By the Blouin News Business staff

FEATURE: Brazil’s bioceanic railway plans offtrack

by in Americas.

An aerial view of the Brazilian Amazon. Source: CIFOR/flickr

An aerial view of the Brazilian Amazon. Source: CIFOR/flickr

Brazilian President Dilma Rousseff said Tuesday that her government is willing to study a project to build a bioceanic railroad from Brazil’s Atlantic ports through Bolivia and into southern Peru. This would be the central route; two other multi-billion dollar transcontinental railways connecting Brazilian ports to the Pacific are also being planned. The northern route has not been finalized yet, but it would pass through central Brazil into northern Peru, crossing the Amazon. And the southern route, which is the furthest along in both planning and funding, would connect the south of Brazil and Paraguay with the north of Argentina and Chile.

But enormous problems loom on Brazil’s end, making the railroads’ completion wildly unrealistic anytime in the next few years.

Brazil’s economy is set to contract 3% this year, with no end to the recession in sight. As wide-ranging budget cutbacks bite, spending billions on non-vital infrastructure with questionable viability would be preposterous. And many of Brazil’s biggest construction firms are caught up in a massive corruption scandal (which has also tainted Rousseff’s government and spurred popular calls for her impeachment), meaning they’re in no position to embark on new mega-projects.

That said, there are other sources of labor and funding. The southern route is receiving funding from the South American infrastructure integration organization Cosiplan, and member governments are tendering individual sections to private firms (and under some conditions, international investors too). Meanwhile, German firms including Siemens and Deutsche Bahn have expressed interest in financing and constructing the central railway through Bolivia.

And China is the main driver behind the northern route. As in other Chinese-built infrastructure projects elsewhere in the world, China would provide favorable loans to finance construction, and Chinese steel and workers would be put to use. (Brazilians may not look kindly on an influx of foreign laborers during this economic downturn, but it’s not as if Rousseff is winning any popularity contests as it is.) Plus if the railroad results in cost savings in shipping, China stands to benefit as its trade with Latin America — including Brazilian commodities — is slated to double over the next decade.

Without Chinese financing, chances are the northern route will never happen. Peruvian President Ollanta Humala has called China’s participation in it “indispensable.” So last May the three governments signed a MoU (during Chinese Premier Li Keqiang’s much-hyped working trip to Latin America), which calls for China to complete engineering feasibility studies of the northern railroad by May 2016; Brazil and Peru will carry out the required environmental impact studies.

The environment would be harmed most by construction of the northern route, since most of it would need to be built from scratch. (By contrast, major sections of the central and southern routes already exist; they just need to be rehabilitated and linked together). And the northern route’s long path through the Amazon would entail significant deforestation, making a hypocritical mockery of Rousseff’s pledge to achieve zero illegal deforestation in the Brazilian Amazon by 2030. (It would seem that there’s nothing wrong with clear-cutting some of the most biodiverse parts of the Amazon as long as the government endorses the construction projects.) Furthermore, the roads necessary to undertake the construction work, even if they’re meant to be temporary, will provide easy access to remote virgin rain forest for illegal loggers, miners, and coca farmers once the railroad crews have moved on.

The other elephant in the room is whether the transcontinental railroads would ultimately be worth building, when several main alternatives already exist or are in the works. The main option for moving goods from Brazil to China is via the Panama Canal, as has been the case for the last century. There’s also an overland route from two southern Peruvian ports to Brazil via the Interoceanic Highway, which was paved in the hopes of boosting trade between Peru and Brazil. Environmental news site Mongabay.com wrote:

A decade ago, advocates of the paving —completed in 2010— envisioned long lines of trucks crossing the bridge at the border, laden with Peruvian potatoes heading for Brazilian tables and Brazilian soy destined for China. That commerce never materialized. The only industry really benefiting from the paved highway is the unregulated gold mining that is expanding in the Madre de Dios region, according to Rafael Rojas of the University of Florida, who is working with Peruvian researchers on a study of the road’s economic impact.

It is hard to predict how much cargo traffic would actually be transported over the proposed northern railway (or any of them for that matter, since maritime shipping rates change to reflect variables like LNG prices). But to be profitable, it would have to siphon about 70% of the traffic from the existing southern highway, according to Manuel Glave, director of GRADE, a social sciences think tank in Lima. That is, unless bilateral trade surges – a distant prospect given Brazil’s deepening recession.

Additionally, two alternative shipping options are on the horizon. A project to dredge parts of three Amazonian headwater rivers — to make them navigable farther upstream and link them to highways that lead to the Pacific coast — is likely to go out on bid in the first half of this year, according to Mongabay.com. And further down the line is the Nicaragua Canal (also financed by a Chinese firm); if it gets completed, it will have competitive prices to draw ships away from the Panama Canal.

The last factor to take into account is that China’s economy is slowing down. As such, Beijing may not want to finance a multi-billion dollar railroad if its construction is predicted to be overly costly or complicated – and especially not if its economic viability is uncertain when all is said and done.

According to Cosiplan, the southern route is currently in the “execution” phase, and it’s slated for completion in January 2022. The central route is in “pre-execution,” and the completion date is listed as July 2024 (although that is surely tentative since nothing has been agreed yet). As for the northern route, there won’t be any estimated completion date until May, when China completes its feasibility studies. But as long as Brazil’s economy tanks, expect all three projects to be delayed, perhaps indefinitely.