The lion’s share of the limited investments made in infrastructure, are allocated to roads, with railways lagging far behind, writes Patrick Knight.
While Brazil’s output and exports of most farm goods, iron ore and bauxite, pulp, paper and a range of other commodities has been growing steadily for many years, and will continue to do so, spending on improving roads, railways, waterways and at ports has failed to keep pace.
The economy shrank in 2015 and 2016, and grew by only about 1% in 2017. This
year’s growth, earlier hoped to exceed 2%, has now been downgraded again. With unemployment rising, and with tax revenues considerably lower than before the severe recession struck, government agencies are hard-pressed to just meet essential services. Spending on improve- ments to infrastructure have been a casualty, but rising transport costs pose a real threat to the profitability of farmers, mining companies, and producers of market pulp. Buoyant earnings from the export of commodities, has largely saved the economy from collapse.
In this situation, the government has resorted to selling as many state-owned assets as possible to raise funds, and has been seeking private finance for the building and maintenance of as many infrastructure projects as possible. Largely because of China’s importance as the leading market for a variety of Brazil’s commodities, led by soya of which 54mt (million tonnes) of the total 68mt exported was shipped to China last year, as well as iron ore, market pulp, sugar and maize, Chinese companies have been in the lead.
China’s giant Communications ?Construction Company, the state-owned CCCC. has been active in financing projects on its own, or in partnership with Brazilian companies. For example, CCCC has formed a joint venture in which it has a 50% share with national companies to build new facilities at fast growing Itaqui, a deep-water port in the northerly state of Maranao. Water is a record 20 metres deep, so expensive dredging, essential in ports further south, is not needed there. Itaqui is both the terminus of the 900km-long railway along which millions of tonnes of iron ore from Vale’s Carajas mine travels to the sea each year is embarked, as well as being an outlet for an increasing proportion of the soya and maize grown in the north and North East of Brazil.
The market pulp produced at Suzano’s pulp mill at Imperatriz, soon to be duplicated, is also exported from Itaqui, while increasing volumes of the millions of tonnes of fertilizer used on farms via Mato Grosso and other states, previously trucked up from ports in the south, now arrives there, as do large amounts of motor fuels.
Itaqui is one of the ports in what is called the ‘Northern Arc’ others of which are Itacoatiara, Santarem and Barbacena. Close to 25mt of Brazil’s soya and grains crop will be exported from the Arc ports this year, compared with 7mt a decade ago. Almost half of Brazil’s grains are now grown in the north and north east. Until recently, the great majority of these were trucked up to 2,000km south to Santos and Paranagua at great cost.
With demand for Brazil’s grains expected to double in the next 20 years, almost all the extra needed will be produced in the north, so the importance of Northern Arc ports will continue to increase. Because it takes several days less for the grains shipped from the north to reach most destinations from there, as it does those exported from the ports in the south of Brazil, as well as from up-river ports in Argentina, soya from Brazil is far less susceptible to deterioration on the journey, as those from further afield. This adds to its attraction and competitiveness.
The 1,537km-long North–South railway on which work started in the 1980s, will soon be operating on a regular basis. Bids are now being sought for the right to operate the railway which links the N–S line with the Carajas line in the north, and with other lines in the south. The CCCC company is a favourite to succeed, although there are bids from other Chinese and Russian companies as well. Whoever wins the rights to operate the N–S line, along Brazil’s 1,537km-long which more than 20mt are expected to be moved each year in a few years’ time, will need to invest at least US$1 billion on building loading facilities along the length of the track, and purchasing hundreds of new locomotives and thousands of new cargo wagons.
One of the problems whoever wins the N–S concession will face, is to negotiate rates for the use of the tracks owned by companies which operate the lines linking N–S tracks to Santos or Paranagua in the south, which are operated by the MRS and Rumo companies. These companies say they are anxious to invest large sums on upgrading the several thousands of kilometres of tracks whose concessions to operate they hold, and which will terminate soon, and on building stretches of brand new track.
Only 6.5% of the small investment in infrastructure of recent years, has been spent on railways, compared with 85% on roads. They have warned the cash strapped government that they will only make the much-needed investments if their concessions, which date from the when Brazil’s railway system was privatized 20 years ago, are extended by a further 30 years.
If times were easier, the government might be prepared to allow these concessions to expire, and seek new bidders, who might be able to operate the systems more efficiently, and on better terms. But in the present situation, this is unlikely to happen.
The current concession holders have been criticized for the fact that the speeds at which trains now travel on their tracks have not risen at all during the 20 years since privatization, and have fallen in some cases. The companies counter this claim by pointing out that trains are now much longer and heavier than in the past, that their tracks pass through urban areas which are much more heavily populated than 20 years ago on their ways to ports and that there are numerous level crossings to be negotiated.
