Rumo to sign agreement for new railroad in Mato Grosso

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Cosan group’s logistics company Rumo and the Mato Grosso state government are expected to sign an agreement this Monday to build a new railroad in the state, the Olacyr de Moraes Authorized Transportation Railroad (Fato). Mr. Moraes was the agribusiness entrepreneur who conceived and built Ferronorte, a railroad later renamed Malha Norte.

The new 730-kilometer railroad will be an extension of the current corridor operated by Rumo, which connects Rondonópolis, Mato Grosso, to the Port of Santos. Two new branches will be built: one to the capital city Cuiabá and the other to Lucas do Rio Verde, in the north of the state, where the region’s agricultural cargo is concentrated.

“The railroad will be key for the expansion and competitiveness of agribusiness. Besides this, it will also be a corridor for the industry. We will connect the state to the main consumption centers in the Southeast region,” Governor Mauro Mendes (Democrats, DEM) said.

The necessary environmental permits are expected to be granted in up to six months, the governor said. The construction is expected to start between the end of 2022 and the beginning of 2023.

The railroad’s executive project is still being finalized. The project is expected to require investments of R$9 billion to R$11 billion, Rumo’s CEO Beto Abreu said. The project is expected to be finished between 2028 and 2030, but operation will start in stages. The first one could begin in 2025, after one or two terminals are finished 200 kilometers north of Rondonópolis, Mr. Abreu said.

This is a pioneer project for two reasons. First, because it is a state railroad, not a federal one. In addition, it will be built under an authorization regime, instead of a concession, which is the model used for the other railroads in the country. The difference is that, under the new model, the project is in private hands. Rumo will invest and operate on its own, without sharing risks or receiving injections from the state, which is left with the role of overseeing the construction works and safety standards.

Fato’s regulation will be put together by Mato Grosso’s public services regulator Ager, Governor Mendes said.

The railroad network extension in Mato Grosso is an old project of Rumo. The company negotiated at some point with the Ministry of Infrastructure to have the project included in its federal concession, but disagreements held up the plan. In backrooms, some say the federal government wanted to move forward first with another railroad, Ferrogrão, and had been slowing down Rumo’s project as a result. On the other hand, some say it would be unfeasible to approve such a high investment without a call for bids.

There was an impasse until July, when the Mato Grosso state government announced a public call for tenders to carry out the construction independently of the federal government. The state had been preparing for that since 2020, and had already approved and regulated its own legislation enabling local railroad projects through the authorization regime.

When the project was announced, several analysts in the infrastructure sector raised doubts about its legal security. Since then, the federal government itself has put forward federal legislation for the construction of railroads through authorization amid pressure from several similar efforts put in place by state governments.

Rumo’s CEO said there is no longer any prospect of transferring the project to the federal sphere. “The path has been decided. I see the federal effort as progress, though. Brazil needs this. It is another initiative that, of course, needs to go through the whole process and make its way in the Senate and in the Chamber of Deputies to receive amendments and be adjusted. Then it also has to be regulated. It still has a way to go,” he said.

Asked if a federal project would bring more legal security to the work, the executive said he sees no difference. “We have a very clear, regulated law [in the state]. It was an opportunity. The railroad runs within the state and [local legislation] was more advanced. But this is a project for Brazil.”

As for demand risk, which will be Rumo’s responsibility, the executive says he is confident, even with other railroad projects planned in the state, which may compete for shipments. “The supply is expected to keep growing. There will be a lot of volume. The group has drawn the most diverse scenarios and none of them discourages us.”

To make the multi-billion investments in the new venture, Rumo plans to use its current capital structure without exceeding its leverage limits, which are about 2.6 times the net debt-to-EBITDA ratio. “Investments will be made over the years. Our current capital structure and the expectation of cash generation allow us to absorb this project,” Mr. Abreu said.

He highlights that as the terminals are finished, there will be revenue generation. Besides, not all the funds will come from Cosan’s logistics company. Rumo plans to find partners to build the terminals the same way it did with other railroads it operates.

“It is a disruptive project, which impacts a gigantic value chain. With the railroad, corn ethanol plants, fertilizer blenders, soybean crushers will be built,” he said.

Source: Valor international

https://valorinternational.globo.com/