Better rail links would cut transport costs and increase ties with Brazil

With significant investment in urban rail systems, attention is steadily moving to the need to consolidate and enlarge Peru’s intercity railway network. Highways are being expanded, but the rising number of vehicles on Peruvian roads and high logistics costs underline the need for an improved railway system to help distribute cargo. Transport operators are calling for authorities to revamp railway infrastructure to link cities, as well as to connect ports and production centres.

According to 2013 figures from the Ministry of Transport and Communications (Ministerio de Transportes y Comunicaciones, MTC), Peru has 1928 km of railroads. Up to 12.4% of these tracks, or 236.8 km, are private railroads, serving mostly mining and cement production in central Peru. The remaining lines are divided between publicly managed lines and railways under concession. The Ferrocarril Transandino concession operates 1000 km of railways linking the regions of Arequipa, Cuzco and Puno. Another concession, Ferrocarril Central Andino runs through Lima, Pasco and Junin.

In Need Of A Revamp

Despite the existing railway connections serving some of the most populated areas, the general condition of railroads needs improvement work. Peru’s railroad infrastructure was ranked 90th out of 110 countries in the World Economic Forum’s “Global Competitiveness Report 2014-15”. Regionally, it ranked above Argentina’s (96th) spot or Colombia’s (102nd), but it came significantly behind Mexico (64th) and neighbouring Bolivia (70th).

Part of Peru’s comparatively low ranking is linked to the lack of rail integration with the overall transport system. Although heavily used in the past, Peru’s railroads, which connect a host of cities and regions mostly in the centre of the country, lack a nationwide integrated presence. Road links, especially for cargo freight, have become much more important, and an easier way to navigate the mountainous geography.

Furthermore, standardisation of railway connections with its neighbours would significantly boost Peru’s capacity to move freight for distances over 500 km. Mexico, for example, not only privatised most of its railroad infrastructure in the 1990s, but also put rail links at the forefront of its commercial exchanges with both the US and Canada. This encouraged modernisation of infrastructure and efficiency gains.

Crossing The Border

The role of railways in Peru might get a strong boost from plans to link the country with Brazil. At a meeting between presidents Ollanta Humala of Peru and China’s Xi Jinping in mid-2014, Chinese authorities gave strong support to the project of building a 3500-km rail link between Peru and Brazil. This would connect the Pacific and Atlantic Oceans and encourage added commercial exchanges between Peru and Brazil. Furthermore, it would allow Brazil to export goods to Asian markets more easily through Peruvian ports. Although regional integration has led to the construction of several road connections crossing the border, a train link could do much for trade between the two countries. Local media reports put the percentage of commerce transported over land at 2% of the total value of $1.7bn in trade exchanges between Brazil and Peru in 2013.

The design of the rail link, as well as the timeframe of the project, has yet to be set, but it will most likely have to provide easy access to Callao, Peru’s primary sea port. Other routes have been mooted by regional authorities. One option would be to link the northern Peruvian city of Paita, in the Piura region, to Belem in the state of Pará in Northern Brazil. Another possibility might be to traverse the south of Peru, connecting through Santa Cruz in Bolivia, all the way to Porto Belo on the Brazilian Atlantic Coast.

Along The Coast

Additional railway ventures are being eyed by Peruvian authorities. One of the largest projects to potentially impact the railway sector, the de la Costa, or Coastal Train, has been under discussion for some time. The project would establish a line linking the Port of Callao, on the outskirts of the capital city Lima, to the northern city of Piura, and travel south from Lurin down to Ica. The 1340-km line would join the regions of Lima, Ica, Ancash, La Libertad, Lambayeque and Piura. The railway would take much heavy truck traffic off Peruvian roads.

“In a country with logistic costs as high as in Peru, the need for an extensive and improved railroad grid is crucial to take away some of the pressure from roads that have high accident rates and expensive maintenance costs,” Armando Pareja Díaz, general manager of Peru Rail, which operates train trips for tourists, told OBG. “A train going parallel along the coast would make transport much more efficient. This is a project that needs to be approved for the benefit of the country.”

Priority Project

The railway project has the support of the government, which is making it a priority. The Peruvian Congress has been working on a measure to declare the Coastal Train a project of national interest, which would help accelerate the process of obtaining financing and building it.

However, in October 2014 José Gallardo Ku, the minister of transport and communications, told members of Congress that despite its good fiscal standing, the country was not in a position to commit to the Coastal Train project straightaway. Transportation authorities estimate that the railway could cost as much as $9.5bn, a hefty sum considering Peru’s large portfolio of ongoing and scheduled projects.

The impact of the project would be significant, especially at a time when rapid economic growth has exposed the constraints of Peru’s existing logistics infrastructure. A disproportionate dependence on congested road networks to move freight around the country has caused high transportation costs and delays.

“The country is expected to produce close to 5m tonnes of copper by 2021, and with cheap energy ensured by the Camisea gasfield, the goal now needs to be to create an efficient logistics infrastructure to reduce costs,” Pareja Diaz told OBG. “An extensive railroad system is the answer for the mining sector.”

Reviving Existing Rail

In the meantime the Peruvian authorities have also been trying to stoke private interest in smaller-scale rail projects that could have a more localised impact.

In 2014 ProInversión launched a tender for the initial studies of a project to revive the 60-km railway linking the Peruvian city of Tacna with the port of Arica in the north of Chile. Operation of the railway link was stopped in 2012 due to the poor state of the railway line. The initial studies are aimed at understanding the potential market size for both passenger and cargo traffic between the two cities.

Investment is also going into the central railway line. In 2013 the MTC announced funding of $27m to renovate the link and build a 21-km tunnel extension that will allow shorter travel times.

A revamped railway linking key urban centres would help to reduce high logistics costs. Furthermore, the option of creating stronger ties with Brazil via common railway infrastructure would help promote exports. But as the government focuses on a series of large-scale projects in other modes of transport, it seems that new rail links might not be on the short-term agenda.

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The Report: Peru 2015

Transport chapter from The Report: Peru 2015

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