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January 6, 2020

Brazil to Obtain Bids on R$ 101 Billion of Infrastructure Projects

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

The Brazilian government is planning to obtain bids on 44 transportation and infrastructure projects in 2020. These projects are expected to bring in R$ 101 billion worth of investments in the country's highways, railroads, airports, and port facilities. According to a report filed by Cenario MT, two of these projects will be very important for the agriculture of the state of Mato Grosso, which is Brazil's largest producer of soybeans, corn, cotton, and cattle.

The two most important projects for Mato Grosso will be the completion and expansion of Highway BR-163 and the construction of the Ferrograo Railroad between Mato Grosso and ports on the Amazon River.

While the paving of Highway BR-163 from northern Mato Grosso to the Port of Miritituba has been completed, the entire highway is still a simple two lane road with a very heavy flow of grain trucks. Most of the highway within the state of Mato Grosso was supposed to be expanded into a 4-lane highway, but that part of the project is in limbo. Even though tolls are already being collected on the highway, the company that won the bid to do the expansion has indicated that they do not have the resources to complete the project.

Their contract to expand the highway into 4 lanes expired in April of 2019, and the entire project is now in court. It is unclear how the expansion project is going to move forward.

The other major project is the construction of the Ferrograo Railroad between the city of Lucas do Rio Verde in central Mato Grosso and the Port of Miritituba on a tributary of the Amazon River. The R$ 12.6 billion real project is expected to reduce the cost of transporting grain to ports on the Amazon River by at least 30%.

According to the Brazilian National Land Transportation Agency (ANTT), it is estimated that the freight cost on the Ferrograo Railroad will be R$ 110 per ton (approximately $0.80 per bushel using an exchange rate of 4 Brazilian reals per dollar), which would be half the cost of truck transportation, which is now the only way to move grain north out of Mato Grosso.

ANTT estimates that the Ferrograo Railroad will have the capacity to move 58 million tons of grain per year. The Port of Miritituba already has the capacity to handle 15 million tons of grain per year and there are many more projects in the works to expand the capacity of the port. It is estimated that it will take 5-7 years to build the Ferrograo Railroad.

Transportation cost savings could be even greater than 30% due to increased completion form other railroad projects on the drawing board. Currently, there is only one railroad serving the southeast corner of Mato Grosso and their freight charge is just slightly lower than what it would cost to transport the grain by truck.

The railroad would also eliminate thousands of heavy trucks from Brazil's highways, which would reduce highway maintenance costs and improve the safety of the motoring public.