Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Rumo's first quarter 2020 results conference call, which will be led by Mr. Ricardo Lewin, Chief Financial and Investor Relations Officer, and Mr. Beto Abreu, Rumo's CEO. We would like to inform you that this event is recorded and all participants will be in a listen-only mode during the conference presentation. After Rumo's remarks, there will be a question and answer session for investors and industry analysts, hosted by Mr. Gustavo Rosa, Investor Relations Executive Manager, together with Mr. Ricardo Lewin and Mr. Beto Abreu. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. The audio and slideshow of this presentation are available through live webcast at ir.rumolog.com. The slides can also be downloaded from the webcast platform.
Before proceeding, let me mention that forward-looking statements will be made under the safe harbor of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the beliefs and assumptions of Rumo's management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Rumo and could cause the results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. Beto Abreu. Mr. Beto, you may begin the conference.
Good afternoon, everyone, and thank you for joining us at Rumo's first quarter 2020 earnings conference call. This time, I take the opportunity to comment on our actions to manage the crisis caused by the new coronavirus pandemic and also to discuss some strategic points regarding the important milestone, which is the Paulista Network Renewal, whose contract was signed yesterday. It's worth noting that the federal decree number 10282 of March 20, 2020, categorized general cargo transportation as an essential service. Thus, Rumo swiftly organized to work in three major fronts. The first one, internal protocols and contingency actions. Social responsibility and institutional actions. Third one, financial operations to preserve and ensure liquidity. We executed several actions and protocols aiming to ensure the safety of our employees and those related to our business, like clients, suppliers, truck drivers, terminals, and ports.
We also adopted measures such as social distancing and permanent sanitizations in facilities, vehicles, instruments, and locomotives. Employees in the risk group were instructed to adopt specific care and monitoring measures. For administrative employees, we adopted the home office policy. With safety across all our activities, we have been able to continue operating. We also acted jointly with governmental authorities in promoting social responsibility actions. We identified needs to fight against the pandemic along with health departments of 28 municipalities in seven Brazilian states covered by our concessions. Donations comprised 26 different institutions. We also entered into partnership with MRS, VLI, and Comunitas. We donated school meals to children in Santos metropolitan region. Joining with Cosan, Rumo made a public commitment not to dismiss any of its personnel. We were pioneers in such initiatives, and we are very proud of it.
We work extremely with governmental institutions, states, and municipalities, and this engagement results in various formal acts such as decrees, provisional measures, and ordinances to ensure the continuity of our business. We also adopted measures to preserve the company's financial health. In the first quarter, we raised around BRL 850 million to reinforce liquidity, and approximately BRL 1.5 billion we raised in second quarter to ensure the continuity of our long-term investment. Our cash in May , then, is around BRL 5 billion. On the next slide, we will discuss the continuity of our main investment during this pandemic. Our operations and ongoing investment at Rumo Logística terminal remain uninterrupted. I point out that after concluding the investment, our terminal, which is currently Latin America's largest road and rail terminal, will have 50% more capacity with higher level of efficiency and safety.
In the states of Goiás and Tocantins, investment at the central network continue advancing. The photos on the slide illustrate the ongoing construction of Rio Grande Bridge in the boundary between São Paulo and Minas Gerais. The connection between central and Paulista Network. We expect this operation to initiate in the first half of 2021. On the next slide, I would like to talk about the Paulista Network renewal. In continuing to the material facts disclosed on May 27, on the next four slides, I will share with you the strategic relevance and the main numbers of the Paulista Renewal. It was a long process. With no doubt, this is a great victory for Rumo, for the rail sector and the entire country. This is the first time a rail concession in Brazil received a renewal.
This outstanding achievement demands a lot of effort from the entire team, who worked very hard during the entire process and jointly with ANTT and TCU, defining a solid framework to be a reference in the other renewables. We are immensely proud, and I'm sure that it will reinforce even more Rumo's role in the Brazilian logistics. On the next slide, I highlight the strategic relevance of the renewal for Rumo. Nearly 80% of our results derive from the North operation, where we hold two concessions: North Network, that is worth until 2079, and Paulista Network, now extending until 2058. This continuity for two of our main concessions is key for wealth creation once rails are long-term business. As a condition to the renewals, Rumo will make investment that will double this network's current capacity, bringing even further efficiency and safety to our system.
With that, we will be able to sustain long-term volume growth coming from the state of Mato Grosso through the North Network, allow the entrance fee of additional volumes via central network, and enables an increase of cargo in Paulista Network and other rail using this network. Let's see on the next slide some points of this extension agreement. For the right of the use of Paulista Network from 2028 to 2058, Rumo will pay a concession fee of approximately BRL 2.9 billion. Initially, this amount will be paid in quarterly installments over the next 38 years. If volume achieved are greater than those projected in the ANTT model, an additional concession fee may be defined.
