Brazilian new railway legislation (and why it may be a great opportunity for passenger rail transport investments)
Finocchio & Ustra Sociedade de Advogados | View firm profile
At the end of 2021, the new Brazilian railway law (Law nº 14.273/2021) was finally approved, it promises to facilitate and optimize the expansion of railway transport and, as a consequence, to expand the already existing options to the outflow of goods throughout the country. With the consolidation of the brand new authorization regime – which had been, in a certain way, addressed in the former Provisory Measure nº 1.065/2021 (ProTrilhos) – it is expected that companies and investors become more confident about the economic exploitation of new railways.
As mentioned before, the approval of the new legislation was celebrated mainly because of its effects on cargo transportation – despite the other positive effects such as those related to environmental sustainability and the attraction of direct investments to the entire railway project. However, we must highlight that the new authorization regime may allow the rebirth of passenger rail transport in Brazil.
The rail passenger transport in Brazil was once popular. Nowadays, except for a few metropolitan regions that rely on an integrated system of subway rail, most of the inter-municipal transportation is dominated by roadways (cars and buses) – airplane transportation responds residually. Those means, as is known, are more pollutant and financially costly. Regarding roadway transport, specifically, it is also more susceptible to accidents.
Law nº 14.273/2021 does not exclude passenger rail transport of its rules. On the contrary, it is included, among its guidelines, the stimulation and expansion of the railroad market in the Brazilian cargo and passenger transport matrix. The legal definition of “railway transport” and “railway services” encompasses passenger transportation too.
Moreover, railway economic exploitation also applies to the above-mentioned authorization regime. Article 20 of Law nº 14.273/2021 extends to passenger transport the possibility of applying that regime. Under it, the legal procedure aiming to transfer to a private company a railway administration became simpler, either by public call (Article 19) or by any particular initiative. Unlike a public concession (the traditional way to grant any public service in Brazil), the authorization is a unilateral and discretionary act (Article 25, §6º) issued by the Administration, which only removes the obstacles that prevented the interested parties to exploit the respective activity (in that case, to operate a railway).
In place of the formal and liturgic auction procedure – which always anticipates any public concession – a more efficient system comes in, notably when the authorization is requested by an interested party (Article 25). In such cases, the public agency will essentially analyze the technical aspects regarding the proposed railway track, the urbanistic effects of the railway project and its implementation, its characteristics and compatibility with the legal guidelines (Article, 25, §1º, II), granting (or not) the authorization to the respective requestor. Once granted, the authorization becomes regulated by a contract into which the authorized party and the respective public agency will enter. That contract will stipulate the subject of the authorization, term, termination, rights, and duties undertaken by each one of the parties, among other conditions (Article 29).
However, not only do the costs of the grant procedure tend to be lower, which, of course, impacts the future railway economic operation, but the new legislation also concedes enough incentives to real estate exploitation around the railway. The company which is authorized to operate a railway can promote, either by itself or by a specific purpose company, the entire urbanistic project associated with the railway, as well as the selling, renting, or any other form of real estate economic exploitation around the railway (Article 61, §2º). In this sense, the railway operator could be entitled to exploit hospitality, shopping, naming rights, among other economic activities based on the possession of the areas around the railway – including the very railway terminal. The exploitation of those economic activities particularly suits a railway (mostly) destined for passenger transport.
The entire railway operation is financially feasible not only due to railway activities but also to real estate exploitation, thus making the passenger rail transport especially attractive to new investors, including those that are not already engaged in railway activities. This was not a possibility under the former legislation.
It is also true that, at this time, the Brazilian Ministry of Infrastructure is promoting a public consultation about a new national passenger rail transport policy (PNTFP). However, it is important to emphasize that most of the opportunities generated by the new railway legislation – notably, the authorization regime and the possibility of real estate economic exploitation – are described in the now publicly submitted PNTFP, so the risk of regulatory asymmetry seems quite reduced (the applicability of different legal regimes to the same kind of economic enterprise, as it has recently occurred in cases involving port terminals and airport concessions).
The new railway legislation, thus, offers good reasons to attract investments to passenger rail transport projects, which may definitely contribute to improving the Brazilian transportation matrix, its economic competitiveness, the energy, and environmental efficiency, as well as other economic activities either directly or indirectly dependent of transportation, such as the national tourism.