Location: Botany NSW
July 12 (Bloomberg) -- Brazil’s government will start talks with ALL America Latina Logistica SA, Vale SA and other railroad operators about new rules designed to boost competition and cut freight costs, Transportation Minister Paulo Sergio Passos said.
President Luiz Inacio Lula da Silva will issue a decree “soon” that aims to increase the sharing of railways and put idled tracks back into operation, Passos said in an interview. Under the new regulatory framework, the government would grant licenses to use a portion of the rail’s capacity rather than awarding the full rights to a single company or group, he said.
“By doing that, we’ll cut freight costs and create more competition,” Passos said July 8 in Brasilia. “Existing contracts will be respected.”
Brazil wants companies such as ALL, Vale and MRS Logistica SA to help expand the nation’s rail network, which hasn’t kept up with record output of soybeans, coffee and other commodities, Passos said. The investments will help increase the percentage of goods transported by rail to 35 percent by 2025 from 25 percent now, according to the Transportation Ministry. That compares with 43 percent in the U.S. and 37 percent in China.
“If we consider the pace of growth for grain and oilseed output, Brazil is still far from its limit,” Passos said.
Control of Concessions
Rio de Janeiro-based Vale and Curitiba, Brazil-based ALL hold two-thirds of the rail concessions granted in the South American nation, according to the National Association of Railroad Operators. Vale and ALL’s press offices declined to comment. MRS Logistica didn’t return messages seeking comment.
“The government will need to negotiate well with the operators to avoid judicial disputes,” Rosangela Ribeiro, a utilities analyst for Sao Paulo-based SLW Corretora de Valores e Cambio Ltda, said in a telephone interview today. “If the government is willing to negotiate, then it’s going in the right direction.”
Ribeiro rates ALL a “hold” and doesn’t own shares of the company.
Brazil’s rail freight rates may fall as much as 40 percent because of the government’s new rules, Bernardo Figueiredo, head of the land transportation agency, said in a July 6 interview.
‘Far’ From Capacity
Brazil’s government will be responsible for building all tracks under the new regulations, which will help the nation add 15,000 kilometres (9,300 miles) by 2020, Passos said. Out of a current rail network of 28,476 kilometres, less than half is being used to its full capacity, he said.
“Requiring the main private groups to allow other players to use their network by paying a fee is not sustainable,” Itau Securities analysts Renata Faber and Fernando Abdalla said in a July 7 note to clients. “At the end of the day, we believe that these new measures will only be applied to new concessions.”
Brazil’s central bank said June 30 that it expects the country’s economy to expand 7.3 percent in 2010, the fastest pace in more than two decades. The bank in March forecast growth of 5.8 percent this year.
Soybean output in Brazil, the world’s second-largest producer after the U.S., will rise to a record 68.7 million metric tons this year, while corn output will increase to a record 53.5 million tons, the Agriculture Ministry said July 8.
Dependency on Roads
Brazil aims to cut its dependency on roads to 30 percent of total goods transported by 2025 from 58 percent now, the Transportation Ministry said. In Brazil, it costs an average of $27 per ton to transport goods by rail, less than a third of the $117 per-ton cost to use roads, according to Rio de Janeiro- based Logistics and Supply Chain Institute.
ALL fell 1.2 percent to 14.31 reais at 1:49 p.m. in Sao Paulo trading. Vale SA declined 1.6 percent to 38.40 reais.