Opinion – Public Call: Why it should be with private infrastructure

Law No. 14,273/2021 introduced a new regulatory paradigm to the Brazilian railway sector by establishing the railway authorization system. Unlike traditional concessions, authorizations were conceived as instruments for private action and operation, characterized by freedom of initiative, the full risk burden of the investor, and the absence of mandatory asset reversion at the end of the contract.

However, the use of public calls for proposals to reuse idle or non-operational sections of the federal network raises important questions about the nature of this concession. The key issue is whether such a procedure should result in an authorization based on public infrastructure—using transferred federal assets—as currently proposed and under development, or whether it should evolve into an authorization tied to future private infrastructure through divestment.

I confess that the prospect of an authorization supported by public assets sparked my reflection, as it broadens the range of possibilities within the regulatory model. It is understood that, to preserve regulatory coherence and ensure adequate investment incentives, the public call should maintain the essence of greenfield railway authorizations, that is, ensure the full integrity of the authorization. Otherwise, the public call risks approaching a hybrid model, closer to a "soft" concession, simply due to the presence of public infrastructure. Article 8 of the Railway Law treats the granting of an authorization as indirect operation of railways under a private regime, while the concession grant is under a public regime.

Article 21 of the aforementioned law states that, to "constitute railway infrastructure to be operated under a private regime, the public authority may sell, transfer, or lease to the authorized railway operator assets owned by it, in accordance with the regulations."tm

It is clear that the legislator, by linking the public call to the authorization regime, sought to simplify the process and facilitate the reactivation of railway branches and extensions by the private sector, reducing the regulatory burden and expanding business freedom (free pricing, the possibility of own or third-party operations, and actions guided by economic interests).

However, by allowing the transfer or leasing of sections by the public sector, as has been the case, an unusual precedent is created: the concept of a hybrid railway authorization, which departs from the "pure-blood" model of private authorization. In other words, it is an authorization under a private regime with a public asset, in which the public asset has greater synergy with a public regime and is interconnected with a concession

To date, the alternative of selling public assets is not contemplated in public calls for proposals. This option, in addition to representing a new source of revenue for the government, would allow the effective transfer of infrastructure (in most cases precarious) to the investor, who, in any case, would already assume full costs and capital expenditures to rehabilitate non-operational sections. This model, however, allows for the possibility of public investment in public assets, which is not the case with greenfield authorizations, as provided for in Article 21 of Law 4,320/1964 on capital transfers: "The Budget Law shall not allocate aid for investments that must be incorporated into the assets of private for-profit companies."

Regarding its legal and regulatory nature, the railway authorization is a private title, executed through an adhesion contract, where the investment is entirely private; the demand and operational risk falls exclusively on the authorization holder; there is no guarantee of economic and financial stability; and the assets are private and are not subject to compulsory reversion.

By allowing a public tender to result in operations on public infrastructure, the authoritarian logic is broken, bringing it closer to a concession, whose distinctive feature is precisely the reversible use of public assets.

Among the situations involving authorizations for public infrastructure, we can highlight regulatory inconsistency, in which mixing regimes can generate legal uncertainty in addition to regulatory uncertainty. A concession is the most appropriate instrument for the operation of public infrastructure. Authorization should be reserved for private projects—greenfield or acquired. This conceptual clarity is essential for investors and for the role of the State itself.

We also have the issue of distorted incentives, whereby the authorizing party operating public infrastructure has the advantage of assuming lower initial capex, as it inherits an asset already in place, but may have less incentive for long-term maintenance, as it does not effectively own the property. Furthermore, it can await future renegotiations, reducing its commitment to efficiency.

In the private infrastructure or infrastructure acquisition model, the investor has "skin in the game," as they depend on the equity value of the asset they built or acquired.

Regarding the risk of unfair competition, allowing authorizations for public infrastructure creates an asymmetry between concessionaires, who pay the grant fee and bear the burden of reversibility, and greenfield authorization holders, who assume full risk and higher costs. This distortion compromises equality and can inhibit private investment.

Regarding reduced legal certainty, the use of public infrastructure implies the risk of unilateral reversal by the granting authority; political interference in the definition of tariffs and access; and regulatory instability, as this scares away long-term private capital, especially international capital.

