By Henry Alvarenga, Alexandre Lobo
Necktie
The concessions of highways, railways, ports and airports planned for 2020 create expectations for the logistics sector, given the lack of quality and quantity of the Brazilian infrastructure and its impacts on the country's cargo transport. In this article, the concession plan of the federal and state governments is discussed, and how infrastructure investment can bring benefits to Brazil in the medium and long term.
Introduction
The Brazilian logistics infrastructure at the beginning of 2020 is still facing problems that have persisted since the last century. If the previous decade was seen as a “lost” for the sector, there is great expectation of an increase in private investment and improvements in the country's infrastructure for the future, which will bring better logistical conditions and greater competitiveness for companies operating in the country. If in 2019 infrastructure investment was 1,87% of GDP, it is expected that in 2020 this index will rise to 2,2% or 2,3%.
This expectation is explained in part by the concession and privatization plans presented by the federal and state governments throughout 2019. In the highway sector, for 2020 nine concession auctions are foreseen, which could bring R$ 80 billion in investments¹ to the next 30 years. Some important concessions are planned, such as the BR-116 between RJ and SP, known as Nova Dutra, one of the most interesting stretches and which would bring investments of R$ 17 billion. For railways, two concessions are planned for 2020, with emphasis on Ferrogrão, which connects Sinop (MT) to Miritituba (PA) and would also bring investments of around R$ 17 billion.
In the port sector, 11 auctions are planned, such as, for example, the leasing of a container terminal at the Port of Suape, which would bring investments of R$ 1,2 billion over the next 35 years. For the airline sector, auctions are planned for the concession of 22 airports, adding up to investments of around R$ 5 billion for the next 30 years. We can observe, therefore, that there are great investment opportunities by the private sector in infrastructure in Brazil in 2020, which brings good prospects for the national and international market.
Cargo Transport in Brazil
Cargo transport in Brazil is heavily hampered by the country's poor infrastructure. Compared to countries such as Germany, China, India, Russia and the United States, Brazil has the lowest number of paved roads (213 km), the lowest mileage of railways (30) and the smallest network of pipelines (34 km). . If we look at road transport, a mode that transports 60% of domestic cargo in TKU, countries similar in size to Brazil, such as China and the United States, have paved road networks more than 20 times larger than Brazil's (Figure 1).
It is notorious that the situation of Brazilian highways is alarming. According to data from the National Transport and Logistics Observatory, only 14% of Brazil's roads are paved – out of a total of 1,6 million kilometers that make up our road network, 1,3 million are unpaved roads. For comparison purposes, China, between 2008 and 2018, paved 1,3 million kilometers, that is, in 11 years China paved highways that would be enough to pave the entire existing road network in Brazil. Despite the Chinese model of government and politics being very far from our reality, the example is interesting to explain our slowness in investments made in the last decade, and that it is necessary to create ways to accelerate the improvement of our transport network.
Figure 1. Lack of Transport Infrastructure in Brazil.
Analysis: ILOS
In addition to the insufficient amount of the Brazilian road network when compared to other countries, the quality of what exists is also alarming. According to the 2019 CNT Highway Survey, 59% of Brazilian highways² have problems, a worse rate than the previous year. In 2010, the same survey showed similar rates of problems, which reinforces that in the previous decade, the quality of Brazilian highways went sideways.
The natural consequence of poor infrastructure is increased costs. In Brazil, the cost of transport in relation to the Brazilian GDP was 7,6% in 2018, the highest value when we observe the entire historical series since 2004. For comparison purposes, the United States has the same index at around 5,1, XNUMX%, well below the Brazilian index.
Although the Brazilian transport matrix is still very dependent on road transport, in recent years there has been a decrease in its share and an increase in other modes, mainly rail and water transport (Figure 2). In terms of TKUs, Brazil moved 1,05 billion by road (60%), 0,41 billion by rail (23%) and 0,23 by water (13%). These other modes are very attractive when we compare costs: in the road mode, to move a ton per 1.000 km (that is, 1.000 TKUs) the average associated cost is R$ 425. In the waterway modal, this cost is R$ 168³ and for the railway, R$ 66.
Figure 2. Transport cost matrix in 2018.
Analysis: ILOS
Despite the attractiveness in relation to costs, the two alternative modes still present a series of obstacles to capturing more cargo. On railroads, 77% of cargo transported is iron ore, which travels mainly on EFC and EFVM, both controlled by Vale. These two railways are benchmarks in terms of efficiency and speed of traffic. On the other hand, in Brazil, railways with level crossings, inadequate geometry and other characteristics that limit the speed of trains and cause a reduction in the modal efficiency are common. To compare the commercial speed of trains, in Brazil, on average, people travel at 15 km/h while American trains run at almost 50 km/h. This has a direct impact on productivity and the level of service, which makes railroads less attractive.
