* Photo essay at reut.rs/2gAeenC
By Leonardo Goy
SALGUEIRO, Brazil Dec 15 The rusting tracks of
Brazil's Transnordestina railway peter out and give way to a
dirt trail in a remote corner of the country's arid northeast,
far from the ports or farms it was meant to serve.
No trains run on these tracks and the cleared path for one
of Brazil's most ambitious infrastructure projects is used only
by local cars, and the odd stray cow.
It was due to be delivered next month, but after 10 years of
construction and 6 billion reais ($1.76 billion) of mostly
public investment, the 1,700-km project is only half complete.
As a new center-right government seeks billions of dollars
in private investment for airports, roads and railways, the
Transnordestina highlights the challenge of resolving Brazil's
massive infrastructure problems, especially now that the worst
recession in decades has battered its ability to finance public
The railroad's future is in doubt as the new government is
wary of sinking billions of reais more into a venture unlikely
to offer a return on investment.
That reluctance could be the death knell for a generation of
grand projects meant to drive development, including an
east-west railway in Bahia state and an oil refinery in Rio de
Janeiro state that hemorrhaged public funds for years without
ever being finished.
"This was meant to bring cheap fuel and jobs for the
population," said farmer Francisco Emiliano, a 58-year-old
father of seven, who lives beside the railway line here.
"Everything has stopped. A lot of people are unemployed now."
Emiliano watches over his cattle from a small hut beside
where ex-President Luiz Inacio Lula da Silva launched
construction a decade ago, pledging the railroad would end the
region's endemic poverty.
On Tuesday, the government pledged 430 million reais to
restart work on the line. That money is unlikely to go far, but
wins time for a Cabinet wrestling with whether to support or
scrap a project in which public institutions are so heavily
The railway has always been politically divisive.
Left-leaning supporters have argued it can help develop a region
ignored by private investors, while free market proponents say
demand from businesses never warranted a railway of its size.
All, however, agree the execution so far has been flawed.
Amid accusations of poor design and financial mismanagement,
the government is considering negotiating the concession's
return from its operator TLSA - controlled by Brazilian
steelmaker Cia Siderurgica Nacional SA - so it can be
re-tendered, four sources said.
TLSA, in a statement, said building stopped due to delayed
public payments. With fresh funds, the consortium said it could
have 6,500 people working the line within six months.
Just 800 people are now working on the railway, down from
11,000 in 2010.
The Transnordestina was designed to carry commodities like
soy, corn, iron ore and gypsum from the remote northern state of
Piaui north to the port of Pecem and east to the port of Suape,
and from there be shipped to China, Brazil's main export market.
Its collapse would be a huge blow for these communities,
forcing businesses to continue using poor roads to transport
For Renato Pavan, president of infrastructure consultancy
Macrologística, it is a lesson in the perils of state-led
"The Transnordestina was thought along the lines of 'Let's
build a railway and the economy will adapt,'" said Pavan. "But
it doesn't work like that."
Brazil's woeful infrastructure costs the economy as much as
151 billion reais per year, according to consultancy group GO
This continent-sized country spends just 2.5 percent of its
gross domestic product on infrastructure. That, according to
data from management consulting firm McKinsey, is less than a
third of the proportion spent by China, half that of India and
just under half of South Africa and Russia.
Along with a labyrinthine bureaucracy and tax code, poor
infrastructure is one of the added expenses of doing business
that investors collectively dub the "Brazil cost."
A lack of railways is particularly costly, forcing cargo to
go by truck, which is slower and more expensive.
The Transnordestina began in 1999 as a modest plan to join
existing branch lines but morphed into an ambitious 1,753
km-railway during the commodity-driven boom years of Lula's
To help develop the project, as much as 75 percent of its
funding came from public sources, even though CSN led the
As the estimated cost rose from 7.5 billion to 11.2 billion
reais and a deep recession ate into government revenue, public
money dried up and work stalled.
The estimated 5 billion reais needed to conclude it has
created an impasse between the government and the consortium.
While Brazil's federal audit court (TCU) insists costs over
the initial 7.5 billion reais price tag are the responsibility
of the private companies, the consortium insists the government
first pay its share.
Attempting to break the impasse, the Ministry for National
Integration on Tuesday offered up the fresh funds - far short of
what's needed to complete the project - on the condition that
TLSA present a working plan with targets for 2017 within 50
TLSA said the new funds would create jobs for 5,000 people
and that discussions were ongoing over a definitive plan to
complete the project. It gave no time frame for the conclusion
of those negotiations.
Meanwhile, the TCU is analyzing why the project was
allocated without public tender as well as an apparent disparity
between money spent and work completed. The consortium denies
The current situation is made worse by the initial decision
to start building the railway from the middle, leaving it
The consortium said construction began in the middle to save
money, though it is now considering starting work from Pecem
"This is more than unusual: it makes no sense," said Luiz
Afonso Senna, professor at the Federal University of Rio Grande
do Sul and former head of the National Agency for Land
Transportation (ANTT). "If you're linked to a port, within 50 km
you would have cargo to transport."
President Michel Temer's government, citing vastly
over-budget soccer stadiums built ahead of the 2014 World Cup
and oil refineries that are now under investigation for
corruption, has made it plain the days of lavish public projects
Within the government there are also doubts about whether
there is sufficient freight to merit such a large railroad and
whether any private companies would tender to complete it.
The railway was planned to carry 30 million tonnes of cargo
a year, but some experts think demand could be just a fifth of
Along the tracks, people are losing hope.
"I am pessimistic about the railway," said Marcones Liborio
de Sa, the mayor of Salgueiro, a town at the center of the
"There's no interest from the private sector in it. It's a
project that was motivated by a desire to develop the region."
($1 = 3.4096 reais)
Click on reut.rs/2gAeenC for the related photo essay
(Reporting by Leonardo Goy, writing by Stephen Eisenhammer;
Editing by Daniel Flynn, Christian Plumb and Kieran Murray)