Brazil–Peru Transcontinental Railway
Chinese Name: 巴西至秘鲁两洋铁路
Location: Multiple cities in the north and central-west of Brazil and northern Peru.
Type of Project: Transportation; logistics.
Project Developer: In Brazil, the Brazilian Enterprise for Planning and Logistics, VALEC Engineering, Construction and Railway S.A. (all Brazilian state-owned enterprises); in Peru, the Directorate-General of Roads and Railways of the Ministry of Transport and Communications.
Main Contractors: China Railway Eryuan Engineering Group (CREEC), a subsidiary of China Railway Engineering Corporation, which oversaw the basic feasibility study.
Known Financiers: n/a.
Cost: 72 billion USD.
Project Status: Planned.
The governments of Brazil and Peru started discussing building a railway connecting the two countries in the mid 2000s; China only became involved later. For Brazil, the primary purpose was to provide a more cost-effective option for transporting exports from the interior of the country to Asian markets, particularly agricultural and mining commodities shipped from the state of Mato Grosso to China (see Figure 1). Meanwhile, Peru primarily wished to become a transportation hub on the continent’s west coast. Being a gateway for the cargo shipped from and to Brazil would be an important step in that direction.
In 2008, the project was included in the Brazilian National Transportation Plan, while in the same year the Peruvian Government passed a law declaring it a public necessity and of national interest. However, there was limited progress up to 2014. The two South American countries invited the private sector to make offers and develop feasibility studies for segments of the railway, but, for the most part, they failed to attract attention as compensation for the service would have to be derived from the project after implementation. Against this background, Brazilian officials reached out to Chinese diplomats in the country and, after several meetings involving representatives of Brazil, China, and Peru, the three governments reached an agreement.
China showed great interest in this initiative, as evidenced by the fact that President Xi Jinping himself, together with his counterparts, announced the country’s involvement in 2014. China was driven mainly by its well-known Going Global policy agenda of promoting the internationalisation of its companies, which was introduced in the late 1990s. As stated by officials of the Chinese Ministry of Commerce, the Going Global strategy in the realm of railway exports has been changing from the simple provision of equipment to a model that encompasses the whole industrial chain, from design and technical guidance (including engineering and technical standards) to project construction, operation, and maintenance. The Chairman of the National Development and Reform Commission (NDRC), the Chinese institution overseeing the trilateral cooperation, argued that China’s participation in the Brazil–Peru Transcontinental Railway would represent a ‘breakthrough’ for the promotion of Chinese technology overseas. Another official went beyond that and said that this project had ‘great strategic value’, as it would ‘help China’s railway technology truly go global and control the entire industrial process, from preliminary research to construction, operation and maintenance’.
The government-to-government agreement signed in 2014 aimed to produce a basic feasibility study acceptable to the three countries, which would then become the basis for any development. However, the trilateral cooperation fell short of that objective. Under the agreement, Beijing covered the costs of the basic feasibility analysis and entrusted China Railway Eryuan Engineering Group (CREEC) with undertaking the study. Agencies from the host countries’ ministries of transportation were responsible for supporting tasks and for reviewing CREEC’s work. However, according to documents obtained by the author, neither Brazil nor Peru approved the final feasibility report. In the author’s view, there were three reasons for this: 1) a clash between Chinese and Brazilian interests over technical specifications; 2) the use of poor-quality standards by the Chinese side for the development of the feasibility study; and 3) Peru’s abandonment of the initiative due to the cost and environmental concerns.
Regarding the first point, CREEC insisted on using Chinese technical standards for the design of the railway to ensure compatibility with and facilitate the use of Chinese equipment. This included standards relative to the minimum curve radius and the maximum ramp. Brazil, however, required the use of well-established local technical specifications to meet its cost–benefit standards. Despite multiple requests from the Brazilian side, the Chinese company employed its own standards, with CREEC’s report—which was also obtained and made public by the author—even stating that the Brazilian standards were ‘irrational’.
Second, the quality and reliability of the feasibility study were questionable, as pointed out in many instances by the Brazilian technical team. Key estimates were presented in oversimplified tables with limited explanation of how values were calculated, including the demand forecast, implementation costs, operation costs, revenue, and internal rate of return. There was little or no social or environmental impact analysis, financial or economic modelling, budget, phasing for the project implementation, transhipment solutions for the different gauges used in Brazil and Peru, or definition of cargo hubs along the railway.
