Large-scale rail infrastructure on top of decayed roads
Large-scale rail infrastructure on top of decayed roads
Business Model Description
Provide project financing to upgrade rail and road infrastructure on top of foundations of decayed roads
Expected Impact
Optimize freight transport for the benefit of consumers, especially those distant from sources
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Brazil: Piauí
- Brazil: Ceará
- Brazil: Maranhão
Sector Classification
Transportation
Development need
National underinvestment in infrastructure creates particularly high costs in transportation and logistics: Brazil's infrastructure deficiencies cost it between 10-15% of GDP every year, driven primarily by logistics costs close to 15% of GDP (2) Brazil also has one of the most deficient road and railway networks across Latin American peers, BRICS and OECD countries (3)
"Policy priority
Continuity in the government's PPI program is expected to create an environment for expanded and improved investment in transportation (15)
The government has also created an agency to consolidate all infrastructure projects, land and maritime (ANT - National Transport Agency) (4)"
Gender inequalities and marginalization issues
In Brazil, urban life and vulnerability to violence are particularly challenging for black and low-income women, for whom walking and public transport play a fundamental role in the everyday experience. The 2014 ActionAid’s survey Cidade Segura Para Mulheres (Safe City For Women) revealed that 86% of Brazilian women had already been harassed in public space and 44% on public transport. (6)
Investment opportunities introduction
Government's PPI program is expected to create an environment for expanded and improved investment in transportation (5)
Key bottlenecks introduction
Absence of replicable project financing vehicles, lack of predictability and risk of limited enforcement of long-term contracts
Land Transportation
Development need
Brazil has one of the most deficient road and railway networks across Latin American peers, BRICS and OECD countries (3) The rail network is highly uncompetitive - active lines amount for 20,000 km, a measure that is nearly half of the length of Argentina's rail network, a country which is a third of Brazil's size (10)
Policy priority
The new administration has made freight rail a priority subsector within its PPI investment program (24)
Gender inequalities and marginalization issues
Transit services and facilities must ensure the safety of women and girls. Traveling in public transport without fear of abuse or discrimination should be a priority for transport planning, as safer transport is a crucial element of a livable city. (7)
Investment opportunities introduction
The overall freight railway sector is expected to double in share over the next eight years, up from 15% to 29-30% of the logistics mix, in line with concession schedules (15)
Rail Transportation
Pipeline Opportunity
Large-scale rail infrastructure on top of decayed roads
Provide project financing to upgrade rail and road infrastructure on top of foundations of decayed roads
Business Case
Market Size and Environment
> USD 1 billion
Freight railways sector expected to double from 15% to 29-30% over eight years (15)
The overall freight railway sector is expected to double in share over the next eight years, up from 15% to 29-30% of the logistics mix, in line with concession schedules (15)
There is an estimated need of over US$ 20 billion in investment into the Brazilian railway sector (17)
Indicative Return
10% - 15%
Rates of return for concessionary rail projects in recent years have typically varied between 10.6 and 16% IRR (12) (13) (14)
Investment Timeframe
Long Term (10+ years)
Railway projects under PPI have completion periods of 30 years, driven by extended contracting timelines (21)
Ticket Size
> USD 10 million
Market Risks & Scale Obstacles
Business - Business Model Unproven
Capital - Limited Investor Interest
Market - Volatile
Impact Case
Sustainable Development Need
Brazil's rail network is highly uncompetitive - active lines amount for 20,000 km, a measure that is nearly half of the length of Argentina's rail network, a country which is a third of Brazil's size (10) One third of Brazil's rail lines are abandoned (8)
Brazil's railway system moves just 3%-4% of cargo containers by rail, in comparison to China's 6-8% (9) (11)) 50% of Brazil's food stock is lost in the distribution chain, which is currently primarily transported on roads (18)
The Brazilian government spends more on maintenance than on road construction. In 2016, 64.3% of the resources were earmarked for road rehabilitation and maintenance actions, while only 28.1% was for adequacy and construction (16) - this creates the risk that poorer quality roads are constructed from the start, leading to a higher frequency of decay
Gender & Marginalisation
Transit services and facilities must ensure the safety of women and girls. (7)
Expected Development Outcome
Optimize freight transport across the country by lowering risks associated by road accidents and saving time by using higher-speed rail transport
Reduce food and other cargo waste across value chains by minimizing commodity loss from accidents and shortening delivery times (e.g.., allowing foodstuffs to reach consumers unspoiled)
Reduce environmental risks of new railway construction by upgrading existing ones and building new ones on top of decayed roads
Gender & Marginalisation
Increased rail transport opportunities, improving women's access to urban centers and areas of potential employment, reduced violence against women experienced during pedestrian transportation.
