SINCE privatisation of Brazil's railway in 1997, the private concessionaires which took on the network have grown traffic by 116.9%, investing billions in new equipment and line improvements to return Brazil's railway system to a competitive, and profitable, state.
But the network remains restricted by its scope and the speed at which it can transport goods, hindering the growth of many areas of the economy. Road transport accounts for 58% of all freight carried in Brazil, which given the vastness of the country and the general poor condition of roads in some rural areas is far too high.
In 2013 railfreight increased its logistics market share in Brazil to 25% from 17% the previous year. That's quite a leap. But the government says it would prefer this figure to be above 50% with road having around a 30% share. To achieve this it envisages developing a freight network of around 50,000-60,000km, an increase from approximately 30,000km today, 23,000km of which is in operation.
Brazil's 2014 election result split the country along class and geographical lines. Workers Party leader and incumbent Ms Dilma Rouseff secured 51.6% of the vote and a second term, outflanking her business-friendly rival Mr Aecio Neves of the Brazilian Social Democracy Party, who received 48.4%. While there were not too many Dilma fans among the delegates and exhibitors present at the 17th Business on Rails exhibition in São Paulo last month, at the opening session transport minister Mr Paulo Passos was keen to emphasise the government's plans for the railway network and to bring people together.
"Now is the time to stop the talking, and put our foot on the gas to get things done," Passos said. "Our investments in railway and highway infrastructure are an important step for our development. After a very tight election, it is important now that we come together to achieve these objectives so we become more competitive as a country."
Passos might have been playing to the gallery, but his sentiment reflects a real appetite amongst the Brazilian railway industry for progress. Global manufacturers have invested in facilities in Brazil, while existing operators are enthusiastic to grow their businesses. And with the election now out of the way, 2015 is set to be a big year in the development of these plans.
The central piece of legislation driving this objective is the government's Investment Programme in Logistics (PIL), which foresees Reais 99.6bn ($US 37.02bn) of public and private investments in the development of 11,000km of new 1600mm-gauge railways by 2025. PIL is a cumulative Reais 200bn transport investment scheme intended to attract private resources to modernise roads, railways, ports and airports. However, since its inception in August 2012, the rail element of the legislation has fallen behind its modal contemporaries.
Construction is yet to begin on the six new lines totalling 4676km that are included in the first phase of PIL, which eventually foresees construction of 12 lines. This is due to project failures, work errors, and delays in obtaining environmental permits.
In addition a general mistrust has swept through the industry about the structure of the concession model proposed for the new infrastructure, which replicates the open-access freight model used in Europe, allowing multiple operators to bid for paths on the same route.
Under the structure, project construction is carried out by private concessionaries who subsequently operate and maintain the infrastructure. Federal agency Valec is responsible for purchasing capacity from these concessionaires and redistributing access to private railfreight operators, with an individual operator able to purchase up to 30% of capacity of a single line. The concession lasts for 30 years, with the first five years designated for planning and construction, and the following 25 years for operations.
Valec's director of operations, Mr Bento José de Lima, says that the new open-access model is set to play a critical role in reducing the cost of logistics to help keep Brazilian products competitive in the global economy. He says the inaugural PIL projects were identified for the west-central region because this area is primed for economic growth but has poor rail connections. As a result it will encourage use by operators transporting a variety of products, and stimulate competition. The projects are also designed so traffic can exit through the North-South railway. This link remains under construction from Ouro Verde - Estrela D'Oeste, but following completion of the 855km stretch between Palmas and Anápolis in May, which took the railway to 1574km, it now provides access from the north of the country to all ports and all export traders, albeit with a change of gauge.
"We are currently paying up to $US 145 per tonne to take merchandise out of these regions, whereas in traditional agricultural regions it can be as low as $US 50 per tonne," Lima says. "That is not sustainable. These costs will come out of our economy and out of the producers' pockets. But with growth in the Brazilian economy concentrated in these regions, we need a new concession model that resolves this problem and can reduce the cost of logistics."
Lima added that studies of existing open-access models used around the world have informed the development of the Brazilian model. "We are not inventing anything new here," he says. "This open-access model already exists in Britain, Sweden and Germany."
However, uncertainty of how the system will actually work when it comes into practice has prompted some to label the new structure the "Valec-Risk." Indeed Lima admitted that translating the basic tariff into a negotiation between itself and prospective operators is proving difficult.
With this in mind, Brazil's National Transport Agency's (ANTT) partnership with the European Railway Agency (ERA) could be a key step towards the realisation of an open-access model that works for Brazil and allays these fears.
A meeting was set to take place last month to decide how the two agencies can work together. Mr Peter Mihm, head of technical evaluation cross acceptance at ERA, says from a European perspective this will focus on what they can do to offer a better understanding of safety laws and regular maintenance of equipment, something that has been lost on some Brazilian operators in the past. "Europe has too many rules and Brazil has too few," Mihm says. "The partnership can help both sides by meeting in the middle."
ANTT director Mr Carlos Fernando do Nascimento adds that he is encouraged by the agreement with ERA and he expects progress on the initial PIL projects in early 2015, starting with the 457km Açaliândia - Barcarena line in the north of Brazil. He added that the current discussions are aimed at making each of the involved parties comfortable with the process. "We need to spend a lot of time talking with the Brazilian Federal Accountability office (TCU) to convince them about the correct price of the project," Nascimento says. "Once we solve that problem and everyone agrees, we will be ready to open the bidding process."
A critical step was taken in August when the Ministry of Transport issued authorisation decrees for 20 private groups to perform studies of the first six PIL projects, and subsequently received 71 Interest Declaration Proposals (PMI). Among those to submit proposals were project and management consultants, construction companies, investors and a railfreight operator, with some parties associated with groups from China, Italy, Spain and Korea.
