US$2.8bn Brazilian railway concession could be canceled

A report by Brazil's federal audit court TCU has found numerous irregularities in the country's Transnordestina railway construction project and, if not resolved, this could result in the cancelation of the multi-billion dollar concession, local paper Valor Econômico reported.

The 1,753km rail concession, which connects the city of Eliseu Martins in Piauí state of to the ports of Suape (Pernambuco state) and Pecém (Ceará state), is currently estimated to cost some 11.2bn reais (US$2.79bn), almost triple the original budget outlined some 10 years ago, with over 70% of that figure coming from public coffers.

Despite the price overruns and the fact that the project began a decade ago, there is still no scheduled completion date.

In fact, with the relatively small private sector contribution and so much public money involved while the country faces an economic crisis, the federal government has "lost control" of the project, the TCU was reported as stating by the daily.

The railway is set to be operated by local rail transport firm and project controller Transnordestina Logistica, a subsidiary of Brazilian steelmaker CSN, which in 1997 won control of the entire rail network in northeastern Brazil, covering some 4,238km of lines.

Although Transnordestina Logistica has failed to meet the production development targets for the network, no fines were applied by national transport authority ANTT, the court said, and in 2005 it was authorized to build the Transnordestina line on the commitment that it would take three years to build, cost 4.5bn reais and transport 30Mt/y of freight.

An indication of the problems was seen when the company failed to deliver engineering studies in 2006 or 2007 but the ANTT took no action.

However, if the concessionaire is determined to be in breach of the contract, then the agency will have to look into imposing fines for the failures to meet targets and the contract must be declared null and void by decree.

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