Regional Business Review

Brazil-Peru: Big infrastructure – the trans-oceanic railway

The trans-oceanic railway, known in Spanish as the Corredor Ferroviario Bioceánico Central, designed to provide an east-west freight transport link stretching across South America from Santos or Açu on Brazil’s Atlantic coast to Ilo on Peru’s Pacific coast, is nothing if not ambitious. Big infrastructure projects can deliver major benefits, but also struggle with major problems. It remains to be seen how the costs and benefits of this one will play out.

In May, Peru’s President Ollanta Humala, Brazil’s President Dilma Rousseff and China’s Prime Minister Li Keqiang signed a series of agreements designed to get the project in motion. Much detailed work remains to be done, but in round numbers this is a US$15bn-plus project to build an approximately 5,000km freight rail link through challenging territory, including the Amazon and the Andes mountain range; it could take around six years to complete.

The core benefit of building such a link may seem obvious and compelling, but nevertheless it has been subject to challenge almost from the get-go. For more than a decade, Brazil been a key commodity exporter to China, shipping large volumes of soya, iron ore, and other products. In addition, the port of Açu, north of Rio de Janeiro, will start shipping hydrocarbons in November. Peru is also a key exporter of minerals including copper and gold to China. A faster, more efficient rail-based export corridor to move bulk shipments to Pacific coast ports would seem to make sense. Various officials have suggested that it would cut transport costs by as much as US$30 a tonne. It would also open a more efficient route for South America to bring in Chinese imports. It is understood that Beijing has indicated its willingness to help fund the project, in exchange for Chinese engineering companies and suppliers getting an important share of the civil engineering contracts. There are other benefits for Peru and Brazil: both governments get the opportunity to develop previously isolated regions and further expand transport infrastructure. Some Brazilian analysts say the country already relies too much on north-south transport links, so adding an east west one would help reduce congestion.

Yet a study by the International Union of Railways Union (known by its French acronym UIC [Union Internationale des Chemins de Fer]) questions this. As reported by Brazil’s Estadão website, it currently costs US$120.4 a tonne to ship Brazilian soya from Lucas do Rio Verde (in the Brazilian state of Matto Grosso) the long way round via the Atlantic port of Santos to Shanghai, while shipping it on the shorter route via a new rail link to the Peruvian Pacific port of Ilo would actually cost more – US$166.9 a tonne. Details of the assumptions made by the study, particularly as to the freight rates the new railway would charge, and its estimated exchange rates, were not immediately available. But it did suggest that the savings from following a shorter route might be less than anticipated at first sight. Despite this, Brazil’s planning minister Nelson Barbosa has insisted that the project is realistic and has strategic value: he added that it could be justified by demand for domestic transport between the states of Mato Grosso and Rondonia alone.

It is also worth noting that major transport investments sometimes have unanticipated results. The ‘inter-oceanic highway’ linking Brazil and Peru, which was completed in 2011 at a cost of around US$3bn, was also supposed to provide an export route to the Pacific for Brazilian soya and other grains, but is widely believed to have fallen short. One of the problems is that because of very tight bends in the Andean section of the highway, it is now considered unsuitable for the heavy lorries and articulated trucks required to carry soya by road. At the Universidad Nacional Agraria de Lima in Peru, Professor Marc Dourojeanni notes that, “highways are the worst transport mode in the Amazon, in terms of environmental impacts”. He acknowledges that a railway is more environmentally friendly, but still considers the trans-continental project “unnecessary”, adding, “the best way to connect Brazil and Peru is through river transport”.

On the Brazilian side, the railway is to be built in four main sections. An initial round of planning and feasibility studies were conducted before 2008, when development was put on hold. China’s involvement this year has pushed the bioceánica back centre stage. The project has rapidly become the flagship of a new BRL200bn (US$60bn) infrastructure investment programme announced by President Rousseff in June. It is the most important single project in the programme, with an allocation of BRL40bn (US$12.6bn). It seems to have eclipsed Brazil’s previous big rail vision, the Rio-São Paulo-Campinas bullet passenger train, which was intensely discussed in 2011-2014 (at one stage it was included among the infrastructure improvements for the 2014 World Cup and the 2016 Olympics), and would have had a similar overall cost. While still officially under consideration, the 511km bullet train proposal was not included in the latest infrastructure programme. According to transport expert Paulo Resende, “there are numerous other more important, and less costly, projects to concentrate on, and the bullet train should be considered in the long run, more like 2020”.

