by Camillo Giamundo and Gabriela Soeltl
A new legal framework for railway transportation, announced as one of the most important strategic projects for the country, was established by Provisional Measure 1065/2021, published on August 30, with the purpose of regulating the operation of the national network, including private railways.
In addition to creating the roles of Independent Railway Operator and Railway Administrator, legal entities responsible for providing logistics and railway transportation services, respectively, the main aspect of the Provisional Measure is the reduction of red tape in the authorization procedure for building new railways, aimed at making it easier for the private sector to operate short lines (“short lines”), thereby attracting private investment to the sector, which will also be done through the Railway Authorizations Program (PAF). Another intrinsic objective of the measure is to increase the capacity of this transport mode in the country, with the consequent reduction in logistics costs, greater competition and the entry of new players.
The initiative is welcome. Although it has great potential, Brazil has an insufficient and poorly distributed railway network, considering the country’s continental dimensions. According to the Provisional Measure’s explanatory memorandum, around 30% of railways are underused or have no commercial operation, which affects the sector’s efficiency and share in the Brazilian economy and infrastructure, besides the potential to create new job opportunities and revive the entire national market in view of the effects of the pandemic.
Overcoming this shortcoming is one of the aims of the new legal framework, which allows, for example, the construction of new railways through a simplified authorization, without the need for a tender, as well as the revitalization of deactivated, returned or idle sections, for which authorization will also be permitted through a public call process.
By adopting the institution as an option for operation under the private law regime, the Provisional Measure aligns with the states of Mato Grosso, Pará and Minas Gerais, which created state railway authorizations to encourage private investment in infrastructure — with positive results — and repeats a similar experience to that of the telecommunications, port and airport sectors, which grant authorizations to private parties.
Under the current system, public railways are operated under concessions or permits, through a tender process, for the construction and operation of the sections. However, public entities were already considering incorporating authorization, under arts. 21, XII, “d” and 170 of the Federal Constitution, due to the red tape generated by public law regime institutions and their lack of attractiveness to the private sector.
Sensitive points raised by Federal Bill 261/2018, which gave rise to the framework established by Provisional Measure 1065/2021, were the limits of regulation and the necessary balance between the features of authorization and the rights and duties of concessionaires. In the current scenario, in which railways are operated under concessions or permits, introducing a new form of operation, now under the private law regime, would create an undeniable regulatory asymmetry, given the coexistence of divergent regimes.
This concern was addressed by Provisional Measure 1065/2021 by establishing a procedure for migrating to the authorization regime, considering any loss suffered by the concessionaire due to the operation of an authorized railway. Under art. 34 of the Provisional Measure, the decision on the migration process — or adaptation, as the provision puts it — will rest with the Ministry of Infrastructure and will be conditional on the absence of unpaid fines or sector charges owed to the Federal Government, maintenance of financial obligations, provision of adequate service and maintenance of passenger transport services in the new authorization contract, where the concessionaire already operates a regular passenger line (§5 of art. 34).
In any event, with the migration process regulated, as occurred in the telecommunications sector, the regulatory asymmetry may lead to railway concessions being emptied out, facilitating adaptation to the authorization regime without harm to the public interest, given the conditions to be met by the concessionaire.
Provisional Measure 1065/2021 thus seeks effective and sustainable economic growth for the national railway sector, establishing important provisions so that authorizations are granted with a commitment to legal certainty and the efficiency of the entire infrastructure.
It is hoped that this will be the main objective of regulation in Brazil, allowing the law to help correct market failures without undermining the stability of the economic and legal rules in force until now.
Article originally published on 09.09.2021, in the Gestão, Política & Sociedade column of Estadão (in Portuguese).