Primary SDGs addressed
9.1.2 Passenger and freight volumes, by mode of transport
9.a.1 Total official international support (official development assistance plus other official flows) to infrastructure
Passenger volume by air: 134,841,080,950; by rail: 31,156,662,370; by road: 963,486,201,878 (2018) (25)
Total official flows for infrastructure 1738.1877 million USD (2018) (25)
N/A
N/A
Secondary SDGs addressed
Directly impacted stakeholders
Corporates
Indirectly impacted stakeholders
People
Outcome Risks
Railway production, even if on decayed roads, can put pressure on biodiversity along the line and potentially disturb natural habitats and rural landscapes
Impact Risks
Unexpected impact risk - given the potential negative environmental impact from railway construction
Execution risk - given lack of predictability and enforcement of long-term contracts and absence of replicable project financing vehicles may limit breadth of impact
Impact Classification
What
Improved railway network could optimize freight transport by reducing risks and waste associated with suboptimal transportation channels and delivery times
Risk
Lack of predictability and enforcement of long-term contracts and absence of replicable project financing vehicles may limit breadth of impact
Impact Thesis
Optimize freight transport for the benefit of consumers, especially those distant from sources
Enabling Environment
Policy Environment
(PPI investment program): emphasizes new administration's prioritization of freight rail in investment programme (24)
(Railroad concessions): New administration started rail road concessions in the first semester of 2019 (20)
Financial Environment
Financial incentives: BNDES offers the financing lines according to the applicable credit requirements (22)
Regulatory Environment
(Law 13,334/2016): governs PPI work (22)
Marketplace Participants
Private Sector
Prumo, Rumo Logistica, MRS Logistics
Non-Profit
Associação Brasileira da Infraestrutura e Indústrias de Base (ABDIB)
Target Locations
Brazil: Piauí
Brazil: Ceará
Brazil: Maranhão
References
- (1) Bertelsmann Stiftung, 2019, https://dashboards.sdgindex.org/#/BRA
- (2) IDB Invest, 2018, https://blogs.iadb.org/bidinvest/en/brazil-infrastructure-challenges-opportunities/
- (3) Governo Federal do Brasil, 2015, https://www.epl.gov.br/html/objects/_downloadblob.php?cod_blob=2091
- (4) Folha de São Paulo, 2019, https://www1.folha.uol.com.br/mercado/2019/02/governo-bolsonaro-prepara-superagencia-de-infraestrutura.shtml
- (5) Rio Times, 2019, https://riotimesonline.com/brazil-news/rio-business/brazil-to-start-railroad-concessions-in-first-semester-of-2019/
- (6) Institute for Transportatoin and Development Policy. 2018. ""Women and Children’s Access to the City"" http://itdpbrasil.org.br/wp-content/uploads/2018/01/Women-and-Childrens-Access-to-the-City_ENG-V1_Jun-2018.pdf
- (7) Yadav, Neha. 2016. “Reframing the Issue of Women’s Safety in Public Transport in Brazil and France.” TheCityFix (blog). January 22, 2016. https://thecityfix.com/blog/reframing-issue-women-safety-public-transport-brazil-france-neha-yadav/.
- (8) Railway Technology, 2018, https://www.railway-technology.com/features/brazilian-railways-infrastructure/
- (9) Oils and Fats International, 2019, https://www.ofimagazine.com/news/brazilian-railway-projects-ready-for-bidding-this-year-or-early-2020
- (10) RFI, 2018, http://br.rfi.fr/brasil/20180606-por-que-o-brasil-abandonou-os-trens-e-ferrovias
- (11) Reuters, 2017, https://www.reuters.com/article/us-china-pollution-railway/chinas-small-factories-fear-rail-armageddon-with-orders-to-ditch-trucks-idUSKCN1BW34O
- (12) Conjuntura Econômica, 2015, http://bibliotecadigital.fgv.br/ojs/index.php/rce/article/viewFile/61519/59700
- (13) Governo Federal do Brasil, 2015, https://www.epl.gov.br/html/objects/_downloadblob.php?cod_blob=2091
- (14) Governo do Brasil, 2015, http://www.brasil.gov.br/economia-e-emprego/2015/11/governo-eleva-taxa-de-retorno-para-projetos-em-ferrovias/dm_transnordestina_piaui_11092015_000.jpg/view
- (15) Veja, 2019, https://veja.abril.com.br/economia/governo-planeja-tres-concessoes-de-ferrovias-ate-2020/
- (16) Brazil Monitor, 2017, http://www.brazilmonitor.com/index.php/2017/08/28/cni-brazilian-roads-have-structural-problems-7-months-once-finished/
- (17) Sebrae, 2017, https://bibliotecas.sebrae.com.br/chronus/ARQUIVOS_CHRONUS/bds/bds.nsf/1188c835f8e432ddd43bc39d27853478/$File/9960.pdf
- (18) El País, 2019, https://brasil-elpais-com.cdn.ampproject.org/c/s/brasil.elpais.com/brasil/2019/06/25/opinion/1561489519_429723.amp.html
- (19) El País, 2019, https://brasil.elpais.com/brasil/2019/03/28/politica/1553729926_061804.html
- (20) Rio Times, 2019, https://riotimesonline.com/brazil-news/rio-business/brazil-to-start-railroad-concessions-in-first-semester-of-2019/
- (21) Programa de Parcerias de Investimentos, 2019, https://www.ppi.gov.br/efc-estrada-de-ferro-carajas
- (22) Programa de Parcerias de Investimentos, 2019, https://www.ppi.gov.br/about-the-program
- (23) Pardee Center, 2017, https://pardee.du.edu/sites/default/files/BRAZILReportPardeeCenter%20%281%29.pdf
- (24) Associação Brasileira da Indústria Ferroviária (ABIFER), 2019, https://abifer.org.br/en/abifer-news-new-government-set-to-prioritise-rail-freight-network-development/
- (25) United Nations Global SDG Database. “SDG Indicators.” https://unstats.un.org/sdgs/indicators/database/.
- (26) BNamericas. 2020. “Fiol, Ferrogrão Projects Are Brazil’s Rail Priorities in 2020.” BNamericas.Com. February 26, 2020. https://www.bnamericas.com/en/analysis/fiol-ferrograo-projects-are-brazils-rail-priorities-in-2020.