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Project aims to restore 1m hectares of forest

Ricardo Rodrigues, Bernardo Strassburg and Thiago Picolo — Foto: Leo Pinheiro/Valor
Ricardo Rodrigues, Bernardo Strassburg and Thiago Picolo — Foto: Leo Pinheiro/Valor

A group of major investors, renowned biodiversity researchers and economists has created a company to implement the largest project to restore degraded areas in the country: re.green is born with initial capital of R$389 million and the pioneering goal of restoring 1 million hectares of Atlantic Forest and Amazon rainforest.

The initiative to regenerate tropical forests on a large scale is unprecedented in Brazil and perhaps the world. One million hectares is almost half the area of the territory of the state of Sergipe and 250 times the size of Tijuca National Park, in Rio de Janeiro. It is equivalent to the area of Suzano’s native forest, one of the largest private protected areas in the country.

“re.green is born from science, contains science, and intends to do a lot of science,” says one of the founders and partners, economist Bernardo Strassburg, a reference in global studies on priority areas for ecosystem restoration. “It will be by far the largest experiment in tropical ecology on the planet,” he says.

To get an idea of how big the ambition is, in Brazil’s climate commitment launched in 2015, one of the strategies for the country to cut its greenhouse gas emissions by 43% from 2005 levels was to restore and reforest 12 million hectares by 2030. This has not even begun.

re.green took one year and a half to mature and stimulated four heavyweight investors close to environmental agendas — BW (family office of the Moreira Salles family), the manager Lanx Capital and its private equity arm Principia, Gávea Investimentos and Dynamo.

The return on investment will come with the sale, in a few years, of premium carbon credits — because they will include, at the same time, benefits in climate, communities, and biodiversity — and timber and non-timber products from the regenerated forests. The plan is to capture 15 million tonnes of CO2 per year.

re.green’s board is chaired by Marcelo Medeiros (former partner at Banco Garantia and executive at Credit Suisse) and its members include João Moreira Salles, Fábio Barbosa (ex-Santander and Grupo Abril, and partner at Gávea), Arminio Fraga (Gávea), Marcelo Barbará (founding partner at Lanx and Cambuhy), and Ana Luiza Squadri (partner at Principia Capital Partners).

The intention of re.green’s founders and partners is to restore a large part of Brazil’s environmental liabilities by turning degraded and abandoned pastures, for example, into forests again. Or to establish partnerships to restore large areas on private and corporate properties. The third front is to restore areas in conservation units.

One of the strategies is to buy areas and form biodiversity corridors. “We will plan the space to expand the habitats of native species, preferably near conservation units,” says Ricardo Rodrigues, one of re.green’s partners.

He is a professor of Restoration Ecology at the University of São Paulo and a reference in the field of restoration in the Tropics, with more than 30,000 hectares of Atlantic forest restoration. He founded in Piracicaba (state of São Paulo) the Bioflora nursery, the most symbolic of native seedlings of the Atlantic forest, with almost 30 years.

In the case of partnerships, re.green provides the seedlings, the seeds, and the implementation of the forests, and keeps the carbon credits, explains economist Thiago Picolo, CEO of the new company. “The purchase of properties is a possibility, mainly because of the permanence of the projects and the carbon credits. It is essential that we can guarantee that the restoration will last forever,” explains Mr. Picolo, who was CEO of Hortifruti Natural da Terra, a food retail chain focused on fresh and organic products that was sold in 2021 to Americanas S.A.

The choice of priority areas to be regenerated is one of the distinguishing features of Mr. Strassburg’s new company and study area.

“We are using science to prioritize where we will regenerate forests. Where it will have the most impact for biodiversity, for carbon capture, and where it will be financially viable,” he says.

It is not a random choice, but areas that, if regenerated, can have ten times more impact on climate and biodiversity than others, explains Mr. Strassburg, a professor of sustainability science at the department of Geography and Environment at the Catholic University of Rio de Janeiro (PUC-RJ).

The first place of interest for re.green is in the South of the Bahia state, a region that is a biodiversity hotspot with great impact also for carbon sequestration. Another priority region is in the state of Pará. In the case of the purchase of areas, the promise is to return to society the land restored and as a conservation unit.

Mr. Rodrigues reminds that a current trend in restoration projects and carbon sales is concentrating on “easier situations”. These are areas with potential for natural regeneration. “If we only have this option we will leave a trail of degraded areas that no longer have the potential for natural regeneration because they have been so exhausted. re.green has not shied away from this. It’s a huge challenge,” he says.

In the case of carbon credit sales, re.green’s project is to qualify for the sale of carbon removal credits, which have, on average, a price five times higher than avoided deforestation credits. They are at a premium because they seek Verra CCB certification (which certifies projects with simultaneous climate, community, and biodiversity benefits).

“The restoration economy is a complex ‘business case’. It requires a lot of initial investment and returns over time. You have to wait for the forest to come back. It’s a patient capital,” says Mr. Strassburg.

