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Government Will Have To Pay R$ 2 Bln For VALE Operation Carajas’ Railway in the Next 30 Years

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The plan presented by ANTT for the early renewal of Vale’s rail concessions for another 30 years, starting in 2027, provides that the company will have to pay R$ 640 million for the renewal of the EFVM concession (Estrada of Ferro Vitória Minas) and receive R$ 2.1 billion for the renewal of EFC (Carajas Railroad).

The data is in the final report of public hearings released Thursday (9) explaining the reasons for reaching these values ​​for these renewals.

Vale was sold in 1997 with the railroad concessions, which are the links of the mines to the company’s ports. However, in the contract made between the government and Vale for the 30-year concession of the railways, renewable for another 30 years, railroad goods were not from the government but from Vale, unlike the other railroad concessions in the country.

As a result, the investments made by the company over the years would now be compensated by the proposal presented for consultation. In the case of EFC, the agency estimated R$ 18.8 billion in the unamortized investments of the railway, which considers the duplication of the railroad for the S11D project started in 2012 and still in progress.

The EFC account also considers new investments in the road and new equipment, estimated at R $ 11.3 billion, including R$ 243 million in solutions to urban conflicts. There is a further R$ 20.5 billion in operating expenses, calculated at a rate of return of 11.04 percent year.

The final report does not present Vale’s estimated revenue over the 30-year contract. The data is in Annex V of the documents presented for public consultation and in a specific worksheet for calculation of the grant value that totals R$ 49 billion. It is the difference between this estimated revenue and all the expense that leads the account to become negative.

To reach this value, the estimated tariff for the trains to be transported by the EFC was R $ 24.47 per thousand TKU (unit of measurement for transportation) for transportation of ore. The rate is considered low. In studies for the construction of FIOL (Ferrovia Oeste-Leste), in 2008, the projected tariff for 2013 was R$ 49.

In the case of EFVM, the value is positive even though the estimated investments are estimated at R$ 9 billion. There are R$ 374 million in reduction of urban conflicts and R$ 55 million in new works, in addition to the R$ 2.6 billion for FICO (Integration Railroad of the Center-West) included at the request of the government. Operating expenses were estimated at R$ 12.66 billion, with the same rate of return as EFC.

To argue that early renewal is the best option, agency technicians have presented a matrix with five different options to address the issue, which includes doing nothing and getting the railroad to the end of the contract.

The option with the most positive effects, in both cases, was to renew in advance the modernization of the contracts. And the one with the most negative effects is to railroad the end of the contract, in which 3 negative impacts are highlighted:

– international perception of contractual instability in the Brazilian regulatory environment, due to the expropriation of a railroad, which performs well;
– risk of the Union not having resources for the payment of any amounts resulting from indemnification to the Concessionaire;
– high risk of litigation.

Another item highlighted in the reports is the fact that the contracts can be modernized, since the old ones only contained safety and performance targets for the railways, which is considered insufficient for good regulation.

The agency’s technicians point out that, with the new contract, whose draft has also been made available, it will be possible to improve some regulatory aspects, among them the guarantee of investments to keep the line with capacity for other operators and contractual security for the chances of termination or contract expiration, for example.

In the case of the EFC, the report informs that the rules guarantee that the new concessionaire has to trigger the investment trigger when the production reaches 90 percent of the capacity.