Tracking trade: with an eye on Asia, Chile and Argentina work to connect their exporters and ports by rail.

Bidding oil construction of an international rail line connecting Argentina and Chile is expected in May, to begin service by 2006--just after the planned 2005 deadline for hemispheric free trade. Now, trucks carry cargo over the Andes between the Southern Cone neighbors, but planners on both sides say the high passage and snowstorms slow trade traffic and that heavy commodities like minerals and wood are better served on trains.

Just 225 kilometers in length, the rail project, called Tren Transandino, will be an important economic tie for the region, its backers say. By way of Argentina's Belgrano Cargas rail network, the new cargo system will reach the water-highway ports of Parana-Paraguay in Argentina and Paraguay, the most important strategic factor for moving the large volumes of goods produced in the Mercosur trading bloc of Brazil, Argentina, Paraguay and Uruguay. The goal is to send more goods to Southeast Asia by combining rail and Pacific-bound ships.

The expected cargo will be Bolivian and Brazilian soybeans, wood from Chaco province in Argentina, and minerals from Bolivia's Mutun region. "The line will connect the largest urban centers on the continent, Santos and Sao Paulo in Brazil to Santiago, Valparaiso and San Antonio, linking Argentina's cities of Buenos Aires, Cordoba, Rosario and Mendoza," says Tren Transandino Director Carlos Jong. "The area includes 80% of the population of the Southern Cone, 80% of installed industrial capacity and the largest portion of its educated population."

Cargo volume is projected to rise starting in 2005 as a Free Trade Area of the Americas takes effect, a pact expected to double current trade between Chile and Argentina. Annual cargo should increase to 4.1 million tons by the 15th year of operation, up from just over a half-million tons now. "The project will require an investment of US $260 million, of which we need to get half, since $130 million is already committed," says Luis Fortino, finance chief for Argentina's Banco de Inversion y Comercio Exterior (BICE).

Cargo that naturally rides the rails includes dangerous or polluting materials and commodity goods. For Spanish oil company Repsol YPF in Argentina, the Transandino could be a viable alternative. Thus its exports from a refinery in Lujan de Cuyo, in Mendoza, to Chile could rise.

Mining companies are also paying close attention to the project. Trains have always been at the heart of the mining industry, and Chile's economy is heavily oriented to mining, with more than $2.35 billion in current planned investment. Canada's Barrick Gold tops the list with its Veladero project, the largest gold deposit in the world, and Pascua Lama, both on the Chilean-Argentine border. "In Mendoza, there is already a good out look for non-metallic mining such as gypsum or metals that have not been possible to develop because the biggest problem has been finding an economic way to transport it," says Carlos Leon, project director at Mendoza petroleum company Tecnicagua.

Tecnicagua and Chile's Petrolera del Sur formulated the idea of an Argentina-Chile rail line in 1999, presenting plans to presidents in both countries. The winning bidder will operate the system for 25 years, until 2031. "At this stage, we're designing the financial architecture for the project," says Arnaldo Bocco, BICE's president. To that end, Bocco expects to draw upon "international funds such as pension funds or insurance companies, institutional funds seeking long-term investment stability with acceptable returns."

Although it might sound hard to get investors excited about Argentina these days, Bocco says that there are plenty of other countries where risk is higher and which nonetheless attract investment. Just the same, BICE has an ace up its sleeve. "Don't forget, this is a binational project" with Chile, Bocco says. "In any case, each country is bringing its own strength: One is highly trusted, and the other is a big market," he says.

Bottleneck. Tecnicagua's planners note that the coming bottleneck for over-the-road trucking will be the Cristo Redentor highway tunnel, the main existing route for cargo between the Atlantic and the Pacific, which is completely impassable 31 days a year on average because of snow. Storms until now have caused business between Chile and Argentina to grind to a halt in winter.

The Transandino promises to revive trade whatever the weather. The train's tariff structure, too, will allow freight costs to drop 20% over already depressed truck tariffs, backers predict. Reduced costs should make it possible for businesses to move truck containers on rail cars for less than the cost of using their own trucks, they say.

"It's probable that truck owners today set their rates solely on supply-and-demand conditions and it might be that their margins are high enough to lower them in a dumping strategy or to scare the market," Jong says.

No matter how low they can go, there are limits, too, on how much trucks can handle as trade rises. Currently, 500 trucks a day move between the two countries, but the Andes mountain roads can only handle 800 trucks daily--the capacity equivalent, Tecnicagua's planners say, of just 20 fully-loaded train cars.

Cristina Kroll * Buenos Aires