March 28, 2019 / 7:41 PM / 8 months ago

UPDATE 1-Brazil's Rumo wins auction to operate freight railway; shares jump

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By Aluisio Alves and Jake Spring

SAO PAULO/BRASILIA, March 28 (Reuters) - Brazilian logistics company Rumo SA on Thursday won an auction to build and operate a 1,537-kilometer freight railway for 30 years, with a bid of 2.7 billion reais ($694 million), according to the government.

Rumo Chief Executive Julio Fontana said that the Norte-Sul Railway would be used to transport primarily agricultural commodities, but would also ship some fuel and bauxite. The railway could be operational within 2 years, Fontana said.

Rumo shares were up 5.8 percent to 19.02 reais in afternoon trading.

The project is the first of three major railways that Brazil is seeking to auction off by 2020, with concessions to build and operate them as part of the government’s efforts to kickstart the country’s infrastructure investment.

Brazil is a leading global exporter of many agricultural products including soybeans, but lacking or old infrastructure contributes to high transportation costs for farmers as well as major shipping delays.

Infrastructure Minister Tarcisio Freitas said the auction demonstrated the strength of Brazil among investors.

Rumo’s only contender at the auction was VLI SA, a logistics company partly owned by iron ore miner Vale, which bid 2.065 billion reais.

The Norte-Sul - or north-south - will connect a railway in the north of the country operated by VLI to a railway in the south operated by Rumo.

Norte-Sul’s reliance on those other railways to deliver goods to ports on the coast generated concern among government prosecutors and auditors that the auction would favor those two companies over other bidders and hurt interest in the auction.

The Infrastructure Ministry and privatization secretariat struck a deal with prosecutors last week to ensure whoever won the auction was guaranteed right of passage to ports, although that agreement failed to draw additional bidders. ($1 = 3.9165 Brazilian reais) (Reporting by Aluisio Alves and Jake Spring; additional writing by Ana Mano; editing by Phil Berlowitz and G Crosse)

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