Bahia: on the rails

Published by John Williams, Editorial Assistant
Dry Bulk, Friday, 27 September 2019 15:37

Benedikt Sobotka from Eurasian Resources Group explains that rail is one of the most important means of transportation given today’s large-scale production flow. On account of their sustainability and efficiency potential, railway systems are expected to grow considerably in the coming years across a range of countries, not least Brazil.

Once they are integrated with other transport facilities, including port terminals, railways make production and the export sector more agile, efficient and cost-effective, thus strengthening competitiveness in national and international markets. Railways also facilitate regional interconnectivity and job creation.

In Brazil, the railway network, spanning over 20 000 km, connects the country’s main regions and, according to data from the National Agency of Land Transport (ANTT), delivers a constant flow of iron ore and agricultural goods across the country. The former represents 70% of total railroad demand in the country. In the state of Bahia, iron ore – most of which will be produced by the Pedra de Ferro mine, operated by Eurasian Resources Group (ERG)-owned BAMIN – is seen as a key material for the creation of a new railway network.

The iron ore processing project in the mine, which is located in Caetité, is an integrated high technology greenfield venture that, as a whole, incorporates mining operations, a railway and port facility. These operations, once fully integrated, are poised to transform Bahia into the third largest iron ore producer in the country, with up to 20 million tpy of iron ore and generating over 30 000 direct and indirect jobs during the construction period.

Banded haematite from Pedra de Ferro mine.

New businesses on FIOL track

The East-West Integration Railway (FIOL) is one of the largest infrastructure projects in Brazil, and has considerable potential to contribute to the development of Bahia’s cities. At 1527 km in length, FIOL, when concluded, will connect Porto Sul de Ilhéus (on the Bahia coast) to Figueiropólis (in Tocantins), where it will be attached to the North-South Railway.

Divided in three sections, the first section (FIOL 1), which connects Ilhéus to Caetité (Bahia), is already more than three-quarters constructed. It is expected that the issuance of the notice for the conclusion and operation of the railway, in partnership with a private initiative, will add momentum to the efforts to have it finalised.

Once the private company has been identified through a tender process, work will commence immediately. Aside from having to meet a deadline, the company will have to attend carefully to the various safety and sustainability considerations that are associated with the project.

As soon as it becomes operational, FIOL 1 will start transporting from BAMIN’s mining operations. A grand total of over 300 million t of high quality iron ore is expected to be transported by FIOL over the life of the mine. The mining company, which already has all of its licences and grants in place, is set to generate diversified growth opportunities across the region, which are currently concentrated in the state’s capital. Enabling the transportation of significant volumes.

According to initial studies on the implementation of FIOL, carried out by SEPLAN (Bahia State Planning Secretariat) through Bahia Investe, the forecast for the first year of operations is that total cargo volume will reach 11.9 million t, most of which will be iron ore. The commodity is highly represented in the export sector and plays a significant role in driving Brazil’s GDP. Additionally, the estimated transportation figures in the first year may increase significantly, taking into account other cargoes that will be delivered to the Porto Sul operation.

With one-third of works executed, the second section (FIOL 2) will connect Caetité to Barreiras in Bahia’s western region, according to VALEC Engenharia, Construções e Ferrovias S.A., a public company linked to the Ministry of Infrastructure. FIOL 2 is 485 km long (which includes the São Francisco River bridge) and will be an important entity for the flow and encouragement of grain production originating west of Bahia.

A far-reaching impact on 31 cities across Bahia

The first two sections of FIOL will run through 31 municipalities in Bahia, which have a combined population of approximately 942 000 inhabitants, according to the latest estimate from IBGE.

According to the Partnership Program of Investments, the total estimated current investment for the FIOL 1 and FIOL 2 works (from Ilhéus to Caetité and between Caetité and Barreiras) stands at around R$6.4 billion. Of the total amount, about R$3.3 billion will come from the private sector, under public concession, to complete the works. The auction for FIOL 1 is expected to take place in 1H20, where the winning company will be given the opportunity to operate the network for 33 years.