It's also included in the concession fee and the CapEx plan, amounts referring to the return of unprofitable stretches such as Cajati and Varginha and recovery of Panorama and Colômbia, which could bring additional demand to Rumo. Rumo also assumed an investment commitment of approximately BRL 6.1 billion over the concession period. On the next slide, I will further discuss the mandatory investment. Rumo committed on investment BRL 6.1 billion, on which we highlighted BRL 2.1 billion to acquire rolling stocks, BRL 2.6 billion to improve the permanent way, and BRL 1 billion in the urban conflicts. The ANTT mandatory investment consider approximately BRL 1.7 billion until 2023. The distribution of this investment over time may change due to Rumo 's priority; so far, we do not see the need of changing our guidance to deal with regulatory commitments.
Now, I turn the floor over to Ricardo Lewin, who will touch on other financial matters related to the renewal and will finally discuss the first quarter results.
Yeah. Thank you very much. Thank you, Beto. Good afternoon, everyone, and thank you for joining us. In the first part of 2019, we had approximately BRL 1.9 billion in unpaid concession fees of the Paulista Network booked in our financials. The agreement with ANTT allows us to settle unpaid liabilities in BRL 468 million that will bring important gains on EBITDA and financial results. The amount deposited in the court will also be used to be deducted from liabilities balances. A second part of the accounts offset in the estimated amount of BRL 148 million will be confirmed by experts report to then be deducted from liabilities balance.
As a result, Rumo should pay to the federal government approximately BRL 1.1 billion divided into eight annual installments, starting on July 15th, 2020, with the first two installments in the amount of BRL 50 million per year and the rest in approximate amount of BRL 174 million per year. On the next slide, I would like to demonstrate how the renewal affected this first quarter and will affect the second quarter. Besides the accounts offset, it was also a condition to the renewal, the settlement of former regulatory controversies of approximately BRL 109 million, which were paid in the first quarter 2020 and will impact our EBITDA in BRL 64 million. Our financial result in BRL 39 million, both considered one-offs. As I already said, the signed agreement will allow us to recognize in the second quarter 2020 gains deriving from the write-off of provisions totaling BRL 468 million.
We consider both impacts as one-offs. That's why we will adjust our reports for a fair comparison with previous year. On the next slide, let's now talk about the first quarter 2020 results. Now discussing our results, I would like to point out that to ensure comparison, we report consolidated adjusted results, excluding the effect of the Paulista Network renewal as already discussed and the costs and expenses related to the central network, given that the signature happening in July 31st, 2019. This first quarter and the second quarter 2020 results won't be comparable. All other sections of the earnings release consider central network consolidation and the effects of Paulista Network renewal process, unless otherwise indicated. On the next slide, let's discuss the operational results. In first quarter 2020, our volumes fell 7.6% to 12.3 billion RTKs.
In the North operation, volume was impacted by, first, late start of the soybean harvest season compared to the first quarter 2019. Second, lower corn carryover inventory in January. Third, rainfall on the Santos fields and the Port of Santos in March, 73% above the month's historical average. Fourth, a cyberattack we underwent in the second half of March, which hampered the recovery of volume in the month. In the South operation, the impact was from the late start of the soybean harvest season compared to the first quarter 2019. Second, lower industrial volumes due to COVID-19. Third, soybean crop failure in the state of Rio Grande do Sul. Fourth, the cyber attack. On the next slide, we will discuss our financial performance. Rumo's adjusted EBITDA dropped 18.6% to BRL 653 million, with a margin of 45.9%, impacted by reduced volume and lower yield in the quarter.
In the North operation, yield dwindled 7%, reflecting, first, lower demand for freight in the market in January and in February. Second, disappointing volume in March, a month which usually records a higher yield. Finally, the signature of take-or-pay contracts in a moment of lower truck freight prices. In the South operation, yield grew by 3.4%. The container operation saw a decline of 3.8%. Fixed costs, general, and administrative expenses, excluding the central network, increased only by 0.7%, less than inflation. Variable costs had a good performance, falling 12% on the back of efficiency gains. Fuel costs dropped 8% in line with volume. The reduction of unitary fuel consumption by 5.3% offset higher fuel prices year-over-year. Despite good cost performance, lower operating leverage and lower tariffs decreased margin by 3.2 percentile points. Now let's discuss the financial results and net income.
This quarter's result had a financial expense of BRL 531 million, 63% above the first quarter 2019. The following factors impacted the result. The first factor is the effect of CDI reduction that positively contributed to results. The second factor are two adverse effects. First effect is the review of the estimate to measure the fair value of financial instrument, which resulted in a non-recurring non-cash effect of BRL 160 million. This review results in lower NPV volatility in the next quarters. Second effect is the addition of Central Network financial expenses, referring to the concession fee payment amounting to BRL 70 million. We reported an adjusted net loss of BRL 136 million versus net income of BRL 27 million in the first quarter of 2019, due to lower EBITDA and the non-recurring impact of the derivatives' estimated value review, as already mentioned. On the next slide, let's discuss our indebtedness.
