Archive for South America

Reports shows just how poor Brazil’s transport infrastructure is. // Two decades of progress hope — wasted on things like global soccer get them this

Something to reflect upon from a Bloomberg global news story on Oct 7, 2015

Two decades of promised growth and investment. Much of it wasted.

Now Brazil is forced to compete against nations like Mexico who have far superior road and highway infrastructure that move their supply chains. What a shame. What a mistake. Where was the oversight due diligence during all of those years?

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Gerald Lee, a former airline executive, thinks he can help ease one of Brazil’s most-absurd problems: “How do you ship large quantities of goods fast from the nation’s manufacturing hub when there’s not a single usable highway in or out of town?” Barge it down the Amazon River for a ten day transload supply chain. That is the best he can make out of a bad situation.

What happens is that products like TVs made in deep-in-the-jungle Manaus float down the Amazon River by barge to the Atlantic Ocean port town of Belem. From Belem, the goods go on trucks for pothole-filled delivery runs, many of them to distribution centers in Sao Paulo, about 1,600 miles away — and 10 days later.

MEXICO WINS

That can be more than twice as long in time as an 18-wheeler traveling a similar distance from Mexico City to the U.S. road-and-rail hub of Kansas City, Missouri. Or to even closer Houston.

When people criticize Brazil’s transportation infrastructure for being among the worst in the world, behind even Ethiopia’s, this is what they’re talking about.

Manaus, the nation’s only tax-free zone and home to 40 percent of its computer and electronics manufacturing, is just one of many reasons the World Bank says companies in Brazil spend more on logistics than in the U.S.  Moving many of Brazil’s exports can take twice as long as out of Mexico.

This was going to be fixed. But it never was.

How long will the needed investments take? No one is saying. I professionally would expect about 15 to 20 years.

The funding for long promised roads and railways is uncertain.

Heck, one point two years ago Brazil was promising foreign aid to help build Ethiopia railways. Unbelievable? Fact is often stranger than fiction.

To read the entire article, go to bloom.bg/1hrwCiI

BRAZIL — more signs of severe economic recession from a Bloomberg report

The reported numbers are from a story authored by Christiana Sciaudone

August 17, 2015

“In the midst of its deepest economic and political crisis in a generation, Brazil is contending with a business climate so punishing that major projects across numerous sectors are being frozen or shrunk, while small businesses slash prices and shift focus.”

“Political instability is enormous, and it’s paralyzing Brazil,” said Eduardo Fischer, co-chief executive officer at homebuilder MRV Engenharia & Participacoes SA, in an Aug. 5 interview.

In Brasilia, the nation’s capital, “decisions and actions that need to be taken are being delayed, questioned or defeated, and nothing happens.”

Multiple economists are predicting that the Brazil economy will contract about 2 percent this year,.

National unemployment is at a five-year high.

Brazil’s real is the worst-performing major currency in the world this year.

The airline has seen corporate demand drop by as much as 40 percent.

Embraer, the best-selling regional jet aircraft manufacturer had been counting on new products to boost revenue…    … and is also awaiting payment of $370 million…  Its production of new models can be expected to see a year long delay…  or longer.

Brazil’s auto manufactures also have watched demand plummet, with sales down 20 percent in the first half of this year compared with the same period in 2014…

Both GM and Volkswagen AG are temporarily shuttering local factories and putting workers on leave.

Long ago announced new Brazilian railway projects…  …can expect more delay and uncertainty in this economic climate.

So far, the recently announced BRICS new development bank is offering no solutions.  And a once promised Brazilian foreign aid to Ethiopia railways looks to be unofficially “unlikely”.

Much of this was predictable if proper due diligence has occurred during the many project reviews.  The signs of risks were there.

For a full report — log onto http://www.bloomberg.com/news/articles/2015-08-18/from-planes-to-cafes-brazil-s-economy-on-hold-as-crisis-deepens

Brazil Development BNDES Bank // Did it loss 2 Billion Financing Junk-Rated Nations?

From a Bloomberg report… Jul 21, 2015

A Brazilian prosecutor investigating the national development bank’s deals abroad said he estimates more than $2 billion in losses because of loans to junk-rated countries…

The prosecutor, who is assigned to Brazil’s budget watchdog, said the losses are tied to $12 billion of loans from a workers fund that the BNDES state bank shouldn’t have been made because they were too risky and rates were too low. More than two-thirds of that cash funded projects from Angola to Venezuela by builder Odebrecht SA… …

Reports Bloomberg. “We’re questioning the real social benefits of these loans,” says federal prosecutor Marinus Marsico, who led the nine-month preliminary investigation.

“If BNDES’s goal is to promote national development, why was the bank allocating scarce funds to a couple of private companies overseas?”

As an example, political policy announcements of pending Brazilian funding for projects like railways in Ethiopia were being floated over the past two years.  It seemed odd to hear at the time.  Now we can speculate as to why.

