Railway Between Rio de Janeiro and Espírito Santo Sparks Interest and Uncertainty

The project for the new Southeast Railway Ring, known as the EF-118 railway, which is set to be built between Espírito Santo and Rio de Janeiro, has drawn market interest but also raised uncertainties. The federal government is already working on adjustments to the project model, which is expected to be finalized by early August, according to George Santoro, Executive Secretary of the Ministry of Transport.

The planned changes include route adjustments to address environmental concerns, insurance to guarantee public funding, and the inclusion of an 80 km section in Espírito Santo that was initially assigned to mining giant Vale.

The railway auction is seen as the only viable project in the sector likely to move forward under the current administration. The federal government has announced two other tenders under the National Railways Plan—Ferrogrão and the Fico-Fiol corridor (Center-West–East-West Integration Railways)—but these are met with greater skepticism.

The EF-118 concession will initially span 170 km, covering the so-called Central Section between Anchieta (ES) and São João da Barra (RJ), near the Port of Açu. The original contract estimated BRL 4.6 billion in investments and BRL 3.3 billion in government contributions to make the project feasible. However, with the proposed adjustments, costs are expected to rise.

The project also includes the potential addition of a second block during the contract term: the Southern Section, extending 325 km to Nova Iguaçu (RJ), which would connect to the MRS rail network.

For the second section to be incorporated, the contract will need to undergo economic and financial rebalancing. The government is working on this: the idea is for the Southern Section’s construction to be mandatory but only triggered once demand thresholds in the region are met. “The start of phases 3 or 4 of the Comperj [Rio de Janeiro Petrochemical Complex] would create demand for that,” Santoro said.

The corridor also includes a third 80-km segment in Espírito Santo, between Anchieta and Santa Leopoldina—known as the Anchieta Branch—which connects to Vale’s Vitória-Minas Railway. Initially, Vale was expected to build this section, but the market sees this arrangement as risky. The government is now considering including the branch in the main concession.

“This has come up in every conversation with stakeholders. The railway could compete with Vale, so there is hesitation about letting the company handle that section. It’s the most sensitive issue,” Santoro explained.

Initial market consultations attracted 24 companies, but Santoro says it’s too early to assess actual interest. “Once we have the final model, we’ll hold another round and have a clearer picture.” Interested parties include rail and port operators (given the corridor’s proximity to multiple terminals), construction firms, and foreign groups—including Chinese and Spanish investors.

One of them is Prumo’s Port of Açu, which, according to sources, is looking to form a consortium. The group is also willing to build a 43-km rail branch to connect the port to the network, with estimated investments of BRL 650 million, potentially to be executed in phases.

Equipav is also conducting preliminary analyses of federal railway auctions and may partner with a Chinese group that has already reached out, according to a source.

Among traditional operators, MRS is seen as a potential participant due to the possible connection with its network. However, the company has said it will not participate in the auction. There is also speculation that Vale may be interested, given the link to its Vitória-Minas line.

Sources say VLI is interested but is currently prioritizing the early renewal of its Central Atlantic Railway (FCA) concession. Rumo is perceived to be focused on its ongoing investments in Mato Grosso.

According to David Goldberg, senior director at A&M Infra, which is assisting with the project modeling, construction companies will likely be interested, especially since public funds will cover the work. “The project may not attract operators, as much of the cargo flow can come from the right of way granted to other railroads. But for that to happen, proper connectivity must be ensured.”

Contacted for comment, Port of Açu stated that it already holds authorization to build the 43-km branch and is “continually evaluating opportunities and partnership models that can add value to its business.” Equipav, Vale, and Rumo declined to comment. VLI said it “evaluates all opportunities” but is currently focused on “the early renewal of the FCA concession.”

Despite initial interest, analysts warn that bringing the greenfield project to life will be a significant challenge. One interested party noted that it would require consortia comprising rail operators, port players, and construction firms—and that the government must provide solid funding guarantees and support in securing financing.

“Greenfield projects are inherently difficult to execute due to the high costs—both in planning and implementation—and the long payback period,” said Cláudio Frischtak, partner at Inter B consulting.

He emphasized the need to ensure the construction of the Anchieta Branch to make the corridor viable. Additionally, public funding must be guaranteed. “A special account could be created. Investors need to be assured the resources will be available.”

Public funding is also viewed as a sensitive issue by Eduardo Carvalhaes of Lefosse Advogados. “In the case of the federal government, which has less experience with Public-Private Partnerships, there are doubts about the guarantees.”

On that note, Santoro said the government plans to use funds from renegotiated concessions—such as those from MRS—to subsidize the project. Alternatively, the Union’s budget could be used, though this will only be discussed once the final project cost is determined. The government is also considering taking out an insurance policy to guarantee its contribution. “If the government doesn’t pay, someone else will. This doesn’t increase fiscal spending, but it gives the private sector more confidence,” he explained.

Source: Valor Econômico

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