For a country of Peru’s size, measuring 1.2m sq km, the national railway system remains rather limited. As of 2017 the total network comprised 1939.7 km of track, which has expanded approximately 40 km in the past decade. Railways have shown a particular deficit at both the urban and provincial level; however, 2017 and 2018 have seen momentum in investment and project advancement for this segment. Indeed, in February 2018 Verónica Zambrano, the president of the Supervisory Authority for Investment in Public Transportation Infrastructure, told local press that out of the $7.7bn being invested in public transportation from 2018 to 2023, $1.5bn would be designated for railway grants.
Chugging Along
According to the most recent data from the Ministry of Transport and Communications (Ministerio de Transportes y Comunicaciones, MTC), from 2004 to 2016, rail freight tonne per km increased 18% from 1.16m to 1.39m. The Southern Copper Corporation was responsible for the largest share, moving 580,061 in 2016; this was followed by PeruRail (424,830) and Ferrocarril (383,980).
Raw materials from mining and food products comprise more than 80% of the goods moved by rail. Increases in freight traffic, which showed 6.1% year-on-year growth as of August 2017, were mostly associated to an renewed interest in mining projects due to the rise in copper prices in 2017. The local mining sector is expected to flourish throughout 2018, further necessitating railway logistics options.
There has also been constant growth in passenger transit resulting primarily from tourism to the ancient Incan city of Machu Picchu. In 2017, 2.86m people travelled by train in Peru, up from 2.78m in 2016 and 2.10m in 2015. Of the 2017 total, 2.68m, or 94%, of the passengers were travelling for tourism-related purposes.
In terms of metropolitan rail transport, Lima is the only city with an urban rail system consisting of one 33.8-km line, spanning from the Villa El Salvador district to San Juan de Lurigancho, covering 26 stations. Total ridership of the Lima Metro in 2017 was estimated at 665,000 passengers, up from 450,000 passengers in 2015. A consortium led by local construction companies ACS Group and FCC Perú was awarded the contract in March 2014 to design, finance and build a second, metro line. The $5.36bn project will consist of a 34-km underground track running east to west and has been set for completion in 2022. Feasibility studies are being conducted for a third and fourth metro line, but con-CONNECTING COASTS: Perhaps the most ambitious of all coming rail projects is the $10bn Central Bi-Oceanic Corridor, nicknamed “the Panama Canal on railway tracks”, which will connect the Port of Santos in Brazil with the Port of Callao in Peru, traversing Bolivia. If approved, the 3755-km line will connect the Atlantic and Pacific oceans, and drastically change the logistics landscape of South America by reducing reliance on shipping routes. Paraguay, Uruguay and Argentina would also benefit as rail lines branching outwards would effectively make the system one of the largest modern infrastructure projects in the region. An informational meeting coordinated by Spain’s Exterior Commerce Institute and Bolivia’s Commercial Office in February 2018 estimated that some 40 Spanish firms were interested in the investing in the project. Other global companies have expressed interest as well.
The development was initiated by former President Pedro Pablo Kuczynski’s administration and resumed by President Martín Vizcarra Cornejo. During the Summit of the Americas in April 2018, Peruvian officials met with President Evo Morales of Bolivia to discuss initial plans. The desire for investments to begin as early as 2019 was expressed by both South American Presidents. While there is no set completion date, Ernesto Samper Pizano, the secretary-general of the Union of South American Nations, told local media that by as early as 2021 the railway could be transporting 7m passengers and nearly 10,000 tonnes of freight per year.
However, the project is not without challenges. Aside from its hefty price tag and investment considerations, there are also project and user profitability concerns, as there would have to be a fee charged to importers and exporters, and officials have yet to determine the possible rates to be charged.
Major Upgrades
While other railway upgrades are much smaller in comparison to the Bi-Oceanic project, the government is moving to increase capacity. The Huancayo-Huancavelica line was inaugurated in 1926 to serve the then-population of 250,000 as a freight and passenger railway connecting multiple cities in the Junín and Huancavelica regions. In terms of capacity, peak demand was reached in 1998, when around 700,000 passengers 47,000 tonnes of freight were moved on the line. However, technical studies conducted by the state investment promotion agency ProInversión have projected the route’s capacity will need to be almost doubled if it is going to be able to handle the 1.2m passengers expected to depend on the line by 2044. In October 2017 the MTC declared an expansion project feasible, allowing it to move to the concession phase, which according to ProInversión’s most recent timeline, will see the project being awarded by early 2019 under a public-private partnership framework. The chosen company will design, finance and build the line, with a concession to operate for the proceeding 30 years. The cost of the project is estimated at $235.7m.
Additionally, in December 2017 the MTC declared it would be investing some PEN200m ($61.6m) in freight and passenger rail networks between 2018 and 2021. Making up the lion’s share are three prioritised projects: a 43-km railway tunnel between Lima and Huancayo; a 475-km railway between Barranca to the north of Lima province and the southern city of Ica; and a 65-km line between the cities of Tacna and Arica. The last two lines are of particular importance for promoting agricultural trade as they make up the primary farming and food-growing regions for their province.
Open Access
The government is aiming to be more mindful in future railway infrastructure projects, assessing routes to strengthen key industries as well as address social concerns. One such investment proposed in January 2018 is a 600-km rail project to transport minerals from a copper-rich Andean region to the Pacific coast for export. Valued at $2.4bn, the project would begin in Apurímac, with stops at the Las Bambas copper mine and other mines in the south of the country. With Peru expected to produce over 3m tonnes of copper in 2021, adding a viable transport option could help alleviate tensions between mining companies and local communities that have previously protested the dust and noise created by large trucks carrying freight on unpaved roads.
The trend in the country seems to be towards facilitating access to various regions in order to help them benefit from increased access to markets. Víctor Suzuki, the general manager of Indra, told OBG that making the rest of the country more accessible would help open Peru to the rest of the world. However, with the exception of the Lima-Huancayo railway proposal, the majority of new proposals focus on building railway infrastructure to transport goods from the north to the south. The challenge with this is that it deprives the central provinces from opportunities to facilitate trade and export their goods to the coast. “Building a central-to-coast railway would be more useful than another north-south railway, as it would allow the central provinces to grow,” Suzuki added.
Challenges
While developing transport links to facilitate the shipment of goods will be a boon for the country, there are additional challenges to building rail infrastructure. Railways can be high-risk investments as tracks pass through regions prone to natural disasters. The Huancayo-Huancavelica railway, for example, had to halt services in 2011 and 2012 due to huaicos (mudslides and flash floods) for months at a time. Additionally, maintenance can be a long process that forces the temporary close of infrastructure, which again was a reoccurring issue for the Huancayo-Huancavelica railway between 2008 and 2010.
There are also environmental concerns. Railways often must go through untouched ecosystems or rural communities. The Bi-Oceanic railway, for example, would transverse the Peruvian and Brazilian Amazon rainforests, which hold some of the most culturally and naturally diverse regions in the world. Its construction and maintenance would have a direct impact on indigenous populations, as well as fragile ecosystems.
Looking Ahead
Peru’s government is demonstrating interest in bringing its infrastructure on par with its regional competitors. Investors should consider the transition between presidential administrations, as well as the level of influence the new practice of feasibility and profitability assessments may have on decision-making. Large-scale projects will also require significant capital; however, encouraging investor interest should be easy, driven primarily by the effect a rebound in copper prices is having on freight growth and tourism’s positive effect on passenger train use.
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