This quarter, as already mentioned by Beto, we carried out relevant funding to preserve the company's liquidity and financial health. In May, we achieved a comfortable position of BRL 5 billion in cash. This quarter leverage reached 2.1 times pro forma net EBITDA. On the next slide, let's talk about market dynamics. Concerning the soybean scenario, there's been significant change since the beginning of this year. According to Agroconsult, soybean trade, despite the COVID-19, is likely to grow to 160 million tons versus 153 million in 2019. We estimate that China should increase its soybean inventory by 6 million tons. Finally, the Brazilian real devaluation accelerated this commodity commercialization in the state of Mato Grosso, which achieves 89% for 2020 and 36% for 2021. We expect exports to reach approximately 76 million tons. A more positive scenario than initially projected for the second quarter.
This trend of higher exports already can be seen in the volume transported in April, with soybean volume growing 28% versus April 2019. On the next slide, we will discuss the outlook for corn in the second half of the year. Regarding corn projections, we foresee favorable availability in the second half, as the state of Mato Grosso should record a greater performance than Brazil's average. Also considering that most of exports expected reduction from 39 million to 33 million tons should take place in the first half, as you can see on the graph on the right side of the slide. Concerning supply, the U.S. will see greater corn availability due to lower demand for corn ethanol, while Brazil will see a decrease in availability as the planting window was shorter and the climate did not contribute to the productivity in the southern states.
Despite the risk relative to the U.S., Brazil has a great competitive advantage, as a strong depreciation of the real prompted the producer of Mato Grosso to anticipate the corn commercialization, which had already reached 80% in May 2020. We finish here our presentation on this quarter, which also gave details on the milestone of Paulista Network review approval. We remain at your disposal for the Q&A session. Thank you.
Thank you. We will now begin the question and answer session for investors and analysts. If you have a question, please press star one on your telephone. We kindly ask you that in case you have more than one question, please announce it in the beginning and ask one by one to ensure conference flow. If you prefer to send your question over the Internet, click on the Ask the Speaker button on the webcast platform. If your question is answered during the session, you may remove it from the line by pressing star two. The questions will be answered in the order they are received. We ask you to use the handset when asking the question in order to maintain excellent sound quality. Please stand by while we collect the questions. Our first question comes from Pedro Bruno, Santander.
Hi. Good morning, everyone. Congratulations on the important milestone. I have two questions. The first one regarding Malha Paulista and, actually, the implications going forward. Is it correct to imagine that the process or the regulatory process of approval for the Sorriso project, which is now Lucas project, right, should accelerate going forward given that you no longer have the regulatory discussions of Malha Paulista? What would be the, let's say, timetable that you have in mind for that regulatory process going forward? That's the first question.
Thank you, Pedro Bruno. I think it's best to have Beto answering your question. Beto, please, you may speak. Sorry, Pedro. I will repeat the question for Beto. Beto, Pedro Bruno is asking about the Lucas do Rio Verde project, and how do you see the pipeline of this project going forward?
Can you hear me?
Yes.
Now, yes.
Sorry, Pedro. Sorry for that. Just going back to your question, this is Beto. I think you're completely right. Since the beginning, we as a team have decided to put all the focus and to prioritize Malha Paulista. That was the idea. It was a tough process with a lot
I think we missed Beto. I'll try to answer this one. After we accomplished Malha Paulista renewal, it's clear to everyone that Lucas do Rio Verde is the most important project for the company. We are going to make all the efforts to start this process with the regulator. It's worth mention that last year we already applied for the environmental licenses, allowing us to gain some time in this process. Meanwhile, we don't have the regulatory approval. There is a huge pressure for this project in the state of Mato Grosso. We are very excited about the profitability that Rumo can have with a project like this. We think we have all the means necessary to advance with the project now that we accomplished the Malha Paulista renewal. What is your second question, Bruno?
If I can complete the question, Pedro, this is Lewin. Remember that we already advanced in part of the project in Novo Mutum, where we already bought a piece of land there, and we are starting the project for the Novo Mutum terminal. Okay, this is already our first step in the development of the project. If you can go again to the second question, please.
Perfect. Thank you very much. The second question also relates to Malha Paulista in the sense that you announced also two financial impacts from the signature, a negative one and a positive one, as you explained, with a net positive. Just to make sure, it's actually twofold, the question here. Did I understand correctly that the net impact when you imply first quarter results and second quarter results will be a positive of approximately BRL 370 million, which is the net of the negative BRL 100 and the positive BRL 470 in rough numbers? That's the first part. If yes, if that impact is included in the guidance that you provided for 2020 or not? Thank you.