As for public investments in railways, there is a lack of resources and allocations have been decreasing: in 2010 total public investments in Brazil were around R$ 71 billion, of which 33% were allocated to transport and 6% to railways, totaling R$ $4,1 billion for modal. In 2018, public investments fell to BRL 41 billion, of which 22% went to transport and 2% went to railways, totaling BRL 0,6 billion. While here public investment shrinks, in Germany the government will invest €86 billion over 10 years, the biggest investment in the railway sector in history. Stations, power systems and signaling will be modernized, and such investment converges with the country's intentions to promote greater use of modes of transport with less environmental impact.
In the case of waterway modal, cabotage grew between 2010 and 2019, on average, 3% per year. Considering only containerized cargo, during the same period there was an average growth of 13% per year. The modal is mostly used as platform relief and for transporting fuel between ports (liquid bulk transport represents 75% of the cabotage volume), but the greater adherence to the modal by other cargo profiles has grown robustly, year after year. Even so, there is enormous potential to migrate cargo from road to water transport, especially in long-distance transport. In a study carried out by ILOS, it is shown that the volume that container cabotage transports today can be five times greater. The sector's claims are being addressed by the Federal Government through the Cabotage Stimulus Policy, called “BR do Mar”. As for waterways, which consist of navigation along rivers, it is worth mentioning the importance of navigation mainly through the Amazon River Basin. The Cargo Transshipment Station in Miritituba, for example, is responsible for receiving the trucks that travel along the BR-163 and loading the barges that will transport grain production from the Midwest of the country.
The waterway modal and cabotage are important for Brazil, but it is foreign trade that transports large volumes through Brazilian ports. The port infrastructure must be adequate for mooring, loading and unloading operations, in order to allow efficient import and export operations.
As for the air modal, despite being little representative in the Brazilian cargo transport matrix, it is an interesting alternative when we think about long distances and the need for a high level of service, and for cargo profiles with high added value and low volumetry/low weight . In certain regions, where there are, for example, safety risks for cargo transported by road, air transport may become viable. In relation to its infrastructure, the need for investments or increased capacity is not as latent as for other modes, when we think of cargo transport.
Concessions and Investments planned for 2020
In early 2020, the Ministry of Infrastructure set out the concessions that are planned for the year: a total of 44 auctions for the transport sector, which should attract investments of more than R$ 100 billion to the country, in highways, railways, ports and airports.
Highways
For the road sector, 2020 began with the concession of the Piracicaba-Panorama (Pipa) stretch in São Paulo. The Infraestrutura Brasil Consortium, formed by Fundo Pátria and the GIC (Singapore Sovereign Fund) won the dispute with an offer of R$ 1,1 billion. According to the Government of São Paulo, the auction was a success, not only because it represented the highest premium ever seen in road auctions in the country, but also because it had the participation of foreign investments, from Singapore and China. The 1.273 km stretch is the longest concessioned highway in the country and will receive investments of around R$ 14 billion over 30 years. Also in 2019, Ecorodovias, which also competed in the Pipa auction, had already won the BR-364/365 auction, between Minas Gerais and Goiás.
Among the other concessions planned for 2020, the highlight is Nova Dutra, an important road section that connects the main metropolitan regions of the country, Rio de Janeiro and São Paulo. The 635 km of highway foresee investments of around R$ 17 billion in 30 years. With an average flow of 42 vehicles per day, this stretch is seen as very promising for investors, as it is the largest and most stable volume of traffic between concessioned highways. In addition, today the highway is already under concession, so the concession will mainly provide maintenance services and improvements to the existing infrastructure, which reduces investment risks and attracts greater competition.
In addition to Nova Dutra, other important concessions are BR-101 in Santa Catarina, with an average flow of 24 vehicles/day and investments of around R$6,5 billion; the BR-116/493 between Rio de Janeiro and Minas Gerais with an average flow of 23 vehicles/day with expected investments of around R$ 13 billion; and the BR-381/262 between Minas Gerais and Espírito Santo, with planned investments of around R$ 9 billion.
According to the 2019 CNT Highway Survey, the highways granted for private management have a much higher quality in terms of their general condition, so it is expected that the infrastructure of Brazilian highways will improve in the coming years, as investments are made (Figure 3 ).
Figure 3. Classification of the general state of Brazilian highways granted and under public management.
Analysis: CNT, 2019
Railways
In 2019, Rumo won the auction for the Ferrovia Norte-Sul, a 1.537 km railway section that connects Estrela D'Oeste (SP) to Palmas (TO), with an offer of BRL 2,7 billion. Rumo already operates the section of the Malha Paulista, which connects Estrela D'Oeste (SP) to the Port of Santos, for this new concession the company will disburse R$ 2,8 billion in investments.
