The Carajas Iron Ore Project: A cost-benefit assessment

The main aim of this thesis is to provide an extended cost-benefit analysis of the Carajas Iron Ore Project, an integrated mine-railway-port project, located in the eastern part of the Amazon forest, Brazil. This project is a main component of the recent Greater Carajas Programme (Programa Grande Carajas, 1980), which has been conceived to settle an industrialization process in that area led by the processing of the abundant mineral resources found generally in Amazonia. On the other hand, the project's area of influence is characterized by being a dynamic frontier where the rates of migration and settlement have considerably exceeded those in the rest of the country, due to the afflux of people from other parts of Brazil in the search for better life prospects. At a first stage, a conventional cost-benefit analysis of the project is undertaken. It is found that, on purely economic and financial terms, the projects profitability has been undermined due to the declining world iron ore prices. While the capital cost required to finance the project is on the order of 6%, its present "ex-post" economic rate of return is on the order of 2%. Following it, the project's interactions with the physical and the social environment are highlighted. Although mitigating measures to the damaging effects of related air and water pollution were taken in the activities of iron ore mining and transport, the Carajas project has, directly and indirectly, resulted in adverse social and environmental consequences in the broader region of the Greater Carajas Area. Among these, the project has directly contributed to the following devastating ecological and social processes taking place in the region: a) the deforestation induced by the pig-iron smelting industry being settled along the railway corridor and using as input the project s output; b) the involuntary resettlement of local populations, especially in the area surrounding the port; c) the increase in the rates of migration to the region through not only the increase in local employment opportunities but also the opening of a up to then inacessible area through the railway component of the project. At the "ex-ante" appraisal stage, none of the above factors were given serious consideration. As long as the project has resulted in many negative externalities, an attempt is made to reassess the project taking into account its social and environmental effects. In particular, a methodology is developed to estimate the economic costs of the Amazon deforestation in order to partially internalize some of those costs to the joint project Carajas - Pig Iron Smelting Industry. Proceeding so, this joint project shows a negative social rate of return