February 19, 2018

New infrastructure investments aim to curb volume decline

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Regional editor Ian Thomson-Newman reports from the Rail LatAm conference held in Santiago in November, on the latest developments in Chile, Uruguay, Argentina and Peru.

RAIL freight traffic in Chile has stagnated in recent years. In the north of the country, where the railways are all privately run, growth has been thwarted by a flattening of mining output and flash floods which took with them sections of two railways, neither of which may ever reopen.

SthAmFreightRailways in the south of Chile, which are state-owned, are less dependent on minerals, but there too traffic has eased back, hovering just above 10 million tonnes per year. As recently as 2013, the Transport and Telecommunications Ministry was forecasting a tonnage of 20 million for 2016. The shortfall is due to the poor quality of the infrastructure and anticipated new projects not bearing fruit.

The concessionaires maintain that their competitivity is limited by low axleloads - 25 tonnes on main lines - even less on a route carrying heavy copper concentrates traffic, and passing loops no longer than 400m. These two factors combine to restrict train payloads, regardless of locomotive haulage capacity, and inflate tonne-km costs.

Chilean State Railways (EFE) is aware of these limitations. EFE’s president, Mr Germán Correa is especially keen on increasing rail’s share of freight to and from Chile’s major ports of San Antonio and Valparaíso, by facilitating ship-to-train transfers in the port and providing a new rail freight container terminal 86km from San Antonio at Malloco, on the southwestern outskirts of Santiago. Currently just 9% of container traffic moves by train through San Antonio and less than 1% through Valparaíso. EFE plans to invite tenders to upgrade the Santiago - San Antonio line together with freight train operating rights and the operation of a suburban service at least as far as Malloco.

Rail traffic through the port of Valparaíso cannot easily be increased since the double-track rail access from the northeast is heavily used by suburban trains operated by EFE’s Merval subsidiary. Hence, Correa wants to investigate the feasibility of a new line to the port from the southeast which would branch off the Santiago - San Antonio line at Melipilla.

EFE talks about creating “a logistics platform” linking Santiago with both ports. The idea is not new, but now has new relevance as the highways linking Valpararíso and San Antonio to Santiago are near saturation point. A new rail link could share the same tracks between Santiago, Malloco and Melipilla, before splitting to serve each port, which could make rail more viable.

Uruguay

Uruguay annually harvests more than 6 million tonnes of soya, wheat, maize, sugar cane and other crops, which are mainly sent to ports for export, but less than 100,000 tonnes is moved by train. South America’s boom crop of recent decades has been soya, of which Uruguay now produces over 3 million tonnes per year, although virtually none of it is transported by rail. Not surprisingly, Uruguayan rail traffic declined during the first half of the current decade.

This sad state of affairs will hopefully be rectified by investments being made in infrastructure by Uruguayan State Railway Administration (AFE) and in operations by the state-owned company Rail Logistic Services (Self).
Mr Wilfredo Rodríguez, AFE’s president, says that $US 75m is being channelled into rehabilitating the 422km main line from the port of Montevideo north to Rivera on the Brazilian border. Another $US 130m will be spent on the 327km line from Piedra Sola, on the line to Rivera, west to the frontier with Argentina.

Peru

High up in the Andes, Perurail is best known for its up-market trains carrying tourists bound for destinations such as Machu Picchu, but its general manager Mr Alberto Valdéz points out that the company derives 40% of its revenue from freight, comprising almost entirely minerals. In 2016, for the first time, Perurail’s freight traffic exceeded that of the Central Andino Railway (FCA), which is almost exclusively dedicated to transporting minerals.

The hike in tonnage was principally due to the commissioning of the Las Bambas mine, which produces 4000 tonnes of concentrates per day, mainly copper. Currently, the concentrates are trucked 500km from the mining complex to Pillones, where they are transferred from truck to trains heading down Perurail’s main line from Puno to the port of Matarani.

To reduce road haulage, Perurail plans a 140km rail link along the same axis, costing around $US 576m. Engineering studies were finished three years ago but the client, the Chinese mining group MMG, which bought the Las Bambas mining complex from Glencore in 2014, is still evaluating the project.

A slurry pipeline might be an alternative to the rail link, but Valdéz rejects this idea. “What would we do with the mineral-contaminated water after loading the concentrates onto the trains,” he asks?

Argentina

Across the border in Argentina rail has a 4.5% share of the freight market, which is low for a country whose economy depends on dispatching primary sector products to ports for export. Conversely, road transport’s share is above 90%, charging freight rates between 60% and 500% more than rail, which effectively means that Argentinian exporters have to compete with their arms tied behind their backs. Argentinian road hauliers are able to charge such high rates because there is often no alternative, as the rail network does not reach everywhere.

Rail’s low market share can also be attributed to a lack of maintenance. In 2016, 37% of the 28,527km network was out-of-service. Mr Matías Uslenghi, strategic planning manager with infrastructure manager Adif (which trades as Argentinean Trains Infrastructure), says there are stretches of line, operated by state-owned Argentinian Trains Cargo (TAC), where commercial speeds average just 14km/h.

The federal government is aware of the problem and has been trying to do something about it. It plans to spend $US 15bn, largely through Adif, on improving non-urban infrastructure, rolling stock and motive power between 2016 and 2035.

All rail infrastructure in Argentina is state-owned by Adif, but freight train operations are divided between private concessionaires and TAC, which took over the operations of three private concessionaires following contractual non-compliance.

Rail freight traffic has fallen during the current decade, but whilst that of the private concessionaires declined at around 2% annually from 2010 to 2016, that of the state-run operators plummeted by 15% per year.

Infrastructure rehabilitation on lines operated by TAC is wholly-financed by Adif but on other lines public-private partnerships are proposed. Discounting projects designed to favour passenger traffic, especially in the Buenos Aires suburban area, Adif gives investment priority to such lines.

Mr David San Juan, general manager of Ferroexpreso Pampeano (Fepsa), one of the three remaining private concessionaires, says that the lines included in Fepsa’s concession receive no state help for infrastructure upkeep and nothing is budgeted for them in Adif’s 2017-2019 works programme.

Fepsa was the first concession to be granted in Argentina when it won a 30-year contract in November 1991 with an option for a 10-year extension. San Juan says that Fepsa has already lodged a request for the extension, but it has yet to receive a reply. The financial viability of the investment required will depend on an adequate payback period. The other two concessions, Ferrosur Roca and New Central Argentina (NCA), are also due to end soon after Fepasa’s initial 30-year contract.

Rail freight in these four South American countries is being held back by either a lack of infrastructure or a failure to maintain the lines that exist to an adequate standard. Without adequate investment, rail freight will continue to struggle to compete effectively with road.

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