International Finance

In a first, Brazil logistics operator Rumo given large rail contract

Brazil local rail operator
With corruption scandal-hit larger companies out of the view, smaller firms are bagging huge logistics contracts

The Brazilian government has signed a contract with Brazil local logistics operator Rumo for the operation and maintenance of the Norte Sul (North-South) rail line in Brazil. The contract stands for a period of thirty years.

The government intends to increase the ratio of goods moved by rail transport from 15 percent to 30 percent. The Norte Sul rail line is designed to be the backbone of this plan.

The amount offered by Brazil local rail operator Rumo for the contract is R2.7 billion, which is twice the minimum set by the government. Rumo is a part of Cosan, a commodities group. The firm had won the auction which was held in March 2019, defeating companies like VLI, controlled by mining giant Vale with a 37.6 percent stake.

The move to give the Norte Sul rail contract to Rumo marks a major change as it is the first time a small company has participated and won a contract of such magnitude. The bigger construction and engineering conglomerates are usually the firms which take up such projects.

But recently, massive scandals involving the big construction companies have been uncovered by the investigating agencies.  The news uncovered stated that these companies paid bribes to win contracts from state-run firms. The corruption allegations drastically reduced the number of contracts larger companies could win.

The government of Brazil recently announced its plans to increase the usage of railways for transportation, as it wants to reduce the high dependence on road transport systems. Currently, two-thirds of goods moved in Brazil are being transported by road. A recent nationwide strike by truckers had brought the entire transportation system to a standstill. The strike made the government realise the need for an alternative way of transportation.

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