Brazil aims to expand rail system with funds from prior contracts

Brazil aims to expand rail system with funds from prior contracts

By Lisandra Paraguassu

Brazil plans to expand its railway network with a 40 billion reais ($8 billion) fund that will be financed by removing discounts given to rail companies by previous government contracts, Transport Minister Renan Filho told Reuters.

The discounts were given to iron ore miner Vale and logistics companies Rumo and MRS in 2022 under the government of former President Jair Bolsonaro when they received an early renewal of their contracts for 35 years. The Federal Audit Court is now reviewing those extensions after the government of President Lula da Silva disputed the discounts.

"We think that some procedures adopted in the contracts are unacceptable," Filho said in an interview on Friday.

The contracts did not receive the normal public bidding process, and instead the Bolsonaro government allowed the rail operators to make an advance payment, deducting unamortized assets from what they owed for their concessions, he said.

According to the government, the companies owe an additional 40 billion reais ($8.1 billion) in unpaid concession payments. Of the three companies, only Rumo has already agreed to pay.

Vale, which operates the railway from Carajas to the port of Vitoria in Espirito Santo state, and MRS, which operates in the state of São Paulo, are still discussing the dispute in the court, Filho said.

Vale told Reuters that the process started in 2015 and was approved in 2020 by the audit court, and the company is following all the obligations required in its contract.

Rumo and MRS did not respond Reuters inquiries.

"The concessionaire is getting another 35 years to manage that railway, thus he also has another 35 years to amortize the unamortized assets. So why is he deducting that sum from the concession payment?" Filho said.

Following the court's decision, which they expect to happen until the end of this year, the government will arrange any payments with the companies, the minister said.

The government plans to use the money to create a fund to finance the construction of new railways and the extension of some existing ones, Filho said, as authorities seek to move more freight by less costly rail than road. Details of the national rail plan have been postponed until next year, pending the TCU decision.

The government's goal is to have 40% of Brazil's freight, which is mostly iron ore, transported by rail, up from 17% today. Little of Brazil's growing grain output is carried by rail.