Pedro, Ricardo Lewin will answer this question. Please, Ricardo.
Hi, Pedro. Let me go through all what we said before because this is a good question and it should be very clear. One of the conditions imposed by TCU was for the concessionaire to settle all defined spending payments in legal or administrative appeals. Okay? In this regard, in January 2020, so in the first quarter, Rumo paid the amount of BRL 109 million, of which 63 affected our EBITDA. Okay? The rest affected the P&L, the bottom line, through financial expenses. This was the only effect in the first quarter, and this was not in the guidance, okay? We didn't know previously that we would need to pay that. It was an agreement by the end of the negotiations. Talking about the effects on the second quarter, okay?
There will be a settlement, okay, that will be a result of the accounts offset. Rumo will reverse at first something around BRL 470 million accounted today as liabilities, which will bring corresponding gains in EBITDA and in financial results. Okay? This second part that I said, just reinforcing, will affect the financials on the second quarter 2020. Is that clear for you?
Yeah, no, it's perfectly clear. A net positive impact overall when you put first quarter and second quarter together. The other question was if the net impact was included in the guidance, and I understand it is not. Is that right?
You are right, it's not. Yes, it's a net impact, but affecting in different quarters.
Perfect. Thank you very much. Thank you for both.
Thank you.
For participating in the call.
Our next question comes from Alex Falcão, HSBC.
Nice. Good afternoon. Can you share with us what's the IRR of the Malha Paulista renewal, if that's possible? That's question number one. Question number two, it seems like you guys are extremely confident on beating the guidance even with low numbers in first quarter. You're commenting on the second half of corn. Can you share just April and May, what you have so far? What makes you that confident? If you can share a little bit how volumes are going, how you guys are seeing at least second quarter, that would be awesome. Thank you.
Thank you for your question, Falcão. I will answer the first one, then I think Ricardo Lewin may comment on the second part of your question. With regards to the IRR of the renewal, this is not a typical project like the ones like we have in the toll roads. Actually, what we are doing here is ensuring the extension of this renewal between 2028 and 2058. To accomplish that or to ensure that, we'll have to pay a concession fee of BRL 2.9 billion. On top of that, we have committed to invest BRL 6 billion. It's worth mentioning that this BRL 6 billion, it's something that the company was already willing to invest, not to just increase the capacity in Paulista, but mainly because we do have a lot of cargoes in the North Network.
Once we aim to increase our volumes there, we need to provide the capacity. When you think about the IRR, I would argue that these investments, they don't matter at all because they are investments that we would be willing to do either way. Of course, they pay off based on the returns that we can have on the North Network, which is pretty high. It's very hard to come up with a number, but I would say that 30 years of this concession that is very strategic, in our view, works much more than BRL 2.89 billion, which is the exact amount that we paid for. It seems a pretty accretive project for the company, and we really believe that we'll be able to extract all the value in the long term from this renewal.
Regarding the second part, maybe Ricardo Lewin can clarify for you.
Thank you, Gustavo. Falcão, good to have you in the call also. Just complementing Gustavo's answer, remember that as said today in the live by Beto earlier, Malha Paulista is important to have a good operator. It's important to have investments and increase efficiency of Paulista because Paulista is the support for the group in the North Network and the central network. There is a mix in the IRR, but as Gustavo said, for sure, the value is much higher than BRL 2.9 billion that we are paying. You asked about our confidence in the guidance and about volumes in April and May. Unfortunately, in May, it's not disclosed to the market, the volumes. I will talk a bit about April. Okay. You know that we have already disclosed April volumes to the market, and it's possible to foresee some trends for the second quarter for soybean.
There was 70% increase in volumes year-over-year. 17 is all the volume of the company. Only soybean, we increased more than 28%. Unfortunately, we are suffering in other products, okay? We are talking about 28% of increase in soybean. That shows that we have expanded our capacity from one year to the other. Okay? We also expect to have a very good second half of the year with corn, and we expect to have a good availability, as we talked during the presentation. Okay? That being said, the short-term guidance is maintained. Okay? In case we foresee during the year any change or we don't get so confident, we will share with you and the entire market, okay? Thank you for the question, Falcao.
Okay. Thank you. Can you very quick follow-up on this last, because on the first point, everyone is going to make their own calculations, right? The best way to do to infer what the IRR is just to take the revenues, or the EBITDA from Paulista, whatever that is that you guys publish, get the BRL 3 billion, these are "the investments," and see where that lands. Is that a fair assumption to do?
Falcão, it's a fair assumption. I think you may have to take into account also how much more value can we extract from the North Network and also from central network by having the control of Paulista.