Regarding the role of government agencies, a railway authorization that uses public infrastructure with federal assets transferred should involve greater involvement from ANTT (National Land Transportation Agency), TCU (Federal Audit Court), and other oversight agencies than a greenfield authorization, because public assets are involved. Bringing future events to the present, ANTT may also require action such as the Network Declaration, with annual disclosure of sections in operation, expected traffic, available and idle capacity, allowing the agency to monitor saturation and avoid conflicts between operators. Furthermore, economic regulation is required to ensure that the use of public infrastructure does not distort the market and respects principles of efficiency and non-discrimination. The TCU may participate in the process through risk analysis and mitigation, verifying that the use of public infrastructure does not generate regulatory imbalances or unduly favor certain operators. Subsequent oversight is also possible, where, after the authorization or public tender adhesion contract is granted, it can audit the contract and the execution of the authorization, ensuring transparency in the use of public assets.

If the Federal Government wishes to reactivate idle stretches, the coherent solution is not to grant public use under authorization, but to sell the right-of-way (when legally feasible); or to establish perpetual, transferable real rights of use (Concession of Real Right of Use – CDRU, administrative easement), guaranteeing the licensee effective ownership of the asset.

Thus, the public call would cease to be an administrative transfer process and become a mechanism for selecting the buyer/investor, in line with the logic of greenfield projects.

Among international experiences, the United States has a rail regulator (Surface Transportation Board – STB), which provides mechanisms such as the Feeder Railroad Development Program and the Offer of Financial Assistance (OFA) (before the "consummation" of the line's abandonment or operational discontinuation, an interested party can subsidize the operation for up to one year – renewable by agreement – ​​or purchase the line for continued rail use, in which the STB can set terms and price, and the sale follows state property laws). These are federal initiatives created to prevent the abandonment of rail lines – which are not economically viable for large Class I and Class II rail companies, but are important for connecting communities and facilitating freight transportation – and these decommissioned lines can only be transferred if sold to the new operator.

The goal is to ensure that the private operator retains full ownership or real rights to the infrastructure, providing safe and efficient transportation, and that these rail lines continue to fulfill their purpose of continuous service.

In Canada, the Canada Transportation Act establishes that disused lines must first be offered for sale or long-term lease to other operators or governments (federal/provincial/municipal/transportation authorities), ensuring that private operation takes place on privately owned infrastructure.

The process for discontinuing lines under federal jurisdiction includes a three-year plan listing lines to be discontinued; a public announcement for sale/lease/transfer with a view to railway continuity; and good-faith negotiations. If no agreement is reached, a mandatory offer to the governments for up to the "net salvage value" is made, with staggered terms (60+30+30+30 days) and arbitration by the agency in case of disagreement; and formal termination if no one accepts.

After this process, regarding reuse, sale, or leasing, we have the possibilities of using the railway asset for trails, linear parks, and utilities (after an offer to governments), which are frequent; sale, possible after fulfilling the procedure and if governments do not exercise the offer; and leases/assignments, which are often used with public entities to maintain the corridor; the price is referenced to the net residual value when the acquirer is a government/authority.

These international models, especially the United States and Canada, reinforce that authorization regimes (in the case of these countries, private regimes) are linked to private infrastructure, not to the precarious use of public assets.

In conclusion, the public call is a legitimate instrument to stimulate investment and allocate resources to railway sections. However, its application must respect the essence of railway authorization – being a fully private regime, based on the ownership and full risk of the investor. Transforming the call into a grant to operate public infrastructure tends to distort the logic of the model (making it closer to a concession than an authorization), which can generate legal uncertainty, reduce maintenance incentives, and create regulatory asymmetry.

The appropriate solution is for the call to select investors who assume full ownership or real rights to the infrastructure, ensuring regulatory coherence, appropriate technical and legal safeguards, and alignment with international best practices.

*Urubatan Silva Tupinambá Filho is a federal civil servant and a professional in the railway and transportation sector.

The authors' opinions do not necessarily reflect the views of the iNFRA Agency, and the author is solely responsible for the information, value judgments, and concepts described in the text.

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