Fernanda Martinez Campos Cotecchia Paulo Fernandes Luna Jaeger February 8 2023 Decree regulates Railway Law and institutes Railway Development Program Kincaid | Mendes Vianna Advogados | Shipping & Transport - Brazil Fernanda Martinez Campos Cotecchia, Paulo Fernandes, Luna Jaeger Shipping & Transport IntroductionPrivate exploitation regimePublic exploitation systemOther provisionsIntroductionOn 24 October, 2022, the President of the Republic of Brazil published Decree No. 11,245, which regulates the Railway Law(1) and institutes the Railway Development Program.The Railroad Law provides for the organisation of rail transport, the use of rail infrastructure, the types of grants for the indirect operation of railroads in national territory and the urban operations associated with them, which enable new investment opportunities.Private exploitation regimeThis decree establishes that indirect exploitation of the federal railway transport service is subject to the obtainment of authorisation and will be formalised through adhesion contract to be signed between the National Land Transport Agency (ANTT) and the interested legal entity. This formalisation may be upon request of the interested party or through public call. ANTT is entitled to determine the validity of the adhesion contract based on the applicant's proposal or the public call and will be valid between 25 and 99 years.Regarding the development of railway transportation, it will be up to ANTT to initiate a public call process, with the purpose of identifying parties that may be interested in obtaining authorisation for the indirect operation of the federal railway transport service whether they be:federal railways that are not implemented;idle railroads that are part of networks with a concession contract in force; orfederal railways that are in the process of returning or deactivating due to non-absorption by the current concessionaires.The decree establishes the obligatory information that must be included in the public call notice, in particular:the railroad;the term of validity of the adhesion contract;the conditions for issuing a declaration of public utility for expropriation purposes, when applicable;the current profile of transported cargo or passengers, when applicable;the schedule of investments planned for the implementation or retraining of the rail infrastructure, including the date established for the start of rail operations;the minimum amount required by the grant;the deadline for submitting proposals; andan annex that reproduces the draft of the adhesion contract.Where requests for expansion of the railroad are authorised, a new authorisation is waived when the total length of the additional railroad sections is equal to or less than that of the originally authorised railroad and does not exceed 300 kilometres. After analysis by ANTT, authorisation for the expansion of the railroad will be formalised in an amendment to the adhesion contract.The decree emphasises that the authorising company may expand the transport or storage capacity and promote the diversification of the use of the infrastructure, regardless of the execution of an amendment or authorisation by the public power, as long as it does not imply an increase in the length of the authorised railroad.It will be up to ANTT to establish the necessary procedures for issuing a declaration of public utility regarding projects and investments, within the scope of granting railway authorisation.The union and entities of the federal public administration may assign or lease assets owned by them to the authorised railway operator to constitute railway infrastructure to be operated under a private regime.Public exploitation systemRailway operators under the public regime may receive investments from users investing in the railway infrastructure granted to:increase capacity;improve or operationally adapt granted railway infrastructure;procure rolling stock; andimplement, expand or improve accessory facilities with a view to enabling the execution of rail services and accessory or associated services.The terms for these investments will be freely negotiated and agreed upon in a contract signed between the railway operator and the investing user, a copy of which will be sent to ANTT for information and registration. It will be necessary to request prior consent to enter into a contract in the event that the investments provided for therein imply:obligations whose compliance exceeds the term of the concession contract;a review of the tariff ceiling; oranother form of encumbrance to the public entity.Railway operators may receive investments from associated investors for the construction, improvement, adaptation, expansion or operation of adjacent facilities, with a view to enabling the provision or improving the profitability of services associated with the railway.The contract terms for these investments will be freely negotiated and agreed upon in a contract signed between the railway operator and the investing user, a copy of which will be sent to ANTT for information and registration.Other provisionsThe railway concessionaire may request the restoration of the economic-financial balance, under the terms of the concession contract, when it proves that there was an imbalance resulting from the operation of a new federal railway built through the granting of authorisation, granted to a competing legal entity, in order to characterise the operation railway in a competitive logistic market.In relation to the economic-financial balance of the contract, under the terms of the legislation and the concession contract, the restoration of the economic-financial balance referred may occur by:reduction of the grant amount;increase in the tariff cap;suppression of the investment obligation;adaptation of the contract;extension of the contractual term; andcompensation.Finally, the decree under question establishes the Railroad Development Program, which aims to:collaborate and articulate with the productive sector for prioritisation, planning, supervision and offer of railway segments;foster private investments in the railway sector through grants; andsupport and encourage:technological development;the preservation of railway memory;competitiveness;innovation;safety;environmental protection;energy efficiency; andthe quality of the railway transport service.With regard to the competence for issuing complementary norms necessary to comply with the provisions of the Railway Law and the respective decree, this will be the responsibility of the Ministry of Infrastructure (called Ministry of Transport in the current government) without prejudice to ANTT's regulatory competences.The decree under analysis entered into force on the date of its publication.For further information on this topic please contact Fernanda Martinez Campos Cotechchia, Paulo Campos Fernandes or Luna Jaeger at Kincaid | Mendes Vianna Advogados by telephone (+55 21 2276 6200) or email ([email protected], [email protected] or [email protected]). The Kincaid | Mendes Vianna Advogados website can be accessed at www.kincaid.com.br.Endnotes(1) Law No. 14,273 published on 23 December 2021.