Globalization of Japanese Railway Business Participation in Brazilian Passenger Railway Operation Project through Concession and PPP Kazuhiko Ono, Takefumi Uchida Participation in Brazilian Passenger responsible for development of urban traffic infrastructure Railway Operation Projects have not introduced fundamental measures taking into account the medium to long-term increase in public transport A newspaper article published during the soccer World Cup users. They have gone no further than development is still fresh in my memory—it reported that the line of cars centering on bus networks to improve the current situation, rushing home to watch the Brazil–Mexico game on television which in turn has worsened road congestion. One of the in São Paulo, Brazil’s largest city, reached an all-time record reasons for the grass-roots demonstrations in Brazil in 2013 length of 300 km. There are other statistics showing that a was dissatisfaction with public transport facilities that had normal 30-minute commute by car anywhere else takes an seen no development or improvement at all. This was the average of 50 minutes in São Paulo and 56 minutes in Rio trigger forcing the government to position development de Janeiro during the peak traffic rush hour. The economic of urban traffic infrastructure as a top priority, announcing losses from this are serious. financial support for such development in each state. Brazil’s middle class has been expanding with the Consequently, moves to develop infrastructure in each city economic growth in the 2000s backed up by rising prices have gained momentum. of natural and food resources, leading to a rapid increase in Public-private partnership (PPP) using private-sector automobile ownership (Fig. 1). This has resulted in chronic funds and know-how, is expected to be a powerful drive for traffic congestion in major cities. State traffic bureaus infrastructure development. In the Brazilian raliway sector, Figure 1 Trend in Number of Motor Vehicles in Brazil Unit: 1000 vehicles 35000 30000 25000 Motor vehicles 20000 15000 10000 Passenger cars 5000 0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: World Motor Vehicle Statistics Japan Automobile Manufacturers Association, Inc. Japan Railway & Transport Review No. 66 • Oct 2015 18 Globalization of Japanese Railway Business PPP was first used for the São Paulo Metro Line 4 Project initiatives in passenger railways and the background leading in 2006. We believe that the biggest advantage of PPP is to participation in passenger-railway operation. It also ‘reliable completion of the project in a certain time span’, describes the aims from a trading company’s perspective, through project management by the private-sector including the expectations for Japanese railway operators in this procurement and construction, even more than ‘reducing sector, etc. project costs and improving services’. In other words, ‘time can be bought’. History of Mitsui Initiatives in Brazil and Anticipating growth of opportunities in development Lessons from São Paulo Metro Line 4 of urban traffic infrastructure using PPP, Mitsui & Co., Ltd. (Mitsui) established a joint venture company with Mitsui has exported railway carriages, signalling systems, Odebrecht TransPort S.A. (OTP) in November 2014. OTP is etc., built by Japanese manufacturers to the Brazilian a concession company operating business such as railways, Federal Railroad Network, suburban railway corporations toll roads, airports, etc., and is a member of the Odebrecht etc, since 1958 (Table 1). In addition, Mitsui has undertaken Group, Brazil’s leading conglomerate. The joint venture railway system design, procurement, and construction was undertaken to participate fully in Brazil’s passenger- projects, and accumulated extensive knowledge and long- railway operation. This article describes the history of Mitsui term experience of Brazil’s passenger-railway sector. Table 1 Mitsui Deliveries to Brazil Year Recipient Japanese manufacturer Overview of products Quantity Ferrovia Paulista Sociedade 1958 Toshiba Train 90 carriages Anônima (‘FEPASA’) Rede Ferroviária Federal, Nippon Sharyo, Hitachi, 1976-77 Train 120 carriages Sociedade Anônima (‘RFFSA’) Kawasaki Heavy Industries Nippon Signal, Kyosan Electric Manufacturing, 1981 FEPASA CTC system 1 set Daido Signal 1982 RFFSA Toshiba and Hitachi Electrical equipment for restoration 58 sets Nippon Signal and Kyosan Electric Manufacturing Signalling and communications system 1983-85 RFFSA (Subcontractors were NEC, Hitachi, Kawasaki 1 set and maintenance equipment Heavy Industries, Toshiba, and others) Empresa de Trens Urbanos de Nippon Sharyo, Hitachi, 1984 Porto Alegre Sociedade Anônima Train 100 