Report by the Socio-Environmental Institute (ISA) points out methodological errors, underestimated costs and lack of risk analysis in the assessment of the railway project
Um study carried out by the Socio-Environmental Institute (ISA) points out methodological and conceptual flaws in the Socioeconomic Cost-Benefit Analysis (CBA) of Ferrogrão, compromising the positive results expected for the project. According to the report, errors in the calculations of costs and benefits, omission of relevant externalities, inadequate definition of the scope of the analysis and lack of a risk assessment make the results presented unreliable.
“These flaws compromise the validity of the results presented by ACB Ferrogrão as a tool to support decision-making,” the study highlights. The lack of methodological rigor can lead to erroneous decisions, with negative impacts on society and the environment. The report warns that the analysis can mask costs for vulnerable groups, such as traditional communities and informal workers, while benefiting sectors such as rural producers and infrastructure users, including trading companies.
Underestimated costs and ignored risks
The study also suggests that the costs of building and operating the railway may be underestimated. According to ISA, the analysis disregards expenses for environmental and social compensations, adaptation to climate risk and uses unrealistic cost parameters, based on the cost of building the Central-West Integration Railway (FICO 1) by Vale.
Mariel Nakane, technical advisor at ISA, emphasizes that there are still fundamental discussions to be held before submitting the project for concession. “The negative socio-environmental externalities fall on third parties, such as traditional communities. The project only becomes viable with a redistribution of benefits, in the form of compensation. Do the communities understand what they will lose and are they willing to be compensated? This must be discussed before the project is submitted for concession. Otherwise, the concessionaire will inherit a legacy of distributive conflicts and future lawsuits. Who wants to be the concessionaire of a new Belo Monte?” she asks.
Problems in the ACB Ferrogrão methodology
The Socioeconomic Cost-Benefit Analysis of Ferrogrão was carried out by the Ministry of Transport in partnership with the companies Tetra+ and EDLP. This study complements the project's "Socioenvironmental Notebook", which integrates the Technical, Economic and Environmental Feasibility Studies (EVTEA), to be filed with the Federal Court of Auditors (TCU) in the first half of 2025.
The ACB concluded that “subject to the direct and indirect impacts studied, the implementation of the EF-170 project brings society gains that outweigh the possible losses, suggesting that it is interesting to continue the project from this perspective”. However, the ISA study states that the analysis did not follow the methodological guidelines of the General Guide for Socioeconomic Analysis of Cost-Benefit of Infrastructure Investment Projects, launched by the federal government in 2022.
Main criticisms of the feasibility study
Incorrect unit of analysis
The original analysis does not consider the Tapajós waterway as an essential part of the project, ignoring costs and externalities, especially the socio-environmental impacts of the Cargo Transfer Stations (ETCs) complex and the waterway on traditional peoples and communities.
“Ferrogrão intends to increase traffic on the Tapajós waterway by five times, but it does not consider this in its feasibility analysis. It would be like attesting to the feasibility of a hydroelectric plant in the Amazon without considering the costs of its transmission line! This is exactly what happened with the Belo Monte disaster and what we hope will never happen with the Tapajós,” warns Daniel Thá, economist at Kralingen Consultoria.
Socio-environmental externalities ignored
The ACB adequately disregards the externalities of induced deforestation and the expansion of the transportation system, which affect traditional peoples and communities. The study assumes that there will be no induced deforestation, justifying this by the availability of pasture areas for agricultural conversion in the region.
Lack of risk analysis
Another critical point is the absence of a risk and sensitivity assessment, which are fundamental elements for CBA. There is no consideration of climate risks, both in relation to infrastructure resilience and loss of agricultural productivity.
“The Ministry of Transport itself developed AdaptaVias, a project that brings state-of-the-art climate risk assessment to railways and highways, but did not apply it in the case of Ferrogrão. Climate risk analysis should become standard practice, including informing the risk matrix of a potential concession,” says Thá.
The risk of construction cost overruns is also highlighted as a serious problem. The study indicates that, by crossing the Amazon rainforest, costs could be considerably higher. While the Ferrogrão project foresees a cost of R$11 million per kilometer, the value considered for FICO 1, executed by Vale, was R$28 million per kilometer.
Conclusion
The ISA study warns that methodological flaws in the distributional analysis and in the evaluation of implementation alternatives for Ferrogrão could generate significant impacts on disadvantaged groups and compromise the structuring of the investment. Furthermore, the report suggests that the project should not be financed by the government, either through direct implementation or subsidies, as it would not generate sufficient positive externalities to justify public support.
“The main criterion for the government to decide whether to subsidize a project should be the generation of net social benefits, especially when the project is not viable from a private perspective. An example in the transport sector is the provision of public transport, which, despite generally being operationally deficient due to the low payment capacity of users, generates significant positive externalities and therefore needs to be subsidized. This is clearly not the case with Ferrogrão,” the study concludes.
What is ACB?
Socioeconomic Cost-Benefit Analysis (CBA) is a method used to evaluate investment projects based on their effects throughout their life cycle, comparing them to a scenario without the project. This model considers costs and benefits, including intangibles and externalities, expressed in monetary terms.
“Socioeconomic Cost-Benefit Analysis is an essential tool for rationalizing public interest investments in Brazil, whether direct or in the form of subsidies, and we cannot waste the opportunity to use it in the case of Ferrogrão,” says Daniel Thá.
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