To read the entire article, go to http://bloom.bg/1SzV1P8 Sent from the Bloomberg iPad application.

Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8

BRICS Hail $100 Billion Reserves Pool! Realistic? Or a fools assumption?

The BRICS group of nations represent more than a fifth of the global economy.

The news sources issued by their public relations people are tonight talking up closer financial ties.

They are off to a summit in Russia on the subject.

A grand concept? But who will write the checks?

Most of the BRICS actually qualify for World Bank aid for a reason.

Is the new BRICS institution going to “borrow from Peter to pay Paul, so to speak.

Of Brazil, India, Russia, China, and South Africa, only China may have sufficient “reserves” in these troubled times to send money to the others.

Funding trillions of dollars in global rail and port and highway projects from this group “seems to be a streatch”

What do you think?

To read the entire Bloomberg article, go to http://bloom.bg/1KPJWsp

Brazil seeks new route for railway concession model | International Railway Journal

See this IRJ web site for the full technical report on Brazil’s stalled rail strategic plans as of early June 2015.

http://www.railjournal.com/index.php/central-south-america/brazil-seeks-new-routes-for-railway-concession-model.html?channel=522

Here are a few of what I believe are fundamental due diligence issues that potential rail investors need to consider in Brazil under a tightened Brazilian economy.

A new objective of the Brazil givernment reforms is to reduce the level of financing for new projects from Brazil’s National Bank for Economic and Social Development (BNDES). The government wants to ease the reliance on state-subsidised loans amidst rising concerns over public debt levels. This is evident in parallel recent news reports by Bloomberg and Reuters.

In the now stalled rail plans, up to 70% of the Reais 99.6bn of funding for the 11,000km of new Brazilian proposed railways would come from BNDES. However, with rating agencies indicating that current debt levels could result in a sovereign downgrade,  What now will be the role for BNDES?

BNDES’ reduced role in future infrastructure lending is driven by declining federal subsidies – the treasury will not provide additional loans in 2015 as part of the government’s fiscal tightening efforts…

The international credit agency Fitch argues that operations must bring in more revenue, which could result in higher tariffs than initially envisaged. “This effectively transfers the project’s cost to those who directly benefit from the infrastructure rather than through the general tax base,”claims Fitch.

Meanwhile, China’s reported interest in the West East Integration Railway project (Fiol) and North-South Railway is offering some encouragement to the Brazil government. But the Chinese money is NOT private capital, is it.

Existing projects show the pattern of financing delay. “Overcoming this funding conundrum is critical for the viability of Brazil’s ambitious long-term railway infrastructure development agenda.” …”difficulties also appear to be emerging with existing schemes.”

Contractors working on Fiol, the 1022km line from Barreiras to Ilhéus, are reducing the pace of construction following late payments from Valec”…

“In April Galvão Engineering laid off 700 employees working on the 100km section between Manuel Vitorino and Aiquarara in Bahia and is now employing 148 workers compared with 1500 at the end of 2014.”

Valec acknowledges the cash flow problems and says that while it is in the process of settling the payments, it is waiting for the Ministry of Finance to set out its 2015 budget including its limits of expenditure and disbursement schedule.

Yes, there are clearly project risk. Someone has to present sound feasibility numbers to the prospective private investors for these rail projects. Otherwise, they will likely remain firmly “on the drawing board” rather than moving into execution.

one new policy twist is that the open access economic rail model appears to now be dead in Brazil.

China proposes to fund Brazil-Peru 3,300 mile new freight rail route

China’s $10 billion railway across South America is either bold or insane

Original journalist for the report was Barbara Tasch  — on 10 June 2015

China has j”agreed” on financing feasibility studies and possible construction costs with Brazil and Peru for a 3,300-mile rail link connecting the Atlantic and Pacific coasts – This is according to Reuters and other sources.

The planned railway would connect Brazil’s Atlantic coast and Peru’s Pacific coast. The strategic assumption is that the rail line would “reduce the cost of shipping grain and minerals to Asia.”  NOTE: that is a commercial hypothesis and not yet proven.

Today, much of South America’s exports to China and imports from China pass through the Panama Canal. This would provide competition for some of that traffic even after the expanded Panama locks enter service maybe in 2016..

One of the proposed routes for the railway, known as the southern route would pass though the Isconahua Reserve and Vale do Rio Juruá. A 2nd optional route would pass through northern Peru and cross into Brazil

“The final choice of route for this railway will be in part based upon the calculated environmental impact and the operating plus capital cost of the commercial rail project.

The timeline for the feasibility studies is likely to take two years or more to complete. Then the investors will have to decide on how to fund the project and the risks of capital payback as a long loan project loan.

If the railroad is built, we can expect that the Panama Canal Authority and the various ocean carriers will adjust their services and prices to try and remain competitive. That would be part of a due diligence review by all investor parties. Including China which will want to get its capital paid back.

