
increase the capacity of the existing network.
All factors considered, a positive balance was achieved. Two
proponents were sufficient for effective competition with high
premiums (VLI offered BRL2.06 billion – $538.5 million
– and Rumo offered BRL 2.72 billion, representing
respectively, 52.60% and 100.92% over the minimum offer of
BRL1.35 billion). Most importantly, the auction represents the
initial and decisive step to resume the railway concessions;
essential for putting the country back on track for