Third, the Peruvian Government lost interest in the project in 2016 after a change in leadership, and unofficially abandoned the collaboration. The new administration, led by Pedro Pablo Kuczynski, considered the implementation costs and environmental risks too high. It is also worth noting that an influential member of the new government, then vice-president and minister of transportation Martín Vizcarra, preferred a competing project promoted by then Bolivian president Evo Morales that would connect Bolivia, Brazil, and Peru using an entirely different route (the so-called Central Bi-Oceanic Railway Corridor).
Despite several requests from the Brazilian technical team for corrections, adjustments, and supplements to the final basic feasibility study report delivered in 2016, the Chinese side declined to provide them and maintained that the study had been successfully completed and any future steps would depend on the host countries’ decision. Consequently, the Brazilian Government considered the trilateral cooperation finished, and the basic feasibility study was not approved for pre-feasibility analysis of the project. The Peruvian authorities remained silent and did not offer any comments on CREEC’s final report.
Project Potential Impacts
While the project has not been implemented, it is worth discussing the potential impacts as the Chinese company insisted on moving ahead with implementation based on the basic feasibility study it prepared. Concerns about the potential impacts were raised by civil society organisations, scholars, and journalists.
Environmental Issues: The railway would cross areas of highly biodiverse pristine Amazon rainforest, including a legally protected area. In the absence of an environmental impact assessment and mitigation measures, the construction and operation of this piece of infrastructure would very likely bring a host of negative impacts. These could include the destruction or considerable degradation of ecosystems due to deforestation, pollution (for instance, gas and noise emissions, and spillages), modifications of the topography (for instance, tunnels, bridges, and ground levelling), fracturing of ecosystems (for instance, through the creation of barriers), and wildlife-vehicle collisions, among others. In addition to the impacts of the railway itself, its presence could incentivise the development of surrounding land (for agriculture or other activities like mining), which would further exacerbate all these problems.
Indigenous Communities: The railway would also potentially affect Indigenous and traditional communities living nearby, including some groups that live in voluntary isolation. The environmental impacts mentioned above would have a direct impact on their traditional way of life, as would the presence of workers involved in construction and possible settlements, which could also put them at risk of exposure to diseases against which they have weak immunity.
Financial Sustainability: The economic rationale for the transcontinental corridor is weak and the railway would likely run at a loss. An analysis of transportation for the targeted areas in Brazil suggests that the connection to the Pacific would have higher freight costs than current routes and other projects that use the Atlantic coast to export to and import from Asia. This is because using the Pacific entry/exit would significantly extend the distance of overland transportation and only slightly reduce the maritime distance to reach Asian markets, with the additional problem of the land transportation costs being several times higher than the maritime costs. In short, it would not be economically attractive to use the Pacific connection provided by a transcontinental railway. At the same time, the commercial exchanges between Brazil and Peru (or even the entire Pacific coast of South America) are too low to justify such a megaproject. This is particularly problematic when considering the investment needed to implement the project, which in CREEC’s final estimate stood at 72 billion USD. Even the company admitted that the railway would be financially feasible only if it was subsidised.
Legal Trouble: Under the terms proposed by CREEC, this project would inevitably run into legal issues. The construction, provision of equipment, and operation of the railway would not go through open bidding as required by Brazilian and Peruvian laws but would be awarded directly to Chinese companies. This happened with a previous Brazil–China cooperation arrangement involving the Southeast Northeast Interconnection Gas Pipeline (GASENE)—a case in which the violation of Brazil’s public procurement law led to legal action against the Brazilian officials involved.
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Vallim, Diogo and Thadeu Melo. 2016. ‘Perspectivas desde Brasil: una primera mirada al proyecto de ferrocarril bioceánico o transamazónico [Perspectives from Brazil: A First Look at the Transoceanic or Trans-Amazonian Railway Project].’ In Las Relaciones de China con América Latina y el Ferrocarril Bioceánico Brasil-Perú [China’s Relations with Latin America and the Transoceanic Brazil–Peru Railway], edited by Jorge Caillaux, Fabián Novak, and Manuel Ruiz, 119–48. Lima: MacArthur Foundation, Pontificia Universidad Católica del Perú y Sociedad Peruana de Derecho Ambiental. Link.
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