24407 - MRS

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Summary of Proposed Investment

Project Number

24407

Company Name

MRS Logística S/A.

Date SPI Disclosed

Nov 8, 2005

Country

Brazil

Industry

Infrastructure

Projected Board Date

Dec 12, 2005

Status

Completed

Sector

Rail Transportation

Department

Regional Industry - INF LAC

Environmental Category

B - Limited

Previous Events

Approved : Dec 14, 2005
Signed : Dec 21, 2005
Invested : Mar 30, 2007

Project Description

MRS Logistica S.A. (MRS or the company) operates a 1,674 km freight rail network connecting Brazil’s three largest industrial regions -- São Paulo, Minas Gerais, and Rio de Janeiro -- under a 30-year concession granted by the Brazilian federal government in 1996. The company’s rail network consists of four primary lines and a branch line that link Brazil’s principal iron ore mines and steel plants, its largest consumer markets, and its principal sea ports. MRS currently operates a rolling stock fleet comprised of 143 owned and 319 leased locomotives; and 1,890 owned, 1,858 customer-owned, and 9,638 leased rail cars.

MRS is implementing a five-year investment program that includes permanent way expansion, track reconfigurations, signaling improvements, and additional rolling stock acquisitions and upgrades, intended to increase the capacity of the company’s network while also improving its efficiency, productivity, and safety. The expansion is expected to increase the company’s freight handling capacity from around 100 million tons p.a. at present to up to 160-180 million tons by 2009.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	50.0
Equity

MRS is headquartered in Rio de Janeiro, Brazil, with its principal operational offices located in Juiz de Fora in the State of Minas Gerais. The company operates four primary rail lines and a branch line that link the States of São Paulo, Minas Gerais, and Rio de Janeiro as follows:

Steel Line – 370 km of single track rail running south from the mining quadrangle near Belo Horizonte in the State of Minas Gerais to Saudade in the State of Rio de Janeiro. The Steel Line is used nearly exclusively for the transport of iron ore. In Saudade, the Steel line intersects with the Rio to São Paulo Line and continues to Barra do Piraí, where it interconnects with a series of branch lines that continue to Brisamar and the Atlantic ports of Rio de Janeiro, Guaiba Island terminal and Sepetiba. Iron ore is transported on the Steel Line to MBR’s Guaiba Island terminal and to CVRD’s iron ore terminal at the port of Sepetiba for export, and to CSN’s steel mill near Volta Redonda in the State of Rio de Janeiro for domestic consumption. This branch line is also used to transport imported coke and coal from the port of Sepetiba to CSN’s steel production facilities.

Central Line – 566 km of single track rail running south from Belo Horizonte in the State of Minas Gerais to Barra do Piraí in the State of Rio de Janeiro through Juiz de Fora. The Central Line is predominantly used for the north-south transport of cement and bauxite and for the south-north transport of empty iron ore trains returning to the mines in the State of Minas Gerais. The configuration of the Central Line and Steel Line essentially double-track the Company’s rail connection between the States of Minas Gerais and Rio de Janeiro.

Rio to São Paulo Line – single track line running from Barra do Piraí in the State of Rio de Janeiro to São Paulo. The Rio to São Paulo Line includes interconnection points with the Central Line and the Steel Line, making it the most congested segment of track operated by MRS. The Rio to São Paulo Line is principally used for transport of finished steel products, iron ore to supply the COSIPA steel mill in Cubatão, cement and bauxite transported south on the Central Line and then west to São Paulo, and container traffic between the States of Minas Gerais, Rio de Janeiro and São Paulo.

Santos to Jundiaí Line – single track rail running south from Jundiaí in the State of São Paulo through the city of São Paulo to the port of Santos. The line is used principally for the transport of soy, containers and other products to the port of Santos. The iron ore destined for COSIPA is also transported on this line to Cubatão, near the port of Santos.
MRS is currently facing bottlenecks and constraints in efficiently handling the freight volumes being demanded and, as such, the Company’s management has identified a series of capital investments to address various bottlenecks and position the company to handle the projected future freight handling volumes anticipated to serve the demand of its customers.

The key components of the company’s five-year investment plan include:

- Permanent way expansion including:

- the construction of additional sidings on the Steel Line to optimize train movements on a 195 km stretch on which “pusher” locomotives are used to climb a 1% grade and then need to return against oncoming trains;
- the expansion of two rail yards and the rehabilitation of two sidings on the Central Line to shorten the distance between sidings on a stretch traveled by both southbound (loaded) and northbound (empty) trains;
- expansion of a key siding at the interconnection point of the Steel and Central Lines in the State of Minas Gerais near the rail spur to the Açominas (Gerdau) steel mill;
- the lengthening of five existing sidings in the São Paulo area;
- the addition and lengthening of two sidings on the Rio to São Paulo line;
- the lengthening of existing sidings to extend the 45 km double-tracked section in Rio de Janeiro between CSN’s steel mill, Barra do Piraí and Brisamar; and
- the expansion and addition of cross-overs in the marshalling yard for general cargo near Barra do Piraí at the beginning of the Rio to São Paulo line;

