November 28, 2017

Three Proposed Railroad Projects slated for Mato Grosso

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The meeting room was filled to capacity last Thursday when the governor of Mato Grosso and his Secretary of Infrastructure and Logistics met with producers and agribusiness personnel in the city of Nova Mutum, which is located in central Mato Grosso, to discuss three railroad projects proposed for the state of Mato Grosso.

There is currently only one railroad servicing the southeastern corner of the state and many producers have been asking why the cost of transporting grain on the existing railroad is only slightly cheaper than truck transport. The answer of course is a lack of competing railroads, which was the central theme of the meeting.

The existing railroad, Malha Norte Rumo (formally known as the Ferronorte Railroad) was purchased from America Latina Logistica (ALL) by Rumo. The existing railroad only goes about 150 miles into the southeastern corner of the state and terminates at the city of Rondonopolis. Farmers and government officials have been urging the company to extend the railroad to the state capital of Cuiaba and eventually up into central Mato Grosso.

The problem with this railroad is that the tracks pass through the state of Sao Paulo before arriving at the Port of Santos. The rail line in the state of Sao Paulo dates back to Imperial Brazil when the king ordered the railroad built to transport the booming coffee production to the Port of Santos. The antiquated rail line results in very slow speeds, higher fuel costs, and higher costs in general. The company indicated that they need to renovate the line within the state of Sao Paulo at a cost of approximately R$ 5 billion before they invest in expanding the line further into Mato Grosso.

These investments are needed in the State of Sao Paulo before they can handle additional cargo from the center-west region of Brazil. The rail line in Mato Grosso is brand new, so that is not the problem. The problem is that it connects to the antiquated line in Sao Paulo.

The second proposed railroad might actually be the first one to be completed within the state. The proposed "Grain Railroad" would link the city of Sinop in northern Mato Grosso with the Amazon River port of Miritituba. The 1,142 kilometer railroad would parallel the existing BR-163 highway. The first of six public hearing concerning the Grain Railroad was held in the city of Cuiaba last week. Bidding for the project is scheduled for mid-2018, but construction is not expected to start until mid-2020 due to delays obtaining environmental licenses. It is estimated that construction would take five years to complete, so the railroad won't be up and running any time before probably 2026.

The third proposed railroad is more complicated and would take longer to complete. The Center-West Integrated Railroad (Fico) would start in neighboring Goias and run westward through the entire state of Mato Grosso to the city of Vilhena in the neighboring state of Rondonia. Eventually, this railroad would connect the city of Rio de Janeiro on the Atlantic Coast with ports on Peru's Pacific Coast. This is a long term project that may take decades to complete, if ever.

The president of Brazil's National Development Bank (BANDES) was present at the meeting and stated that he was brining good news for investors. He indicated that for the first time in recent memory, the prime interest in Brazil would be down to 7% and that BANDES would offer that rate to investors. He felt that the lower interest rate could free up more financing for projects such as these railroads.

If all three of these projects are completed, and that is a big if, the state of Mato Grosso would have two complete railroads in the state, one running north to south and a second running east to west. As with all projects of this magnitude in Brazil, nothing is certain until the projects are completed.