For 2020, two important concessions are scheduled for the third quarter of 2020, which must be disputed by large national and international companies. The West-East Integration Railroad (Fiol), 1.527 km long and connecting Ilhéus (BA) to Figueirópolis (TO), has planned investments of around R$ 3,4 billion. The concession section does not, in principle, have a connection with the Norte-Sul, but future integration is a possibility. Fiol is an important corridor for the flow of ore from the south of the state of Bahia and grain from the west of the state. The forecast demand is 18 million tons in 2025, and could reach 55 million in 2040.
The other planned railroad is Ferrogrão, between Sinop and Miritituba, with forecast investments of around R$ 17 billion. This railroad aims to consolidate the important corridor for the flow of grains from the Midwest through Arco Norte, formed by the ports of Manaus, Santana, Santarém, Vila do Conde, Belém and São Luís. The volume exported from the soybean and corn complex in 2018 through the ports of Arco Norte was 27 million tons. For comparison, the volume exported by the Port of Santos (main port in the country) of the same products was 39 million tons. In two years, the export volume of these products by Arco Norte more than doubled, from 13 to 27 million tons (Figure 4). Ferrogrão has a demand forecast of 38 million tons in the first year of operation, and could reach 47 million in 2050. It is the most attractive railway asset, and should bring important players to its auction, scheduled to take place in the third quarter of 2020.
Figure 4. Volume exported from the corn and soy complex by Arco Norte
Analysis: ILOS
Currently, the transportation of the soy and corn complex in the Brazilian Midwest through the Arco Norte ports is carried out by the BR-163, which in 2019 finished being paved and is in the concession plans for 2020, with investments of BRL 2,7. 10 billion in 163 years. The reduced concession period is justified by the entry into operation of Ferrogrão, a railroad that will run parallel to BR-XNUMX and, when ready, should fully capture the demand for transporting these products.
Ports and Airports
For 2020, eleven leases are planned in Brazilian ports, with emphasis on a new general cargo terminal at the Port of Suape (PE), with expected investments in excess of R$ 1,2 billion. The construction of terminals for liquid bulk in the Port of São Luís-MA, solid bulk in the Port of Aratu-BA and for cellulose in the Port of Santos-SP are also planned.
For 2021, another highlight is the privatization of Companhia Docas do Espírito Santo (CODESA) and the Organized Port of São Sebastião, in São Paulo. The privatization of Companhia Docas de São Paulo (CODESP) and the Organized Port of Santos is also being studied. It is expected that these transfers to the private sector will speed up processes and improve efficiency in port management and operation.
Finally, twenty-two airports in the South, Midwest, Northeast and North will also be under concession, and will receive investments of around R$5 billion over 30 years. The auction forecast for airport concessions is for the end of 2020.
Final Words
2020 promises to be a landmark year for Brazilian transport infrastructure, in which much-needed investments are optimistically awaited to increase the quality and competitiveness of the country's market. The participation of foreigners, such as the sovereign fund of Singapore, the China Communications Construction Company (CCCC) and European funds, is expected, in the same way that Brazilian funds have bet on concessions and privatizations as good investment options.
The most prominent concessions, which generate the most interest due to their high and certain demand, naturally attract investors and must have fiercely contested auctions. On the other hand, the government will have the challenge of attracting investors also to stretches of greater risk and uncertainty. There are ways to do this, such as forcing sections of lesser interest to be awarded jointly with those of greater interest, as the government will do with the BR-101 South concession, which will be part of the same package as Nova Dutra.
The expectation of investments in the sector, which could reach 2,3% of GDP in 2020, is still timid if we think of the capital stock of infrastructure currently existing (36,2%) compared to the past (58,2% in 1980 ), and the depreciation that occurred in previous years. It is necessary to invest more, for a long time – if we invested 4,2% of the GDP for 20 years, we would have at the end of the period an infrastructure capital stock of 60,4% – to actually transform our infrastructure and put it in another landing.
Not going into the merits of the form and model of concessions or the problems experienced in the recent past, what is expected is that, in the coming years, such investments will actually occur, and that Brazil will start the new decade on the right foot for transport and for the logistics of the country.
Note
¹ Investments refer to CAPEX + OPEX
² The CNT survey analyzed 108 kilometers of state and federal highways
³ Port costs are not considered
References
- EPL. PPI – Investment Partnership Programs.
- EPL. ONTL – National Transport and Logistics Observatory.
- CIA. World Factbook.
- National Bureau of Statistics of China (2018).
- Russian Federation of Federal State Statistics Service (2018).
- ANTT. Statistical Yearbook.
- ANTAQ. Waterway Statistics.
- Abifer – Brazilian Railway Industry Association.
- ARTESP – Transport Agency of the State of São Paulo.
- Inter.B Consultancy