As per the plans, the first of the four sections of the Brazilian segment of the bioceánica runs for 901km from Campinorte (Goiás) to Lucas do Rio Verde (Mato Grosso); the second continues for a further 646km to Vilhena (Rondonia); the third runs 770km to Porto Velho (also in the state of Rondonia) and the fourth runs 1,183km to Boqueirão da Esperança (Acre), close to the Peruvian frontier. In the first three sections, initial work has been done on viability studies and environmental impacts, but little has yet happened in the fourth section, which could be the most problematic. The Spanish newspaper El País noted that on 5 July, while the Brazilian authorities were flying five Chinese engineers over the Serra do Divisor national park in Acre, site of a possible route for the railway line, below them a group of Nawa indigenous people had just kidnapped four federal employees in a long-running dispute over the demarcation of indigenous reserves (the employees were later released). Thiago Pinheiro Correa, a lawyer working for the Ministerio Público Federal (MPF), admits that invasions of indigenous and national parklands by illegal loggers, game hunters, and drug smugglers are frequent.

At present, it is proposed that the rail line will run through the Serra do Divisor Park, although not through the most disputed area. Nonawá Huni Kui of Opiara, an organisation representing the indigenous peoples of Acre, Rondonia and southern Amazonas state, says of the railway project, “we are worried about the impact on the environment and local communities. We don’t see any benefits because we are not soya exporters”. By contrast, Acre governor Tião Viana (of the ruling Partido dos Trabalhadores [PT], a supporter of the project, says it will have minimal negative impacts. He notes that construction of the BR364 highway ran through areas inhabited by other isolated communities, and in his view was positive in cost-benefit terms: “before the road was built the Katukina had a very complicated situation. Now 49 members of that community are university graduates”.

The controversy over social and environmental impacts looks set to continue. A lobby group, the Society for the Anthropology of Lowland South America (SALSA), has argued that the railway will require a network of support roads which of itself will “increase colonisation pressure and the flow of loggers and traffickers. This will have a serious negative impact on indigenous communities”. The authorities, meanwhile, say that no final decisions are being taken on the rail route until viability and environmental impact studies being carried out by Chinese and Brazilian contractors are concluded. Planning Minister Barbosa says that the first tenders for construction and related works are likely to be issued before the end of 2016. Kevin Gallagher, an associate professor of global development policy at Boston University, has said, “If it’s done right, a high-speed railway with high-level engineering, a minimal amount of environmental damage, and engagement with local communities is going to be a win-win all round. But it could also be the complete opposite”.

The exact route that the railway will take in Peru is not fully confirmed. Pedro Tipula of a local NGO, Instituto del Bien Común (IBC), notes, “All the projects that the Peruvian government has undertaken in the name of development have had very incomplete information… only the benefits of this project are discussed”. Fabiola Muñoz Dodero, the head of the Peruvian National Forestry and Wildlife Service (Serfor in the Spanish acronym), told the website Diálogo Chino earlier this year that “everything is still under discussion”.

Disputes and lobbying over the railway’s route are not limited to domestic politics. Bolivia’s President Evo Morales has argued that it would be better to build the line further south, so that it runs through parts of his country, as well as Brazil and Peru. On his calculation, a southern route would be shorter at around 3,500kms, compared to 4,700km. Such a route, he maintained at the end of July, would benefit not only Bolivia but also other regional exporters without Pacific ports, including Paraguay, Uruguay and Argentina. In June, Morales and Peru’s President Ollanta Humala signed an agreement to conduct joint studies on a Brazil-Bolivia-Peru railway. Morales has said he will also discuss the project with potential contractors and funders during a visit to Germany this November.

An inevitable comparison is being made between the transcontinental railway project in South America and the proposal to build a new transoceanic canal through Nicaragua (costed at up to US$50bn). Both are high profile and costly mega-projects that may deliver very significant economic benefits, but they are also controversial with as yet unanswered questions raised about their viability and environmental impact. Both have major Chinese involvement, but interestingly, in the South American case the Chinese government is formally backing the project, while the Nicaraguan project is being backed by a Hong Kong-based private company set up for the scheme, Hong Kong Nicaragua Canal Development Company (HKND), linked to a 42-year old Chinese telecoms magnate, Wang Jing.

SALSA statement

“The proposed railroad would cut through the western Amazon in the border region between Peru and Brazil, one of the largest continuous rainforest areas in the world with relatively intact primary forest and among the highest biodiversety indexes in the world. This area concentrates the world’s largest number of indigenous peoples with little or no contact with outsiders from national societies. The majority of these indigenous populations have chosen isolation as a lifestyle in response to their fatal historical experiences with modern society. The impact of a railroad cutting through this unique environment will involve severe consequences for the isolated indigenous groups as well as many indigenous peoples whose territories are located along its path.”


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