Rodrigo Vilaça London, September 26, 2012 C.E.O. of ANTF Railway Mission - UK THE EVOLUTION OF THE BRAZILIAN RAILWAY SECTOR IN THE LAST 15 YEARS: Achievements, Advances and Challenges National Association of Rail Carriers www.antf.org.br ANTF Associates South,,est,ot West, North aadnd Pauli sta Raaoadsilroads www.all-logistica.com Railroads of EFVM and EFC Center-West Railroad North Leg Railroad www.vale.com www.fcasa.com.br Northeast Railroad Tereza Cristina Railroad Southeast Railroad www.tlsa.com.br www.ftc.com.br www.mrs.com.br Railways Transport Brazil into the Future with Integration and Development THE EVOLUTION OF THE BRAZILIAN RAILWAY SECTOR IN THE LAST 15 YEARS: AchievementsAchievements,, Advancesand Challenges 1. Railway Concession in Brazil 2. Railway Concessions --ResultsResults 3. Challenges in Developing the Sector 4. Federal Government Plans and Programs Railways Transport Brazil into the Future with Integration and Development THE EVOLUTION OF THE BRAZILIAN RAILWAY SECTOR IN THE LAST 15 YEARS: AchievementsAchievements,, Advancesand Challenges Railway Concession in Brazil 1 Railway Concession in Brazil Institutional Evolution of Rail Transport in Brazil-Cycles - Cycles:: 1. Government concessions for the construction of the first railroadsrailroads,, at the end o f the XIX century,century, financed primarily by private British capital; 2. The second cycle was defined by the process of railway nationalization,nationalization ending wihith the fdifounding of RFFSA in 1957 ; 3. TheDenationalization of the Railway Transport Sector, Sector with the concession of networks to RFFSA, during the 1990´s. In the decade of 1990: Neoliberal policies led to the reform of the Brazilian Sate, causing 3 structural transformations: 1. Elimination of certain restrictions on foreign capital; 2. Reduction of state-controlled monopoly, allowing for a concessionof public services to private initative – program of denationalization; and 3. Privatizations (Law n.º 9.941/97). Railway Concession in Brazil National Denationalization Program- Program-“PND”:“PND”: . Law n.º 8.031, of 04/12/90: established the PND divided into two departments • National Denationalization Council - CND, decision-making body; and • Brazilian Development Bank - BNDES, in a managing role for the National Privatization Fund -FND. - FND. Decree n.º 473, of 03/10/92: Railway transport begins to be a part of PND by the inclusion of RFFSA (Brazilian Railways Company), which has as its main goals: • ease the state ´s burdenburden;; • improve the allocation of funds; funds; • raise operating efficiency; efficiency; • promote the development of the transport market; market; • improve the quality of servicesservices.. Railway Concession in Brazil National Denationalization Program –“PND”: – “PND”: . The State sought new ways to provide public services: Transfer services to private initiative; initiative; Dedicate itself to regulation and supervision, by way of the Regulating Agencies. The State retained the responsibility to: Define priorities, standards for service quality and ensure affordable fees; Regulate and inspect assets which remain in the power of the State. RFFSA Networks: Concession Contracts for the operation of freight-based railway transport, linked to lease contracts for operational State assets; CVRD Networks: Concession Contracts for the operation of railway transportation of cargo and passengers, having their own operational goods; Rail Networks Planned in the 1980´s: Concession Contracts for the construction and operation of railway transport services (North-South, Ferronorte and Ferroeste). Railway Concession in Brazil Networks of RFFSA Privatization Source: Ministry of Transportation Lecture - 2000. Railway Concession in Brazil Other Networks fromthe Period of RFFSA Privatization Trecho da FERROVIA NORTE-SUL Data de Subconcessão para exploração: 03.10.07 FNS - Ferrovia Norte Sul S.A. Extensão: 720 km Construído e em operação = 226 km Extensão: projetada = 4.548 km construída = 512 km Source: Lecture from the Ministry of Transportation – 2000 (Updated). Railway Concession in Brazil Railway Networks grantedto private initiative = 28,366 km In operation = 22,822 km Underused or without freight traffic = 5,544 km (*) Transnordestina Logistics EFVM- Vitória to Minas Railway EFC - Carajás Railway FCA - Center – Atllantic Railway ALL - Latin America Logistics São Paulo area ALL - Latin America Logistics Northern Network ALL - Latin America Logistics Malha Oeste ALL - Latin America Logistics Malha Sul FTC - Tereza Cristina Railway MRS Logistics Northern Stretch of North-South Railroad Privatization Process: 1996 to 1999 11 Networks granted to private initiative Railways Transport Brazil into the Future with Integration and Development THE EVOLUTION OF THE BRAZILIAN RAILWAY SECTOR IN THE LAST 15 YEARS: AchievementsAchievements,, Advancesand Challenges Railway Concessions --ResultsResults 2 Railway Concessions - Results Meeting thePND objectiveobjective:: Easing