Okay
There is a synergy between those two concessions, with Paulista. Our understanding is that the value of this renewal, it's much beyond the financials of Paulista itself. It produced positive effects in central network and in North Network as well.
Okay. Thank you.
Our next question comes from Victor Mizusaki, Bradesco BBI.
Hi, good afternoon, and congratulations for the renewal of Malha Paulista. I have two questions here. The first one, when we take a look on your press release, you mentioned a little bit about the drop of freight price at Malha, something around 2%-7%. One of the reasons is because of the take-or-pay contract. I'd like to know if you could quantify how much of this drop is related to the take-or-pay. The second question: when we take a look on your cash flow, we can see an increase in accounts receivable. I'd like to understand if that may be because of the cyberattack and then in the coming quarters, you'd like to see accounts receivable going down a bit. Thank you.
Thank you for your question, Victor. I will take the first one, and maybe Ricardo, I think, can complement and try to answer the second one. With regards to yields, what happened during this first quarter was that, first of all, we had a late crop of soybean compared to last year. On top of that, we also had lower inventories of corn in January. If you remember last year, there was carryovers from 2018 to 2019, allowing good volumes on January. This was something that we were already accounting, we were expecting. With this lower demand in the market, the truck price was slightly lower than we were expecting. That brought an additional pressure to prices and also delayed a bit the negotiations of additional take-or-pays that right now we have in place for the second quarter.
Because of these seasonality issues and because of a lower truck prices, especially in January and February, we had lower yields in those months. When it comes to March, we saw an improvement in the freight prices in the market. At the same time, we had the operational constraints preventing us from having more volume. As you may know, March is a month where we have higher tariffs. We didn't take advantage as much on this because we had the operational constraints. Another important thing to think about the yield is the fuel price. We saw a lot of volatility in fuel prices, and there was a significant reduction throughout the quarter, which also helped the truck drivers to afford lower prices in the market. Hopefully, and luckily, this process is improving. We are seeing better prices right now in the second market.
It will be always very tough to forecast what could happen with prices because it will depend a lot on the market conditions. We are confident about our ability to price. In the long run, remember, we believe that there will be some structural things that will help to boost our competitiveness. One of them is the improvements that we are implementing in Rondonópolis. This will certainly improve the cycle of trucks in our terminals, and maybe this will allow them to lower prices, because today they somehow charge a premium to go to Rondonópolis, because the terminal operates very close to the cap of capacity, and therefore, it's very likely that they could have to wait to unload in the next day. This additional cycle time for trucks caused them to increase a bit their prices. Another thing is regarding the toll road fees in the BR-163.
We expect this BR to be auctioned, and just after this auction, there might be some additional costs with toll road fees. We definitely expect our competitiveness to improve. In that scenario, so far we can say that we advanced well in terms of take-or-pay negotiations. We cannot disclose the numbers, but it's safe to say that most part of our volumes in the second quarter were already negotiated with customers. We are looking forward to negotiate the volumes of the second half, which are also well advanced. We still have some room to sell more transportation, and this is evolving well. I don't think it's a concern. Luckily, we should have good news in the upcoming months. Regarding the second question. Yes, please.
Just to follow up here. Based on the scenario that you comment, think about March, makes sense to assume that yields in the second quarter will likely improve quarter-to-quarter?
I would say that, remember, we have, again, a lot of things to take into consideration. One of them is the take-or-pay. All the take-or-pay that we set during the first quarter, the pricing of those take-or-pay is pretty similar to the prices that we had in the first quarter. Of course, now with higher truck prices in the market, we have the ability to ask for more price in the market. It will be a blend between take-or-pay agreements negotiated before, during the first quarter, which might have lower prices, and additional volumes with higher pricing based on the market opportunity that right now is very clear. Remember, other things might happen. Right now, recently, we have a few price adjustments. If fuel prices goes up, this could be positive to the company because very likely truck prices will be also higher.
Okay, Lewin, I will take the second part of the question about accounts receivables. Victor, you are right; a huge part of these receivables comes from the cyber attack. We will most probably fix that during the year. Okay? Let me just complement one thing, Victor, because probably you are seeing in other companies. We have no problem of non-payment by our clients, okay? I don't know if your question had something related to that. Remember that a huge part, I would say 80% of our clients, are AAA clients, okay? That means very good risk. Our payment term is very short, something around maximum 10 days. Okay? On average 10 days. There was an increase because of the cyber attack. Your question, the answer is yes, the increase of accounts receivable, a huge part, was due to the cyberattack. Thank you.
Thank you.
Our next question comes from Rogério Araújo, UBS.
