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July 26, 2016

Brazilian Railroad linking Atlantic and Pacific Ocean seems Doubtful

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

The biggest infrastructure project ever proposed in Brazil is a railroad linking the Atlantic and Pacific Oceans, which would cut through the heart of Brazil's agricultural region. The railroad would start in Rio on the Atlantic Coast and proceed through the states of Minas Gerais, Goias, Mato Grosso, Rondonia, and Acre before entering into Peru and ending at the ocean port of Bayovar in Peru.

Two weeks ago, the Chines firm Creec released a preliminary feasibility study that concluded that the 5,000 kilometer railroad, with an estimated cost of R$ 40 billion ($12 billion at the current exchange rate) is indeed feasible. In an article published in the newspaper A Gazeta, many Brazilians though, feel that the firm, which is backed by the Chinese government, put a very positive spin on the project due to pressure from the Chinese government who want to reduce the cost of transporting Brazilian soybeans to China. Many agricultural experts in Brazil are doubtful that this gigantic project will ever get off the ground.

The director of the Agriculture and Livestock Federation of Mato Grosso, Nelson Luiz Piccoli, feels the railroad will not be viable anytime within the next 50 years. He cites the massive overspending for the 2014 World Cup and the 2016 Rio Olympics for making Brazilians very warry of the largest infrastructure project ever attempted in Brazil.

In addition to the financial problems associated with the World Cup and the Olympics, the ongoing scandal involving Petrobras have left many Brazilian feeling these large projects are done mainly to benefit politicians and business leaders through a system of bribes and kickbacks. Public projects are the primary source of power and wealth for the politically connected in Brazil. Many feel that these projects are not done for the good of the country, but instead for politicians to enrich themselves and to hide their ill-gotten riches in off-shore accounts.

Most Brazilians and prosecutors feel the Petrobras scandal is just the tip of the iceberg and that many more scandals will surface involving not only the Olympics but also new railroads, toll highways, port facilities, and airports.

Other obstacles to completing such a gigantic project include lack of security for foreign investments, onerous labor laws, high taxes, and mind-numbing environmental regulations. Existing environmental laws can turn even a simple infrastructure project, such as installing a concrete pad for a grain silo on a private farm, into a never-ending nightmare. Imagine the potential environmental obstacles of a 5,000 kilometer railroad that would take at least 9 years to build and would cut through the Amazon Rainforest and go over the Andes Mountains.

The preliminary feasibility study indicated that the railroad would initially transport 23 million tons of grain mostly produced in Mato Grosso and that after 25 years the volume would increase 43% to 53 million tons.

Two parts of the proposed transcontinental railroad would actually be important for producers in Mato Grosso. The first part would be a rail line between Campinote, Goias and Lucas do Rio Verde in Mato Grosso. This line would link Mato Grosso to the North-South railroad in Goias allowing grain to eventually be exported from ports in northeastern Brazil.

The other part is a line from Sapezal in western Mato Grosso to the city of Porto Velho in the state of Rondonia, which is located on the Madeira River. There are currently barging companies in operation at Porto Velho that are transporting soybeans to various ports along the Amazon River.

The only railroad project in Mato Grosso that seems to be on track for actual construction is a railroad from Lucas do Rio Verde in central Mato Grosso north to the port at Miritituba on the Tapajos River in the state of Para. The railroad would parallel the existing highway BR-163 that is currently being asphalted. At that port, there are numerous barging companies that transport soybeans to ports at the mouth of the Amazon River. This project has been approved by the Transportation Ministry and public hearing are scheduled later in 2016. Bidding on the project could occur in early 2017.

The Minister of Transportation in Brazil is aware of the study conducted by Creec concerning the transcontinental railroad, but has not indicated a timeline as to when any Brazilian studies would be completed.