Government focus, railroad auctions still raise questions

Source: Exam

The auctions for railway concessions are the government's promise to continue the Logistics Investment Program (PIL) in 2014, but still face doubts on the part of the market, in the midst of an election year and persistent questions about financial health from the state-owned Valec.

Despite the government's intention to start bidding for 11 kilometers of railways this year, elections and market doubts about the process could cause new delays in concessions for the modal.

“What I see for railways is that 2014 is not a very good year for this project. The investments are of very high value and the government must participate”, said Fernando Marcondes, lawyer at the LO Baptista office, which has infrastructure and construction companies among its clients.

The government's initial intention was to hold the first auction last year. However, at the end of December, the Minister of Transport, Cesar Borges, stated that he intended to publish the invitation to bid for the stretch between Mato Grosso and Goiás in January of this year.

For Tendências analyst Cláudia Oshiro, the shorter year increases the chances of more delays. “There are many studies to be done and judicial uncertainties. There is the issue that it is an election year and with the World Cup, things tend to lose focus.” Just last year, the government managed to bid two important airports and five highways, but made little progress in the issue of railroad concessions, seen as vital for the flow of grain from the interior of the country to the ports.

“In 2012, in the Logistics Investment Project, the government decided to change all transport models, and the one that was most stopped was railroads, because the government decided to change radically”, said Eduardo Carvalhaes, lawyer in the Infrastructure area of ​​the firm Barbosa, Müssnich & Aragão (BM&A).

Differently from what is done in the current concessions, the new model does away with the rule of exclusivity of operation, allowing several companies to transport cargo in a stretch, and they will not be able to act as concessionaires of the railroads.

There is also a proposal that Valec buy 100 percent of the road's capacity to resell it to the concessionaire as a way of guaranteeing demand, which for Carvalhaes still generates uncertainty due to the state's financial situation.

“Valec has a solvency problem. It guarantees demand, but does not guarantee that it will pay. They even commented on the creation of a fund to guarantee it, but that is not certain at all.” In October, the National Land Transport Agency (ANTT) proposed that Valec could advance the payment of around 13,6 billion reais to all concessionaires of the new railway tenders.

For Carvalhaes, this uncertainty reduces investor interest in auctions. “The risk is very similar to the BR-262”, he said, referring to the highway that did not receive interested parties in the auction last September.

Recently, executives from Triunfo Participações stated at an investor event that the private sector still has doubts about Valec's ability to honor the tariff payments, although it reiterated its interest in the stretch between Açailândia (MA) and Barcarena (PA).

For Júlia Coimbra and Maria Virginia Mesquita, partners in the infrastructure area at Machado Meyer Advogados, some investors see a risk in Valec's situation, although they do not believe in empty auctions.

“This model with strong government participation is yet to be tested. But the tendency is for investors to participate... The Government has presented ways to guarantee Valec's health, but this is indeed one of the points that market agents are watching”, they said in a telephone interview.

“Investors are still seeing what the first auction will look like,” they added.

Twist

Another risk in the opinion of Carvalhaes, from BM&A, is the fact that there have been changes in Valec's role through decrees, which could not be done since the company was created through a law.

“The government did not want to wait for the legislative power to delay. And a bill often undergoes modifications and is not as it was at the beginning. With the decree, the government created obligations that could not be created through a decree, ”he said.

The decree, published in October last year, defines the structure and bylaws of the state-owned railroad company to operate in concession processes, and determines, among other things, that the company must build, operate and operate railroads. The text also includes Valec's responsibility for accessory storage, transfer and handling systems for products and goods to be transported and installations and systems for interconnecting railroads with other modes of transport.

The partners in the infrastructure area of ​​Machado Meyer Advogados, highlighted that the functions defined in the decree were evaluated by the TCU, which considered only “the competences that it (Valec) already had”.

While investors are still waiting for guarantees about Valec's financial health and the publication of the public notice, the government is still waiting for TCU's decision on the embargoes presented to the court's reservations regarding the public notice for the auction of the railroad between Lucas do Rio Verde (MT) and Campinorte ( GO).