Hi, guys. Gustavo, Lewin, and Beto, congratulations on the renewal of Malha Paulista and the resilience during this process; I think is a relief to all of us. We've been traveling to Brasília since 2015 to speak about that, and that's definitely a relief. I suppose we won't stop going to Brasília because now we have Lucas do Rio Verde and perhaps Malha Sul renewal. Let's see. Congratulations. My question is regarding the terms of the concession renewal. I have five quick points here that I think is going to be very helpful. The first one is regarding the concession fee, BRL 2.9 billion. I assume this is NPV using the 11% regulatory WACC. Can you confirm that? If there is going to be something around BRL 327 million a year by 2058. Is that correct? That's the first one of five points.
Let me go one by one, and I think it's going to be clear that way. Thank you.
Rogério-
Rogério.
Correct. Sorry, Lewin. Let's say it's correct. It's around this number. Okay? There is a small adjustment because this BRL 2.9 billion is December 2017 value, but it's barely that, as you said. Something a bit more than BRL 300 and change.
Okay, sounds good. Second point is investment in urban areas, around BRL 1 billion. What is the period for which it should be invested, and is this also a NPV based using 11% WACC? That's the second point.
This is BRL 1.1 billion. That will have a long -term okay? The amount to be invested until 2023 is something around BRL 260 million. Okay? The rest is long-term. It's not 11.04. Marvin, could you confirm that?
Yeah. Rogério, most parts of the urban conflicts will be deployed after 2023. It was discounted in the cash flow by 11.04, but indeed, what matters here is the inflation. This is the net present value of those investments. How much are we going to pay for them? It depends on pretty much inflation. We don't have to deliver the money to the government. We must accomplish the investment that we commit with. You have to adjust pretty much those investments through inflation to see how much we're going to expand to accomplish the project.
Okay, not an 11% WACC. This is not an NPV based on 11% WACC. This is based on inflation only.
It is not. On the other hand, my point is, of course, if you reduce the urban conflicts, you would end up having a higher concession fee, which is also discounted by 11.04. In this case, what we must do is to deliver the project. Doesn't matter how much it's going to cost. We have to accomplish the projects.
Okay. Sounds good. Third point is on CapEx. Also, same question: is it an NPV using 11% WACC? In Valor newspaper today, there is a breakdown: BRL 1.7 billion by 2023, the rest by 2058. I would like to know also if this includes what you consider as maintenance CapEx currently, which is BRL 1.2 billion. Is it considered as well in that number? Is it an NPV using 11% WACC or not?
No, this is not an NPV. This is the total investment that we expect to do in the upcoming years, going beyond 2023. Once again, it's the same. We have the value of the project. How much we are going to end up spending depends on inflation and the efficiency of the project. Yes, you're right. We have all the CapEx there embedded. We have expansion CapEx and also sustaining CapEx. Of course, there is a concentration where the expansion CapEx, it's probably concentrated in the next eight or 10 years. Meanwhile, the sustaining CapEx is throughout the concession.
Okay. Also, the BRL 6 billion, I suppose you've done part of that already. Can you say how much you've done already?
Of course, we did a bit. We will not be disclosing by now how much we did because we have to receive the approval of the regulator. They will have to check whether or not the investments that we did fit in their standards. They have to accept that investment. Only after that, we can say that the investment is done.
Is this more like 10% or 50% of the BRL 6 billion? Just for us to have a broad idea in order to get the assumption.
Rogério, it's really hard to say by now. Of course, we don't want to disclose an exact number without having the endorsement of the regulator. That's the reason why we will not disclose further information on this.
Okay. No worries. In the indemnification fees for the abandoned rail stretches, I think this has to be defined in 18 months, right? You're going to have to pay a fee to the government, to ANTT, and I think also you're going to have invest part also in making those rail lines operational again. Any idea how much this will cost?
We have two different things here. First of all is regarding the unprofitable stretches, Varginha and Cajati. Those ones, we are agreeing to return the stretches back to the government because it's not profitable, and the cities, they pretty much took over the railway. It's not possible to have railways there by this time. It's impossible to license it. The only thing that we can do is to give it back to the government. It's already embedded in the current concession fee, a value, an indemnification to give it back to the government. This is already embedded in the current concession fee. On top of that, we took a commitment with the government to recover Panorama, which is a stretch that starts in Bauru region and goes all the way to Panorama and close to the south Mato Grosso border.
The other one is Colombia, which passed through Barretos city. Those areas, we know that we have some significant demand there, demand for grains, for sugar, sometimes even for fuel. We took the commitment to recover those stretches. This will be a long-term plan. It's not for 2023. It goes beyond that. We have a CapEx of roughly BRL 400 million to accomplish this, which is also embedded in the BRL 6.1 billion.
Okay. Perfect. Last point. The net BRL 1.3 billion of the unpaid concession fees and the credit that you had as labor lawsuits. This is going to be paid in two installments of BRL 50 million and six of about BRL 200 million. Right? What is the rate here to be adjusted? Is it inflation? Is it an NPV based?