These companies are responsible for developing technical viability studies and have six months up to February 2015 to submit their studies. However, for the Sinop - Miritituba and Sapezal - Porto Velho projects there is an eight month window because no studies of these projects have previously been made by the government.
Once the studies are received, Passos says the best will be chosen and integrated with the formatting process which will be forwarded to the TCU for approval, with the architect of the chosen study reimbursed by the construction concessionaire. Passos confirmed that the government is in negotiations with four prospective concessionaires about building the first line, including a Chinese group, and he expects these parties to be in a position to make an offer in February or March next year. "This is a long process and long negotiation because it is related to a very big investment," Passos says.
While attention is inevitably focused on the new projects, 3883km of freight infrastructure is currently under construction on the existing network which is helping to sustain domestic manufacturing levels.
Mr Vicente Abate, president of the Brazilian Railway Industry Association (Abifer), says that the market is measured in terms of volumes of locomotives, freight wagons and passenger coaches produced. Following falls in 2012 and 2013, Abate says he expects production of freight wagons to hit 4000 for the year, which is better than expected, and the best output since 2011 when 5616 wagons were produced. It's a similar story for passenger coaches. For 2014 the target was 320, but with 288 manufactured up to September Abate expects this to be exceeded.
However, the locomotive market remains slow. The target for 2014 was 60, a fall from the 83 produced in 2013, 70 in 2012 and 112 in 2011. Abate says the industry will just about achieve its target this year, but he admits that this level is insufficient to sustain locomotives builders GE and Progress Rail. Both companies have invested in manufacturing facilities in Brazil and require production to reach 120 units annually to remain viable.
Delays implementing the PIL projects since they were launched two years ago, and continuing uncertainty over whether it will start in 2015, has led to the development of a plan to renew Brazil's existing locomotive and rolling stock fleet, with an emphasis on its oldest wagons and locomotives.
The programme calls for the replacement of around 40,000 freight wagons which are 40 years or more old, with 18,000 new wagons. Similarly 1400 locomotives that have been in service for 40 years or more will be replaced with 600 new units over the next 10 years.
"This programme, which we expect will begin in 2015, will provide a minimum level of production," Abate says. "Our graphs show a roller coaster in production, and it is not possible to continue to go up and down. We need to be as flat and predictable as possible. This plan of renewals will allow us to have a minimum level of production of 4000-4500 freight cars and 120-150 locomotives a year."
Abate says he cannot give a precise figure on the government's investment in the plan yet because the numbers of units for renewal are not finalised between the government and the concessionaires. However, he expects what he describes as a mature plan to receive the green light from the government in the first quarter of 2015. "The fleet might belong to the government, but the idea is that the government is leaving this new fleet for the concessionaires," Abate says. "The government says that I don't want cars and locomotives, it's not my business, it's the concessions' business."
Inevitably the desire to introduce an open-access model in Brazil as well as more modern equipment has intensified calls for greater standardisation across a network that remains a patchwork of metre and broad gauge infrastructure. In particular signalling systems are in the spotlight, with many manufacturers pushing ERTMS as a universal solution that would allow interoperability between existing and new infrastructure.
Bombardier is currently in the process of commissioning Brazil's first ETCS rollout, a 150km Level 1 installation on Rio de Janeiro's Supervia commuter rail network and expects to hand over the project next June. Mr André Richez, director of rail control solutions Brazil at Bombardier, says that with several operators' systems reaching life-expiry, the concessionaires are looking at ETCS for the next generation of signalling in Brazil. He says that MRS Logistics and Vale have both expressed interest in the system while Bombardier and other suppliers are currently in an open conversation with ANTT about how they might proceed.
Richez says experiences in Europe have shown that it is possible to integrate with existing systems while China is the obvious example of a country that Brazil can emulate in adopting ERTMS as its chosen universal platform.
However, Nascimento remains cautious. He says that it is too soon to say whether ERTMS, or indeed Positive Train Control (PTC), is the system for Brazil. Abate says that it is important to protect investments by the existing concessionaires and to avoid unnecessary outlays.
"We have to defend the concessionaires, freight or passenger, that have already invested in signalling systems," Abate says. "I think we need to adapt any new signalling system to what they have now. I don't know if it is possible technically speaking or not, but we need to preserve the investments the companies made in the past as well as trying to improve on what they already have."
In addition to signalling, a nationwide dedicated radio system for railways is also proposed to improve interoperability and enhance safety. However, access to radio frequencies is a major issue. With new technologies desired by railway operators such as live CCTV feeds demanding greater bandwidth, the railways find themselves in a fight with consumer as well as military organisations to obtain the frequencies they require to incorporate broadband-ready systems in both rural and urban areas.
"Standardisation of signalling and communications in Brazil is going to take at least another three to four years," says Mr Sergio Coutinho, president of the Guedelha consultancy. "By the end of the year we will have a draft resolution for a public consultation, which will include input from all aspects of society, and from this the government will make its decision about what to do."
Brazil's railway reforms clearly have some hurdles to overcome before they deliver the results that everyone in the industry, and seemingly within the Ministry of Transport and government, desires. This will inevitably take time and the long and protracted negotiations which have been a hallmark of the process thus far don't look likely to cease any time soon.
2015 is a big year for the PIL programme. If the Ministry of Transport can make the breakthrough and get the first project up and running it could spark a railway revolution that will finally deliver the economic growth that Brazil's size and resources warrant. The Brazilian railway industry is holding its breath.