carriages Kawasaki Heavy Industries (‘TRENSURB’) Nippon Signal, Kyosan Electric Manufacturing, 1984 TRENSURB Signalling system 1 set Daido Signal Companhia Brasileira de Trens 1985-86 Toshiba and Hitachi Electrical equipment for restoration 320 sets Urbanos (‘CBTU’) Toshiba, Hitachi, Tokyu Car, 1985-86 CBTU Electrical equipment for restoration 25 sets Koito Manufacturing, NABCO, and NTN Nippon Signal, Kyosan Electric Manufacturing, 1987-98 CBTU ATC system 1 set Daido Signal 1989 RFFSA Hitachi Locomotives 2 1989-91 CBTU Toshiba and Hitachi, etc. Electrical equipment for restoration 90 sets 1992-93 RFFSA NEC Communications system 1 set 1995 CBTU NEC Communications system 1 set 1996 CBTU Toshiba Lightning arresters 46 1996-97 CBTU Hitachi Main controllers for carriages 23 Companhia de Transportes de Electrical equipment for trains made by 2003 Toshiba 24 sets Salvador (‘CTS’) Rotem of South Korea Rio de Janeiro State Suburban Electrical equipment for trains made by 2004-06 Toshiba 80 sets Railway Corporation (‘CENTRAL’) Rotem of South Korea Electrical equipment for trains made by 2009 CENTRAL Toshiba 120 sets Changchun Railway Vehicles of China Electrical equipment for trains made by 2012 CENTRAL Toshiba 288 sets Changchun Railway Vehicles of China 19 Japan Railway & Transport Review No. 66 • Oct 2015 Existence of powerful local partners Passenger-railway operation and management projects have a ‘strong local flavour’ in the sense that, over the long term, there are many negotiations with government agencies with jurisdiction and many points of contact with local users. Such projects are difficult for foreign companies to handle alone, even with good local knowledge, making it very important to team-up with partners with strong local connections, especially government agencies with jurisdiction, as well as have the ability to negotiate concession contracts from the authorities. São Paulo Metro Line 4 (Mitsui & Co., Ltd.) Project execution capability The project execution capabilities required of top management and Along with the move towards use of private-sector shareholders when operating a project are quite important. resources in Brazil during the 2000s, Mitsui explored Capabilities include those in areas such as: making sure new initiatives and leveraged its track record in procuring the philosophy with respect to safety and reliability of the carriages, etc., to invest in the company constructing and overall system is shared between shareholders and the operating São Paulo Metro Line 4 (also called ViaQuatro) in project company and is appropriately implemented; making 2007. At the time, we focused on discussions with São Paulo sure efficient operation, cost management, and optimal State authorities, lawyers, banks, etc., on how to form a PPP investment–all of which have an impact on profitability– framework, and to reduce and reasonably share various are strictly implemented; and holding the aforementioned risks between the public and private sectors, such as negotiations with government agencies with jurisdiction. demand risk, in the concession contract. After participation in that project as a member of the ViaQuatro Board of Full-scale Participation in Passenger Directors, Mitsui gradually deepened its involvement in Railway Operation management of the company running the ViaQuatro project, including construction and resolving problems arising Background during operations, becoming more experienced in Mitsui’s Mitsui’s partner, OTP also sends board member to ViaQuatro ideal role, approach to initiatives, and perspectives when and amply demonstrated its ability to handle high-level engaging in overseas passenger-railway projects. This negotiations with the state government on various occasions experience gave rise to several important considerations during board meetings. Mitsui and OTP had a similar when participating in overseas passenger railway projects philosophy about project operation and risks, so we felt a as follows. sense of affinity that led to discussions about working on new PPP projects, not just ViaQuatro. Finally, OTP proposed Inevitability of plan a comprehensive collaboration. Many newly industrializing economies (NIEs) and other Generally, in European countries, there is a strong developing countries propose infrastructure development tendency to emphasize functions whereby partnering involves plans using PPPs only to see the plans fizzle out. In this identifying functions required to implement the project and sense, one key precondition for success is the inevitability then searching for companies with a best fit to each function. of the plan, such as when the only choice is to match policy However, in Latin countries like