Concession, a new model for rail infrastructure development

Brazil announced they planned to introduce a law to accelerate the concession of smaller rail infrastructure projects in the attempt to reinforce investments in the cities and states (Brazil is a federal state) that do not have enough financial resources. The measure is supported by the Government in Brasilia.

Therefore, Brazilian President Michel Temer will submit for the approval of the Federal Congress, by July 2017, this legal measure aimed to increase private participation in sectors such as infrastructure and logistics.
In the past years, Brazil has been facing a very strong economic recession, and railway transport, among other sectors of the national economy, has been affected by the reduction, or in some cases, even the cancellation of rail infrastructure investments.
It is very possible that this measure will be a beneficial one, at least in the South-American continent, because in March, Mexico also announced the initiation of measures for rail infrastructure concession to private companies, measures that will see to the development of projects that otherwise could not be financially supported through state budget grants.
Back to Brazil, two years of severe economic recession forced many Brazilian federal states, as well as a series of municipalities to interrupt investments in the public sector and to introduce austerity measures, after public funds have spent without limit for years. The duration of concessions may vary from 10 to 15 years or from 20 to 25 years and the cities to be taken into account when implementing these measures are those whose population exceeds 50,000 citizens.
Thus, the Government in Brasilia is currently discussing with financial institutions such as the Inter-American Development Bank (IADB), the World Bank and Latin America Development bank (CAF) trying to persuade them to participate directly to infrastructure projects instead of granting loans to federal states or to municipalities. They could participate by procuring infrastructure bonds related to this project, thus reducing the dependency of the railway infrastructure builders of the Brazilian National Development Bank (BNDES).
Thus, in March 2017, President Michel Temer launched an infrastructure concession programme hoping to attract BRL 45 billion (USD 15 billion) to invest in the construction and operation of railway, port, but also road infrastructures. At the same time, investments will generate over 200,000 jobs.
The Brazilian President said that with this decision he sought to re-establish an attractive business sector, that of transports, which has been seriously affected by the most severe recession in the history of Brazil. To that end, the Programme for Partnerships and Investments (PPI) was launched to supervise the concession tendering procedures. 55 such projects will be launched through this programme in collaboration with private partners.
According to the declarations of the Brazilian Government, five rail infrastructure rehabilitation and modernisation projects will be launched.

by Elena Ilie

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