Brazilian Freight Rail Sector - An Overview of Experiences and Perspectives of Concession Model

Brazilian Freight Rail Sector emerged in the end of 19th century, when the first railways were constructed, under the first known grant system in the country. Later, in the beginning of 20th century, rail system was expanded to support the increasing economical activity related to the agroexportation business, specially coffee crops. This not planned process resulted in a non-integrated network that has undermined the economical feasibility of rail system and bankruptcy of some rail companies. This culminated with the nationalization of 42 private railways into a national company named Rede Ferroviária Federal SA - RFFSA, in 1957, with the objective to recover and improve freight transport to support activities associated to some industrial process, basically mining and related activities and, later, agricultural production for exportation (grains). During eighties, however, economical crisis and the consequent lack of public investments challenged the operational capacity of RFFSA, resulting in its inability to meet demand for rail freight services and the need of heavy public subsidies. This culminated with the privatization of freight rail system into vertical companies, under a regional format corridors. Concessions were awarded between 1996 and 1998, on a price cap model, under a contractual regulatory approach, with production-safety targets. Performance improved greatly in the first years of concession, with great investments in rehabilitation of tracks, rolling stock and facilities. On a regulatory perspective, however, the network arrangement did not lend to a competitive design, since lines were disposed as isolated corridors, with no economical links between them and no regulatory enforcement to stimulate interoperability. In 2002, Agência Nacional de Transportes Terrestres - ANTT, a regulatory agency, was created, with a mission to monitor the companies' compliance with contracts and stimulate the improvement of rail sector. In its initial activities, ANTT has developed a basic regulatory framework, aimed at the fulfillment of contractual obligations. However, to improve competition and increase rail market share in Brazilian transport matrix, much has to be done, but honoring awarded contracts. Under this context, in 2011, ANTT developed a regulatory package, focused on stimulating competition, establishing shippers and companies' rights and regulating investments from concessionaires and shippers. Moreover, ANTT is working on contractual tariff revision, which aims the alignment of rail tariffs to the present cost structure of rail sector, in order to transfer to users part of rail sector's some productivity earnings. So, this work is supposed to present a historical view of the evolution of Brazilian freight rail sector, with a critical view of virtues and weakness of concessions, and the efforts of the regulatory agency to improve the sector, while honoring contracts awarded.