Opinion, by Michael Royster

RIO DE JANEIRO, BRAZIL – One of the hallmarks of Brazil’s economic growth in the past dozen years under Lula and Dilma has been the creation of infrastructure. Vast public works require expertise in the construction of roads, dams, canals, pipelines, airports and seaports, refineries and more. In other words, there is no place for small fry in these projects.

Michael Royster, aka The Curmudgeon.
Michael Royster, aka The Curmudgeon.

There are fewer than a dozen Brazilian construction companies capable of executing public works. They are all privately owned, and are all among the largest (official) contributors to political campaigns. Importantly, all of them easily obtain subsidized financing for these projects from BNDES, the highly politicized government development bank.

Observers of these projects note it’s always the same few companies that wind up getting the plum contracts. Some observers believe these companies have organized a a series of cartels, dedicated to government bids and contracts, so as to exclude potential competitors, at the taxpayers’ expense. These observers also note that no large public works projects are ever completed within budget. One egregious example is the Abreu e Lima refinery, with cost overruns in the billions of dollars.

The Curmudgeon believes, however, that Petrobras is merely the tip of the iceberg. Very soon Eletrobras and the entire power industry in Brazil, still very much under the control of the federal government, will come in for scrutiny. Why? Because all of its huge projects always contract the same construction companies.

What does this mean? It could mean shutting down a very large percentage of the Brazilian economy. Under Brazilian law, companies shown to have engaged in illegal activity are placed on a blacklist. Not only are they prohibited from participating in future bids, but any projects they are working on must be stopped until an investigation is carried out.

This, of course, would be a political disaster for President Dilma. Public works projects have always generated high employment: FDR relied on the Public Works Administration (PWA) to build dams, roads, bridges, power lines, even houses. Dilma’s beloved PAC is merely a “tropicalized” version of FDR’s PWA; he and she ran (successfully) for re-election on the increased numbers of jobs “their” projects had generated.

If, through the investigations, it is shown that contracts such as those to divert the São Francisco River, build hydroelectric plants, or “rescue” the Trans-Amazon highway from the jungle, were obtained by skulduggery, graft and corruption, those contracts (and many more) would be halted. PAC could be stopped in its tracks.

The danger has not gone unnoticed in prominent circles. A media darling trial lawyer has said if his clients go to jail, their companies will have to shut down, and so will Brazil. Vice President Temer (anyone remember him?) has just been trotted out to deny this possibility.

President Dilma has been quoted as saying these investigations will go on, “hurt whomever they may”, and that they will change Brazil completely. She should be careful what she wishes for, because there’s a new code name for the latest phase of investigations: “Último Juízo”, best translated as “Judgment Day” or … the Apocalypse.

Michael Royster, aka THE CURMUDGEON, fetched up on Carioca shores some 37 years ago and still loves them; his favorite spectator sport is politics, viewed from a WASP-like perspective.

7 COMMENTS

  1. Mike – I’ve no doubt that you’re correct. But somehow the public still aren’t engaged: only about 300 turned up for the anti-corruption demonstration on Saturday, compared to over 300 times that number for the Gay Pride parade in the same place on the following day!

  2. In this article you mention the fact that there are very few companies in Brazil with the expertise to carry out these types of contracts. This type of work requires specialization at all levels, specialization that is not common. Could the fact that these companies are the ones seen winning the contracts and not graft or corruption?

    I mean, honestly, would you want a construction company that specializes in commercial/retail space construction to be working on building a dam? Or a road? I sure wouldn’t.

    Do cost overruns need to be addressed? Certainly. But cost overruns aren’t a sign of corruption, they’re more a sign of poor planning at multiple levels. If the client approaches the contractor with a major change, that’s going to cost money that wasn’t written into the contract.

    I’ve had that happen more times than I can count: “Hey Mike, can you add lights and outlets over here please? We didn’t notice that we’d need them during the design phase, but now that the space is built, we realize we’re going to need them.” I’ve had clients decide during the build that they wanted certain items placed differently than what the print specifies-that costs money.

    I worked for an electrical company that was contracted on most major building projects throughout SoCal. It wasn’t because we underbid on everything; it wasn’t because the company paid people off to get the contracts. It was because we were the best at what we did.

  3. Mike,

    Sadly you’re living in a dream world. Brazil is all about fat cat Brazilian corporations slicing up public works contracts and paying bribes to politicians and/or senior Government officials in order to secure said contracts. The reasons the same companies names always appear is because there is instutionalised stealing taking place here.

    Chronic cost overruns are the name of game in Brazil. Just take the construction of the FIFA World Cup Stadia in Manaus and Brasilia as cases in point. I quote from a recent investigative article as follows:

    “In a 140-page report on the stadium (in Brasilia) the auditors found $275 million in alleged price-gouging — and they have only examined three-fourths of the project. They forecast that fully one-third of the stadium’s cost may be attributable to overpricing, the largest single chunk of $500 million in suspect spending auditors have flagged in World Cup construction projects so far.

    ‘There’s collusion of the Brazilian governmental elite with the business elite, and the game is rigged in their favor,’ said Christopher Gaffney, a professor at Rio’s Federal University whose research focuses on the country’s preparations for the World Cup and 2016 Olympics.’This was an opportunity to make a lot of money and that’s what’s happened.’

    Andrade Gutierrez, which was awarded stakes in contracts totalling nearly one-fourth of the Cup’s total price tag, contributed $73,180 in 2008 municipal elections. Four years later, after it was known which cities were hosting Cup matches and thus which political parties controlled the local governments that awarded and are overseeing Cup projects, the company’s political contributions totaled $37.1 million.

    Michael Royster is not just a cynic for the sake of being one. He is a realistic cynic who can sniff out a scam and odours of sleaze without even opening his nostrils and for that I salute him!

  4. Let me guess, next your going to try and tell me that Dilma and Lula and the rest are doing things to ensure that nobody else with the relevant expertise is able to obtain licenses to operate.

  5. Ahhh, another glaring example of the “Costo Brazil.” Dilma successfully marginalized criticism related to Petrobras/corruption before the election took place – and now? Any chance of a vote of no confidence or impeachment proceeding being initiated? A real shame for Brazil.

  6. Mike,
    You must either be PT or completely naive. I’m sorry to break it to you but Brazil is corrupt, plain and simple. This is the only the tip of the iceberg. just wait until the pension funds get investigated…5% toll will be exposed….

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