the State´s burden, generating public benefits... ... The process of pri vati zati on h as h ad st rong positi ve impac t on pu blic fi nances: Savings to Public Coffers 1994 - 1997 1996 - 1998 Losses accumulated from RFFSA R$ 300 million per year Amount calculated from the (annual deficit of RFFSA operation) auctions of the Defunct RFFSA R$ 2.2 Billion R$ 1.76 Billlion ... After granting rail transport services to Private Initiative the State began to collect: 1996 - 2010 2011 Forecast 2012 Concession Payment and Concession and Leasing Leasing Installments: Payments : = R$ 5.52 Billion in R$ 600.0 Million + Concessions and Leases R$ 4.94 Billion R$ 578.8 Million Concessions and Leases 1997 - 2010 2011 Collection from Taxes, Forecast 2012 Collection from Taxes, = R$ 15.091 Billion in Concessions and Leases and + Concessions and Leases R$ 1.800 Billion CIDE: R$ 13 .52 Billlion and CIDE : R$ 1.58 Concessions, Leases, Taxes Billion and CIDE Taxes, Concessions, Leases and CIDE Railway Concessions - Results Meeting thePND objectiveobjective:: Improvement in the allocation of resources has been made... ...R$ 30.3 billion in investments toward the existingnetwork, in addition to what was earned between 1997 and 2012, without counting investments for the construction of the 1997 - 2011 existing network. 5.300 Total for State 4.739 Investments in Existing Networks granted to Private Initiative 143 R$ 1. 39 billion (million Brazilian reais) 4.398 225 3.053 1997 – 1st Sem. 2012 3.158 112 2.737 Total for Concessionaires 44 2. 622 140 2.293 123 R$ 30.33 billion 4.596 1.966 72 4.173 8 1.748 2.941 1st Semester 2012 1.124 3.114 2.597 Totaotal fo r Concess i on air es 35 2. 499 R$ 1.748 billion 824 2.221 58 724 1.958 11.2% growth in relation to 673 56 that of the 1st semester 574 583 56 45 1. 089 499 Achdhieved 33 % of 162 113 766 projected revenue 668 for 2012. 538 617 412 386 State Investment Concessionaire Investment 2006 1997 1998 1999 2000 2001 2002 2003 2004 2005 2007 2008 2009 2010 2011 2012 Notes: 1) 1997 takes into account 1996 investments; 2) Other values are up to date. Forecast for Concessionaire Sources: Ministry of Transportation, DNIT and ANTF Associates. Invesments in 2012 Railway Concessions - Results Meeting thePND objectiveobjective:: Promoting the development of the transport market... ... Investments in construction to expand railways. Railway Projects Currently Being Executed by Private Initiative Estimated Length of Concessionaire Expansion of Rail Network Amount Construction (Billions of R$) (Km) ALL – North Network Alto Araguia Stretch - Rondonópolis/MT from Ferronorte ((contractualcontractual obligationobligation)) 0.780 260 TLSA Transnordestina Railroad (renovation of 550 km) ((contractualcontractual rightright)) 25% from State funds 5.300 1.728 FCA Variante Coastal Railroad South/ES ((contractualcontractual rightright)) 2.030 165 Total 8. 210 2. 153 Source: ANTF Associates and Balance of the 1st year of PAC 2 - March and July/12. Alto Araguaia – Rondonópolis Stretch Salgueiro - Missão Velha Stretch Railway Concessions - Results Meeting thePND objectiveobjective:: Operational efficiency has increased... Private investement stimulated an increase of 112% in rail transport , comparing the results of 1997 with those of 2011, as well of obtaining 5.5% of the Annual Average Growth Rate (CAGR). Railway Production (Billions TKU) 320.0 1997 - 2011 111.7% 290.5 Freight in General 278.5 Growth of 140.5% 270.7 257.4 243.4 232.3 63. 4 Iron Ores and Mineral 63.9 Coal 221.2 49.9 64,. 58.3 Growth of 104.9% 202.5 181.5 48.6 56.1 161.8 167.7 227.1 153.9 141.6 141.5 44. 4 206. 7 1t1st StSemester 2012 137.2 138.9 42.5 47.4 207.5 213.5 40.2 185.2 27 31.7 32.2 35.7 141.6 bilhões of TKU 183.6 Growth of 1.5% in face 165.1 of the 1st Sem. 2011. 155. 1 118,. 121.7 125.3 136.1 110.2 10.,8 106.7 Has reached 44% of that which was forecasted for 2012. 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: TKU = Ton of Useful Km Transported Concessionaire Production CAGR: Compound Annual Growth Rate Forecast for 2012 Source: ANTT and ANTF Associates Railway Concessions - Results Meeting thePND Objective:Objective: Operational Efficiency has increased... Counti ng th e numb ers of 2011, prod ucti vit y of rail f re iight ht transport h as grown 111 .7% , 2ti2 times higher than the growth of Brazilian GDP (54%). Comparative Analysis of Rail Freight Transport x GDP 1997 - 2011 GDP Increase of 54.0% TKU Increase of 111.7% 2010 - 2011 Rate GDP Increase of 2.7 % TKU Increase of 4.31% Note: Rate base 100.00 in 1997. Sources: ANTF and IBGE Railway Concessions - Results Meeting thePND Objective:Objective: Operational efficiency has increased... 1997 - 2011 Growth of General Freight The movement of freight by railways has grown 87 .6% , comparing the figures 76.2% of 1997 with those of 2011. Iron Ores and Mineral Movement of Freight Transported by Railways Coal (()Million TKU) 522.0 Growth of 87.6% 87.6 % 475.1 470.1 2010 - 2011 Total of Movement 450.5 445.2 111.