ERG is one of the companies expected to participate in the auction. If ERG is successful, it will transform Pedra de Ferro into one of the largest greenfield projects in Brazil. Investments of this magnitude are expected to bring countless benefits to the stakeholders who are directly and indirectly involved, including the expansion of infrastructure, income generation and job creation.

The third section (FIOL 3) will unlock a plethora of new business possibilities, with its network extending from Barreiras to Figueirópolis (Tocatins). This connection will considerably expand the web of railway systems in Brazil. In total, the length of FIOL 3 is 505 km and will run through mainly 10 municipalities in the state of Tocantins.

Rail stockyard during superstructure execution at FIOL 1.

The project’s efficiency and sustainability potential

The increasing adoption and usage of rail makes the transportation of heavy cargo more efficient, and ultimately, more competitive. Among the advantages of adopting the modal is the reduction of costs for the transportation of ores, grains, alcohol and other goods aimed at the domestic and international market. Currently, in Brazil, much of the industrial production is transported by road, unlike other countries such as Russia where over 80% of cargo is transported by rail, according to the National Association of Railway Conveyors.

Road transport in the production flow chain should be integrated to the railway network. Together, this can reduce operating costs and pollution. The adoption of integrated modes also reduces the use of fossil fuels and increases safety by reducing the number of accidents. Another advantage of FIOL’s operation is the increase in agro-industrial production among involved municipalities. Investors, motivated by stronger outlets and access to consumer markets in Brazil and internationally, are expected to invest in the region and help increase grain supply in the coming decades.

On the basis that ERG is selected to complete and operate FIOL 1, the company will put sustainability and safety at the heart of its approach, both of which sit prominently within its 2025 strategy. ERG is committed to performing to the highest international standards and servicing increasing demands for a host of commodities, including iron ore, in a sustainable manner.

BAMIN has been instrumental in bringing new international investments and businesses into Bahia, and this is important to keep in mind since FIOL represents a strong development vehicle for the region in the coming decades.

Penetrating international markets through Porto Sul

When operational, FIOL will be an important corridor facilitating the flow of iron ore from Bahia’s southern region of Caetité and Tanhaçu, and grains from Bahia’s western region. Other areas including the transportation of fuels, equipment for industry and civil construction may also be explored with the integration to the North-South railway.

The cargo transported by FIOL into international markets will be exported primarily from Porto Sul. The equipment will be built and operated by ERG’s BAMIN, in partnership with the Government of Bahia. The venture, into which ERG plans to invest around US$1 billion during the construction phase, has obtained all the necessary environmental licences and is expected to finish construction in three to four years to coincide with the completion of the FIOL railway and the Pedra de Ferro mine. The implementation of the port project will generate about 30 000 direct and indirect jobs during construction, and 10 000 direct and indirect jobs for operation. It is expected that the completion of the port project will coincide with the completion of the FIOL railway and the Pedra de Ferro mine, though the timeline hinges on the timely conclusion of the concession tender for the railway.

The new port complex will be able to handle more than 40 million tpy of iron ore and will have a modern and highly advanced infrastructure to ensure efficiency. The equipment will be able to receive large vessels up to 220 m in length and draft with a full load of 18.3 m. With the inclusion of a new port, mine and FIOL 1, BAMIN intends to execute the project in full, creating a new logistical corridor for the export of Bahia’s iron ore. This new route may also enable the development of other mineral deposits in the regions that FIOL passes through, which would make use of the infrastructure initially implemented by BAMIN, further increasing the relevance and competitiveness of the state of Bahia in the northeast region. Ultimately, this is a promising project with a host of positive, far-reaching implications that will go far beyond Bahia’s, or indeed Brazil’s, borders.

Railway bridge under construction at FIOL 3.