Jul 21, 2020

Ferrograo Railroad in Mato Grosso one Step Closer to Fruition

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The long anticipated and discussed Ferrograo Railroad (Grain Railroad) linking the city of Sinop in northern Mato Grosso with the Port of Maritituba on a tributary of the Amazon River moved one step closer to fruition last week.

The Brazilian National Land Transportation Agency (ANTT) in conjunction with the Brazilian Ministry of Infrastructure, sent documents last week to the Brazilian Tribunal de Contas da Union (TCU) detailing the plans and cost of the project including technical and environmental studies. The TCU is the Brazilian Accountability Office, which is an arm of the Legislative Branch that assists the Brazilian Congress in exercising its external audit over the Executive Branch.

All infrastructure projects must be approved by the TCU before it can move on to the bidding process. Barring some unforeseen obstacle, this is the last step before bids can be submitted for the project.

After TCU analyzes and approves the project, technical details of the project will be published by the end of 2020 and bids will be accepted and awarded during the first half of 2021.

The Ferrograo Railroad is 933 kilometers in length and it will transport soybeans, soybean meal, soybean oil, corn, sugar, and ethanol to ports in Brazil's "Northern Arc" of ports. The back haul of the railroad will be fertilizers and petroleum derivatives.

The Minister of Infrastructure, Tarcisio Gomes de Freitas, declared that this is the most ambitious infrastructure project in recent Brazilian history. Today 70% of Mato Grosso's grain exports are via the Ports of Santos in the state of Sao Paulo and the Port of Paranagua in the state of Parana, both of which are approximately 2,000 kilometers from northern Mato Grosso.

In addition to lowering the cost of transporting grain out of Mato Grosso, the railroad would reduce some of the heavy truck traffic on Highway BR-163 and in the process, eliminate approximately one million tons of CO2 emissions.

Construction on the railroad would start in the city of Sinop and work its way northward and there would be a grain terminal for loading and unloading at each end with one in the city of Sinop and a second at the Port of Maritituba. From the Port of Maritituba the soybeans would then be barged down the Amazon River to primarily the Port of Barcarena, which is near the city of Belem located at the southern mouth of the Amazon River.

Total investments in the project are expected to be R$ 12.7 billion. Investments are expected from multinational grain companies and the Brazilian National Development Bank (BNDES). Personal note - I always view large projects such as this in Brazil with caution because Brazilian cities and the Brazilian countryside are littered with projects that looked good on paper, but the money ran out and the project was never completed.

I don't know anything about building a railroad, but a price tag of R$ 12.7 billion or R$ 15 billion as some are suggesting, seems very low to me for a 933 kilometer railroad running through virgin rain forest and over numerous rivers and including two grain terminals. At the current exchange rate of 5.3 reals per dollar, the R$ 12.7 or R$ 15 billion estimate would equate to $2.3 to $2.8 billion dollars.

I may be too pessimistic, but there are many projects in Brazil that are half completed and abandoned because the project ran out of money. I do think this railroad will be completed because it is so important for the agricultural sector in Brazil, but I also think there will be cost overruns and that more money will have to be appropriated in order to complete the project.

Below is a map of northern Brazil from the publication So Noticias that displays the route of the Ferrograo Railroad (dark green line). In the legend, Ferrograo=Grain Railroad, Hidrovias=navigable waterways, Porto's=ports, Terminais Ferroviarios de Carga/Descarga=loading and unloading railroad terminals. The map shows four ports on the Amazon River, Itacoatiara, Santarem, Santana, and Barcarena. The Port of Barcarena is the largest and would export the largest volume of soybeans and corn out of Mato Grosso.