- Acquisition of locomotives: the purchase of 49 GE locomotives – 29 refurbished locomotives already acquired in 2005 and 20 new locomotives ordered for delivery in 2006;

- Acquisition of rail cars: proposed purchase of approximately 2,480 new cars between 2005 and 2009;

- Locomotive maintenance: various upgrades to improve cabin layout and comfort, install “locotrol” distributed power systems, and perform preventive major maintenance on the company’s fleet of existing locomotives;

- Rail car maintenance: preventative maintenance on the company’s existing rail cars including an increase of the axle rating to increase the carrying capacity of the company''s iron ore gondola fleet;

- Permanent way maintenance: preventative and corrective maintenance to the rail network and superstructures including rail grinding, tamping, replacement of rails, ties and ballast;

- Rail maintenance equipment: Acquisition of an additional rail grinder, two high-productivity tamping machines, new shoulder cleaning equipment, the upgrade of track maintenance vehicles and the acquisition and maintenance of other new vehicles and equipment;

- Existing signaling and telecommunications system: installation of additional hot box/hot wheel detectors, friction management systems, derailment detectors, and additional field signals on the São Paulo to Rio line;

- Safety initiatives: investments to protect existing rights-of-way with fences, construction of pedestrian and vehicular overpass bridges, and upgrading of level crossings and marshalling yards in metropolitan regions;

- New signaling system: upgrade of the central control and dispatch center in Juiz de Fora, installation of cab signals, onboard computers and digital voice/data radios on the existing locomotive fleet for real-time mobile communications; and

- Conveyor belt: the installation of a cable conveyor belt to transport iron ore on a portion of the 18 km, 10% grade stretch on the Santos to Jundiaí Line between Paranapiacaba (summit) and the COSIPA steel mill in Cubatão near the port of Santos.

Development Impact

MRS is a well-managed private rail infrastructure company that has demonstrated its ability to successfully implement a turnaround since winning the concession in 1996. The company has a strong financial and operating record, a firm knowledge of the market, and an established customer base and long-term client relationships. In the eight year period since it was granted the concession by the Brazilian government, MRS has invested approximately R$1.1 billion (equivalent to approximately $480 million at current exchange rates) focused on rehabilitating and upgrading its asset base to enhance the reliability and safety of its network and operations. These investments have led to pronounced improvements in productivity and the company’s freight cargo volumes handled have roughly doubled since it began operations.

In spite of MRS’s investment activity, Brazil has historically experience a severe deficit and under-investment in transportation infrastructure which has had significant multiplier effects on the country’s economic development, and has especially hindered the growth of the country’s export sectors.

The low penetration of rail transport has also contributed to the severe bottlenecks in the country’s primary freight corridors, and has increased the cost that the private sector must incur to access domestic and international markets. The company’s activities directly improve the prospects for sustained economic growth through a more efficient transportation and logistics network and enhanced competitiveness of Brazil’s export activities.

Brazil has historically experienced a lack of long-term funding sources and the shortage of long-term capital has continued to be a key constraint given the capital intensive nature of the rail sector and the relatively long depreciation and pay-back periods involved. By supporting MRS, IFC will help to:

Provide long-term financing for additional private investment in Brazil’s infrastructure sector at a time when the industry is experiencing a shortage of such resources;

- Encourage an expanded role from private sector participation in the improvement and expansion of Brazil’s transport infrastructure;

- Further improve the efficiency, productivity and safety of Brazil’s rail network;
Help to lower the cost of transport services in the country’s most strategic freight corridors; and

- Promote the competitiveness of Brazil’s export activities.

This is a category B project according to IFC’s environmental and social review procedure because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. Environmental and social issues associated with this investment include:

- Rehabilitation of previously contaminated/degraded areas;
- Hazardous materials management;
- Air emissions;
- Operational safety and accident prevention;
- Maintenance-related effluents, emissions, and waste management;
- Employee health and safety;
- Irregular occupation of right-of-way;
- Community engagement and development;
- Cultural properties;
- Indigenous peoples; and
- Environmental management systems.
Location of environmental documents In locally affected community
The Environmental Review Summary (ERS) is available on the company’s web-site at www.mrs.com.br and at its principal offices between 9 a.m. and 12 p.m. at the following locations:

Av. Brasil 2001, 3° Andar – Juiz de Fora, MG
Av. Raimundo Pereira de Magalhães, 902 – São Paulo, SP
Praia de Botafogo, 228 / 1201-E – Rio de Janeiro, RJ

Please contact the company to make advanced arrangements to review the ERS.

Contacts

For Inquiries About the Project, Contact

Daniel França, Financial Manager
E-mail: dfr@mrs.com.br

This Summary of Project Information (SPI) is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC's activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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