The initial strategy is to divide the regeneration efforts equally between the two forest biomes. “The beauty of this project is also the fact that it generates an entire restoration chain, with social impact in the generation of jobs for seed collectors and in the seedling nurseries,” says Mr. Rodrigues.

Source: Valor International

https://valorinternational.globo.com

Paraná seeks investors for ambitious railroad project

QUESTIONS AND ANSWERS: NORTH-SOUTH RAILROAD PROJECT - Programa de Parcerias  de Investimentos

Paraná state government is preparing to launch a very ambitious project: Nova Ferroeste, a R$30 billion railroad between Maracaju (Mato Grosso do Sul) and the Port of Paranaguá (Paraná). It is not yet clear whether there is an investor willing to finance such a high amount. Paraná expects to draw a foreign group, even in an election year. In the market, however, there is little confidence that the plan will get off of the drawing board at this moment.

Feasibility studies recently concluded indicated an internal rate of return of 11% and a 17-year payback period, within a 70-year contract. “The study indicates that the railway is highly viable in all aspects: operational, environmental and financial,” said Luiz Henrique Fagundes, CEO at Ferroeste, a state-owned company that operates a federal concession, from Cascavel to Guarapuava (both in Paraná). The railroad is already in operation, but it is restricted. The idea now is to expand it, reform the current structure and transfer everything to a private-sector company.

Nova Ferroeste would be 1,304 km long, from Maracaju to Paranaguá, with a branch to Foz do Iguaçu (Paraná). The investment includes R$24.3 billion for construction, R$4.3 billion in rolling stock and R$800 million in environmental compensation. There is also a plan for another branch to Chapecó (Santa Catarina), but that was not included in the recently completed study.

The goal is to hold the auction by mid-2022. The state government plans to conduct market surveys in December and open public consultations. The first version of the call for bids is expected for February 2022.

However, there are still things to be defined, which go beyond attracting an investor. There are at least two question marks. The first is legal modeling, which has not been decided. At first, the idea is to carry out the project under an authorization regime, says Mr. Fagundes.

Ferroeste has even made requests to the federal government to build the additional stretches (outside the concession) by authorization — a new regime in which the entrepreneur is fully responsible for the undertaking, without risk sharing or financial support from the government.

However, the arrangement is complex. There are doubts about how the state-owned company would tender the entire corridor, since part would be done under the authorization regime and the other part is already an existing concession, in which the federal government transferred the operation to Ferroeste. “I don’t know to what extent we are going to be able to evade the concession. One possibility is to sell the concession. By the laws being considered in Congress, we could transform everything into authorization.”

Another issue is that there is still no definitive federal law that allows the authorization model, although there is a Provisional Measure (MP) in effect. In parallel, there is also a bill on the matter. When contacted, the Ministry of Infrastructure said that authorizations granted during the validity of the MP are perfected legal acts and, if the project is approved, there will be legal certainty.

Ferroeste works with the scenario that by the end of 2021, before the public consultation, the final standard will be approved. Mr. Fagundes says there is a plan B: carrying out the entire project as a sub-concession.

The second factor still pending is environmental licensing. Ferroeste has sought to speed up the process — the studies have already been completed and, in the next few days, they will be forwarded to federal environmental agency Ibama. The government wants to have a prior permit before the auction to provide more security.

In the market, there are doubts about the project’s feasibility, especially via authorization — without public funds or support. One source recalls that building a large-scale railroad is difficult even with taxpayer money, let alone without it. Another person, who also spoke on condition of anonymity, says that the authorization model tends to work more when the investor is the owner of the cargo or a operator already established in the country – but these would not be interested in the project.

For Bernardo Figueiredo, a former general director of ANTT (National Land Transport Agency), it is a good project, but one unlikely to materialize without taxpayer money. “It’s a necessary connection, which makes the greatest economic sense. My question is whether it will stand as a purely private-sector investment.” He observes that, in addition to financing, there is an enormous execution challenge in the work to descend from the mountains to the port. “It is a heavy, risky investment. It would need some government participation.”

Asked about the difficulty in attracting investors under these conditions, Mr. Fagundes says that he has had a positive return so far. “Investors go for what is good, the market knows how to identify opportunities. In some cultures, the issue of concession, of having reversible assets [returned to the government at the end of the contract], of rebalancing, is a trauma. The American, the Chinese don’t understand that. The authorization gives great comfort.”

The plan is for Nova Ferroeste to start being built by the mountain slope to the port of Paranaguá, so that revenue can already begin to be generated — in the first year of operation, 38 million tonnes are expected to be moved through it. With the railroad already mature, the perspective is that the capacity will reach 85 million tonnes per year. The main cargoes transported would be soy and corn, followed by soybean meal and animal protein.

Source: Valor international

https://valorinternational.globo.com/