Inflation
On the WACC? Okay, inflation.
It's all inflation. We have an agreement, and from now on.
Ricardo
Go ahead.
Actually, it's not inflation; it's Selic. Okay?
Selic. Okay.
Perfect. Okay, guys, I'm going to go back to the end of the line if no one answers my other questions. Thank you very much.
Okay. Thank you, Rogério.
Our next question comes from Regis Cardoso, Credit Suisse.
Hi, guys. Good afternoon. Thanks for taking the questions. Two from my side. Lewin, Beto, one of the topics that I've been curious about in the results was the conversion between EBITDA to operating cash flow, which seemed particularly weak. You mentioned the cyber attack on the receivables. That's about BRL 100 million in increase in receivables; not sure if entirely related to the cyberattack. If you could comment, why did working capital consume so much cash? Is this something reversible? That would be very much appreciated. My second question is more on a medium-term view, whether you have any concerns about the corn harvest in Brazil this year, especially because of the competition with the U.S., given the low oil prices affecting ethanol. Thanks.
Hi, Regis. This is Ricardo. Let me start with the second question, talking a bit about corn. Okay? It's important to give you an entire overview, and I will talk also about the U.S. Expectation for Mato Grosso; that's our most important market, is above the country average. In Mato Grosso, we have 80% of the corn already commercialized, while in Brazil, you have less than 60% of commercialized corn. Okay? If we compare with 2019, there'll be significantly less export of corn in the first half of the year, okay? Especially because impacted by January, because in 2019, we have a higher inventory that were sold in January and in June volumes, because this year, there is no early harvest of corn. Okay?
Most part of the reduction in exports for corn will happen in the first half of the year, okay, but we will show good volume for export in the second half of the year. Okay. It's important to understand all the picture. Talking about your question, that's U.S., okay. You're right, there will be higher availability of corn in the U.S., as you said, due to the lower consumption of corn ethanol. For you, it's a very good position, mainly because of the FX rate. The BRL is very depreciated, okay. This makes our corn, that's already competitive, even more competitive, even more than it is today, okay? Moreover, Mato Grosso, it's really well-positioned in this competitiveness, okay? As I said, there is almost 80% commercialized against 58% in the country.
Just to see the level of competitiveness of the Brazilian corn for 2021, okay? I'm not talking about the second half of this year; I'm talking about 2021. Mato Grosso has already commercialized 28% of the crop. Not that we expect 2020 to be a very strong year, but also 2021; we expect to have a good year. Talking a bit about your first question, the conversion. If you take the first quarter of 2019, we had the same question at that period, okay, at that time. As I said, the conversion EBITDA to cash flow was also weak at that point, so it's recurrent what happened in our not sector but in the company, and reinforced this year by the cyberattack.
Basically, this is something that happens from one year to the other, and that involves both recurrent things or even very things that are one -time. For example, you have expenses on Malha Paulista that we needed to pay. We have suppliers' payments. You have some judicial demands that happen that increase the conversion, okay? It's not something total, and like last year, during the year, this conversion will increase until the end of the year. As I said to Pedro in the previous call, every year we reduce the working capital investment during the year. Okay?
Very clear. Maybe just to follow up on the last one, just to see if I got it correctly. Do you think this working capital investment is something that will be reverted, as in you will generate cash from removing working capital? Or is it just that the conversion will be better for the next quarters, but the investments in working capital you've needed to make now are permanent?
Conversion will be much better. It's not that we've reverted; we have a positive working capital. No. It's a more improvement of conversion.
Very clear.
A much better improvement, okay?
Very clear. Thank you.
Okay. Thank you.
Our next question comes from Rogério Araújo, UBS.
Hi, guys. Thank you for the follow-up. One more from Malha Paulista here. The TCU, they required in their report two requirements here. One was a return review cycle from Malha Paulista, consisting of sharing the income in the cases above official assumptions. How did this go? Is there already a model, a tariff model? How will this work? Also, they required clear guidelines for independent rail operators to use Malha Paulista. Is this regulation out already? How this evolved since then? Thank you.
Thank you, Rogério. I will answer the first one. You're right; as Beto explained also in the presentation, we'll have a variable concession fee, which may be charged if we overcome the volumes forecasted in the ANTT model. Okay. Those volumes will be split in two types. The first one, its own cargo performed by Paulista, which arguably has a higher tariff. Because when we transport for Paulista, in average, we transport for 700 kilometers, and very likely we'll charge a tariff around BRL 70 per ton, BRL 80 per ton. If we do more volumes of cargo in Paulista, of course, they will have to rebuild the model to see how much more concession fee they would have to charge to rebalance the agreement in 11404. On the other hand, we have pass-through cargoes, which, for instance, include the volumes that we have in the North Network.
