December 4, 2012

Chinese Investors Closer to Building Railroad in Mato Grosso

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

After years of meetings between Brazilian and Chinese officials, it now appears that Chinese construction companies may be one step closer to taking over the construction of the only railroad within the state of Mato Grosso. In a meeting last week with the governor of the state, Silval Barbosa, the Chinese made it official that they are proposing to build-out the railroad from the city of Rondonopolis in southeastern Mato Grosso to the state capital of Cuiaba and from there straight north to the port city of Santarem on the Amazon River. The total length of the proposed project is 1,954 kilometers (1,215 miles, or about the same distance as from Chicago, Illinois to Orlando, Florida) at an estimated cost of R$ 10 billion.

The proposed railroad will cut through the heart of the soybean production in the state as it parallels highway BR-163 from Cuiaba to Santarem. This is the major highway that runs north and south through the middle of the state and it is sometimes called the "Soybean Highway." The highway is currently being asphalted along its entire length to the Amazon River and it should be completed sometime in 2013. If this proposed railroad is built, then there would be two modes of transporting grain from Mato Grosso to export facilities on the Amazon River instead of trucking the grain to ports in southern Brazil.

On the map at left, A = Rondonopolis, Mato Grosso, B = Cuiaba, Mato Grosso, which is the state capital, and C = Santarem, Para and the Amazon River.

The railroad alone could save soybean producers in the state R$ 2 billion annually in reduced transportation costs. Finding more efficient ways to move agricultural products to export markets is very important in Brazil because agricultural exports represent about 40% of Brazil's surplus balance of payment.

Part of the incentive to have this railroad privately financed is that the federal government would guarantee 85% of the freight stipulated in the feasibility study that will be conducted by the Federal University of Santa Catarina starting in January. Other incentives include the assurance that the operators of the new railroad would be granted access to the national railroad system by paying tolls to transport their goods over other rail lines.

There is also another railroad in the planning stages that would run east-west across the state of Mato Grosso and connect with railroads already in operation in the neighboring state of Goias. From there, grain could be shipped to various ports in northeastern Brazil.

This railroad in Mato Grosso was first proposed over a hundred years ago and it just now may be coming into fruition. Currently, the railroad has been extended only about 200 kilometers into the southeastern corner of the state and it is scheduled to arrive at the city of Rondonopolis sometime in 2013. The line is operated by American Latina Logistica, but numerous missteps by the company have delayed construction of various sections of the railroad for over a decade. If this railroad is built all the way to the Amazon River, it could represent a savings of 40% on the internal cost of getting grain from Mato Grosso into export position.