SEE MAPS of routes by clicking on the MORE bar

Read more: http://www.businessinsider.com/china-plans-to-build-a-3300-mile-railway-across-south-america-2015-6#ixzz3cyjuuYfY

Read more

Brazil proposes US $64.5 Billion infrastructure plan reports IRJ

 

IRJ report

So far, zero economic feasibility assessment to back up the strategic concept planning.

About one third of total federal plan is for rail projects.

Details that exist can be found at: http://www.railjournal.com/index.php/central-south-america/brazil-launches-dolus-645bn-national-infrastructure-plan.html?channel=536

A few of my critical observation are here:

1)

The government’s previous attempt to attract private funding for rail projects under the 2012 Logistics Investment Programme (Pil) was a complete failure as it did not receive any bids.

2) Under this 2015 new plan, Brazil’s National Bank for Economic and Social Development (BNDES) will be allowed to provide finance at low interest rates for up to 70% of the cost of a project provided there is also some private funding.

3) Most of the railway investment will be for new line construction.

— Reais 7.8 billion for 2 sections of the North-South Railway

— Palmas – Anápolis and Barcarena -Açailandia;

— Reais 4.9 billion for Anápolis – Estrela D’Oeste – Três Lagoas;

— Reais 9.9 billion for Lucas do Rio Verde – Mirituba.

— Reais 7.8 billion for the Rio de Janeiro – Espírito Santo railway;

4)

A major new speculative Trans-Andes 3,500 km long line; — Reais 40 billion for Brazil section of new line line to Peru

5)

Expansion of capacity on existing Brazil rail lines

— Reais 16 billion for track-doubling schemes, etc.

6)

“BYE BYE to OPEN ACCESS!

The federal government appears to have abandoned the European open access business model. There is no discussion now about the previous proposals to separate infrastructure from operations for new lines with multiple freight operators.

Instead, future Rail freight concessions will mirror those on the existing network with one company responsible for maintaining and operating each line — as in the North American model.

The intention of the government is now to increase confidence in these projects for the needed private investors.

What do you think of this?

More than 60% of megaprojects mines face cost overruns –. LIKELY for rail also

WHERE IS THE DUE DILIGENCE on these ambitious project feasibility cost estimates?

This was a timely report on the internet business news

A 60% rate of large project cost over runs reported from a after the fact due diligence review.

What executives were “watching out for the investors’ interests”?

Where was the pre-project due diligence review?

As exuberance over China “go-go” growth cools down now to more realistic levels, some formerly free wheeling mine executives are probably going to be reassigned or worse.

Likely a similar fate awaits many project rail planners.

The cited EY study below is not focused on the supporting railway projects. But this significant mining failure implies similar rail project cost over run impacts from Mongolia to South Africa and from Mali to India.

Mongolia’s rail plan execution failure out of the Gobi Desert TT fields is probably a close parallel to this report’s conclusions. Almost now a decade in only partial construction, the Mongolian project is a similar “failure to execute” on time and on budget. But here, the blames rests on government rather than executives.

MASSIVE MISS IN ESTIMATING THE TRUE PROJECT COSTS

How can so many screw up so badly?

COSTS as identified in the EY evidence were on average 60% or more over the initial predictions.

Who did the original diligence checking?

Where was the investor/banking over sight?

60% is what most of us who are economist refer to as the conceptual level accuracy of costs. That is terrible for an actual post project delivery audit..

60% is a flunking grade if judged logically.

60% suggests that there was never a serious project feasibility assessment of the market and economics.

Will this lesson learned be used by project leaders going forward now that feasibility may be even more difficult if the resources super cycle is behind us?

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The report title is: ‘Opportunities to Enhance Capital Productivity’

Here are a few highlights.

1) EY found that “an average budget overrun of 62% was reported on the 108 megaprojects investigated.”

2) “The projects considered were at various stages across the investment and project delivery life-cycle.”

3) “The projects were geographically diverse and related to the development of copper, iron-ore, gold, coal, nickel and other commodities.”

4) Cumulatively, “the projects represented global investment of $367-billion.”

5) “An estimated 50% of projects were reporting schedule delays even after remedial acceleration initiatives had been applied.”

The study spokesperson at EY is its global mining and metals advisory leader Paul Mitchell.

Mine company leaders now admit to their shareholders that with the good old high growth China days behind them… … the project managers need to be much more precise with their due diligence in order to achieve the promised investment margins. There is now a lot less room for error.

The report cites that total capital expenditure for the subject projects examined “have dropped from $142-billion in 2012 to an estimated $96-billion this year”.

For more details, please go to the Mining Weekly report from an Earnst Young special study at: http://www.miningweekly.com/article/more-than-two-thirds-of-megaprojects-face-cost-overruns-ey-report-2015-05-21

How would you score the report card based on the E&Y report?

Sent from Jim’s iPad