Those cargoes, we don't have to pay based on the tariff that we charge from the customers, but instead, from the pass-through fees that we charge in Paulista to the North Network, which is much lower than the average tariff that Paulista charges from its customers. For instance, today, this pass-through fee is around BRL 20, BRL 25 per ton. When we try to put those things together, I would say that, maybe and hopefully, we'll overcome the volumes of pass-through cargoes in Paulista. That means we'll have much more revenue in the North Network, which is something good. As a side effect, we might have to pay a bit more in concession fees. This adjustment in the concession fee will only happen based on the BRL 25, which is the pass-through fee.
We are not as much sensitive to pass-through cargoes to change that much the concession fee. On the other hand, we think that the volumes forecasted by the regulator for the own cargoes of Malha Paulista are already pretty high. It's very difficult to overcome those volumes. It is possible, but it's not likely. We don't expect to have any kind of major adjustments in terms of concession fee throughout the concession periods. Again, this should be perceived as something good, because if we have more volumes, definitely we have more revenues. Then the methodology to share these revenues, it's only based in the volumes, and it depends if we are talking about pass-through volumes or volumes that we are serving the cargoes from Paulista network. There is a very complicated-
Sorry to interrupt you.
Yeah.
Sorry to interrupt you. When you mean share, it's 50/50?
No.
50% of the extra revenue? No.
No. No, it's not that. It's much more complex than that. They pretty much bring this volume to the model and try to understand what will be the advantage in terms of fixed cost dilution, and then they realize how much more they have to charge to rebalance. There isn't a way to establish it. Instead, there is a methodology to rebuild the whole thing.
Again, it makes a lot of difference if we are overcoming the volumes in pass-through cargoes or in cargoes served by Paulista, which have higher tariffs. For Paulista, we don't see as likely. When we talk about grains coming from the North, okay, if we have to pay a bit more because we overcome the volumes, it's not a big deal. It won't be as much because it will be only calculated based on the tariffs, the pass-through tariffs that we pay in the North.
Okay. Would you like me to take the part of Gustavo?
Yeah.
Yeah, that's the independent railway operator. Rogério, at the end of the day, nothing changes compared to the current regulation, okay? In practice, the concept that's defined by the regulator is difficult to be put in place in large distances. Okay? The IRO, that's Independent Railway Operator, it's difficult for them to be able to have train drivers to replace the shifts of train drivers after eight hours, to stay overnight, like the overnight that we have already built, to have few stations. It's difficult for them to have the infrastructure that we as operator have. Okay? It's not only acquiring the right of way, but need to acquire all the other services, okay? Today, we have a structure in place, like the one we have with Klabin, for example, that the independent railway operation; they buy some assets, okay? We make the service for them.
This is exactly what we have in the South. If you go to the South operation, you'll see that nice Klabin trains. They did the investment, and we operate for them. In my opinion, actually, in Rumo's opinion, this is not a threat for Rumo. On the contrary, this is an opportunity that Rumo has in case we want to reduce the need for CapEx. We want to guarantee the volumes. At the end of the day, it's even positive for us.
Okay. Sounds good. Just confirming on the first on the return review cycle. You charge about BRL 170 per ton from Rondonópolis to Santos. Can we think that from this 170, everything that goes above the expected volume, the official volume, you would have to pass through about BRL 25 to the government? It's like providing a 15% of your charged fees to the government above a certain level, a certain threshold that you have as official estimates. Is that a good way to think about it?
No, Rogério. It is slightly different. You are right about the tariffs that we charge in the north. They are around BRL 170. Out of that, we have roughly BRL 25 per ton as a pass-through fee. What I mean is we only have to share a piece of these BRL 25 per ton if we overcome the volumes, not the BRL 25 per ton.
Okay. Perfect.
It's even less.
Okay, perfect. It's very clear now. Thanks so much again. Congratulations for this conclusion. Thank you.
Thank you. That does conclude the question and answer session for investors and analysts. I'd like to turn the floor over to Mr. Ricardo Lewin for his final considerations.
Well, once more, I would like to thank you all, the investors and outside for participating of the call. This is a very important moment, not only for Rumo but for the entire country. The milestone of the renewal of Paulista is the first time in the country that we have anticipated renewal, and we were able to set a model, I think, for all other renewals in the country. It's very important for us. We are commemorating this moment. It's very important, as I said. I'd like to reinforce that we are very positive regard to the rest of the year. We intend to have a very good second quarter, as well as a very good second half of the year.
I'd like to thank all of you for the support, having always supported the company during these last five years that we fought for the renewal. Please, all of you, stay safe. Talk to you in the next quarter. Thank you. Bye-bye.
That concludes Rumo's first quarter results conference call. Thank you very much, and have a nice day.