The fact that there are two gauges in North–South railway on Brazil, 1:60 metres, and one metre, further which work started in the
complicates operations. The companies say the planned investments are essential if the existing 21% of all the goods moved in Brazil which now travel by train is to continue at this level. Without them. rail’s share could soon fall to 17% or so, the companies claim.
The main competition for rail, comes from road of course, and in the past few years, the government has granted concessions for many stretches of road to be privatized, and for tolls to be levied. Much of the proceeds is supposed to be used to upgrade, or maintain these highways. But the years of below-average economic growth meant that expected levels of revenue have not occurred, and as a result, several concession holders have handed back their unprofitable concessions to the government.
Concessions to build and operate some new rail lines, running inland from the coast, have also been handed back. Although the government would ideally like many of the roads along which the 200mt of soya and maize grown each year are taken direct from farms, or from processing plants to ports, or railheads, to operate tolls, few toll roads are in or near the grains producing regions.
Cash-strapped governments have lagged behind in bringing these roads up to a standard at which a private enterprise might be interested in operating them. The key 1,200km-long BR 163 highway, which links the soya plantations of much of the leading producing state of Mato Grosso, which is used by up to 700 trucks each day, and carries at least 25mt of grains a year, on its way to ports in the ‘Northern Arc’. But a 200km stretch of this road leading to the riverside port of Miritituba, has still to be paved, with the result that trucks can take five days to negotiate this stretch during the rainy season. The paving work is not expected to be completed in less than two years, and the army has been called in to complete work which private construction companies have failed to finish.
A concession to build a 1,700km stretchof railway which would run parallel to the Tapajos waterway, where at the moment, large quantities of grains are transferred from trucks to barges before being shipped downstream to the deep water ports of Santarem, Santana, or Barbacena has yet to be awarded. However, the large trading companies active in Brazil say they are prepared to finance such a line, which would run direct to Barbacena, close to the mouth of the Amazon.
With 80mt of soybeans shipped, last year, and with about 2.5mt more being shipped to China each year, and with 30mt of maize to leave this year, such a line will soon become essential.
The CCCC company has not limited its investments to the North and Centre of Brazil, and plans to spend $300 million on new grain storage facilities near the port of Sao Francisco do Sul, in the state of Santa Caterina, which is an alternative to Paranagua. The Chinese company is also negotiating to buy a 50% share in the ALL rail company, recently bought by Rumo, which operates most of the 1,500km of lines, most of them narrow gauge, in the south of the country.
CCCC has undertaken to invest up to $500 million in upgrading these tracks, along which some 25mt of cargo, the majority grains, is now moved each year.
Concern has been shown in some quarters of the risks involved in the major investments being made in Brazil by
companies owned by the Chinese state. On the face of it, the deals appear attractive, but as has occurred in several countries in Africa, there are drawbacks. The Chinese usually require that their own nationals occupy all senior managerial positions in such projects, and often insist that Chinese technicians are involved in building works, so few jobs are available to local people.
Many people are aware that Brazil is now the world’s leading exporter of soya beans, and that it sells far more beans to China than the world’s top producer, the United States, where along with most other leading soya producers, there is little spare land available to plant much more soya than is now the case. Only Argentina, of the world’s large-scale growers, could switch more land out of extensive cattle grazing, to growing arable crops, as now happens in Brazil as well.
Less well known has been Brazil’s ability to produce and export much more maize, again most of the extra being produced in the northern half of the country. Until ten years ago, Brazil was a major importer of the grain, as more than 50mt is needed each year by Brazil’s massive poultry, pork and dairy cattle industries.
Much of the soya grown in the states of the North, notably Mato Grosso, is planted as early in the spring as possible, which means ‘winter’ maize can be planted as soon as the early soya has been harvested and still do well. In the past few years, considerably more ‘winter’ than summer maize has been grown in Brazil. As more soya comes to be planted, more of the ‘winter’ maize crop, most of which is exported, will be available as well.
Up to 30mt of maize will leave from ‘Northern Arc’ ports this year, an increasing proportion of it heading to China, no longer self-sufficient in this grain as demand for meat and dairy produce continues to surge. Because of the growing importance of the north and now, north east of Brazil, as grains growing area, it is not a surprise that attention is being increasingly focused on improving the waterways which flow north, and in some cases, south into the massive Amazon river, navigable up to 3,000km from the Atlantic, into Peru, Bolivia and Colombia. One main tributary, the Tocantins, is also navigable up to 1,000km from the point where it merges with the main Amazon at the fast expanding port of Santarem, and two important riverside terminals used by barges, have been built there in recent years. Others fall more sharply to the river, so locks are needed to make the rivers navigable. Such a set of locks was built adjacent to the large Tocantins power station, one of Brazil’s largest, in the 1980s. However, until now, nothing has been done to clear rocks from a 30km stretch of river downstream from the locks, which now handle barge trains of only a few thousand tonnes, rather than their potential of several millions. Work is now proceeding on removing these rocks, allowing large barge trains to use this route.