Brazil's Olympics will be fine. As for the World Cup..

  • World
  • Wednesday, 29 Aug 2012

RIO DE JANEIRO (Reuters) - Brazil is attempting an unprecedented "triple jump" of construction projects -- preparing to host the 2014 World Cup football championship and the 2016 Olympics while also spending nearly $500 billion on highways and other infrastructure to make an economic leap forward.

The growing consensus here is that the first step could be a shaky one.

While the Summer Olympics will be almost entirely confined to Rio de Janeiro, and therefore easier to manage, the World Cup will take place in 12 cities -- most of which face logistical and financial challenges to finishing stadiums and other construction on time.

Perhaps no other company has a better close-up view of the issues than Odebrecht, the massive, privately-held Brazilian conglomerate that is building four World Cup stadiums, as well as the Olympic Park, the athletes' village, and several other projects for Rio in 2016.

And for them, the contrast is clear.

"The projects at the heart of the Olympics are in motion," Benedicto Barbosa da Silva Junior, the CEO for Odebrecht's Brazil infrastructure unit, said in a rare interview this week. "I have no doubt that everything will be ready on time ... If you drive around the Olympic areas today, you'll see progress."

"Today, I'm more worried about the World Cup than I am about the Olympics," he said.

Anxiety over the readiness of core facilities also plagued the run-up to the 2008 Olympics in Beijing, the 2010 football World Cup in South Africa and the just-completed Olympics in London -- and most everything at those events turned out just fine.

Yet the back-to-back nature of the events in Brazil -- which unlike China is a slow-moving democracy, and has struggled to execute big infrastructure projects over the past 30 years -- seems to have senior officials at the International Olympic Committee (IOC) and world football body FIFA particularly worried.

On a visit to Rio in June, IOC members said "the timelines for delivery are already very tight and the amount of work to be completed is considerable."

Senior FIFA official Jerome Valcke was even more explicit in March, saying Brazil needed a "kick up the backside" to be ready for 2014 -- a comment that unleashed a diplomatic firestorm, followed by a FIFA apology.

Junior described the IOC's concerns as a "warning," but said many of the delays in Olympics-related construction are in fact a product of good, responsible planning.

He said the city, state and federal governments have rightly insisted on detailed blueprints and cost estimates as a precondition for beginning construction -- hoping to avoid the experience of the 2007 Panamerican Games in Rio, which went as much as six times over-budget, according to some estimates.

"This is a new experience," Junior said. "Previously in Brazil, (companies) would have started the project and said, 'OK, later we'll see what it costs.' Today, the government wants to have some security that the numbers will come in within a margin of error that's acceptable for everybody, so we don't repeat the Panamerican experience."

"It shows maturity," he said, estimating that fewer than 10 percent of Olympic-related projects are still waiting for the government to award contracts for construction.


It is difficult to overstate how omnipresent Odebrecht seems to be in Brazil -- and in Rio, in particular. Construction signs bearing the company's name in big red capital letters can be found all over the beachside city, from the revitalized historic port district to gleaming new office buildings and condos.

With 160,000 employees in 27 countries, the conglomerate -- which also includes petrochemical, defence and biofuels holdings -- had $38 billion in revenues last year. That was nearly quadruple its revenues in 2005, and roughly equivalent to the annual economic output of Costa Rica.

The family that runs the company has more than a century of experience with public works projects, dating back to when Emil Odebrecht emigrated from Germany in the 1850s and began building roads in southern Brazil. In more recent years, the conglomerate has benefited from a good relationship with the ruling Workers' Party, which has overtly sought to create "national champions" among Brazilian companies.

Still, Odebrecht is not immune to Brazil's problems.

High costs for materials and other inputs, bureaucratic delays, limited financing options and shortages of skilled labour have plagued Brazil's building sector and hit several companies' earnings.

Junior ticked off a list of issues affecting Odebrecht's World Cup-related projects. The company is still trying to close a deal for financing for the new stadium in Sao Paulo -- even though it's nearly halfway finished. In the meantime, he said Odebrecht is paying for construction by "putting our own money on the table," along with Corinthians -- the popular football club that will play there once the Cup is over.

The renovation of Rio's famed Maracanأ£ stadium, which hosted the final of the 1950 World Cup, has also been complicated. "We should have demolished it and then started from zero, just like (the British) did with Wembley," Junior said.

Stadiums in the northeastern cities of Salvador and Recife face other challenges -- in Recife, the government is trying to build an entirely new section of the city around the facility, demanding huge investments in basic infrastructure.

And finally: Three of Odebrecht's stadiums (all except Sao Paulo) are set to host the Confederations Cup, a kind of warm-up for the World Cup, in 2013 -- a designation only made official last year, forcing an abrupt change in plans.

"They'll all be ready on time," Junior said. "But the timeline is accelerated."

His comments come at a time when Brazilian officials are starting to present the Cup as clearly the more troubled of the two sporting events. Eduardo Paes, Rio's mayor, said this week that his city's decrepit, overcrowded international airport might not be renovated in time for the Cup -- despite President Dilma Rousseff's plan, likely to be unveiled in coming weeks, to get private companies more involved in construction there.

"It's a shame this wasn't done earlier," Paes told local newspaper Brasil Economico. "For the Olympics, yeah, I think we'll have time."

The nightmare scenario would be a breakdown of road, airport, security or telephone networks during the event that could puncture Brazil's carefully cultivated image as a rising economic power. Rousseff has announced several programs in recent months to try to avert just such a collapse.

In private, though, some officials fear it's too little too late -- grousing that Brazil's decision to have 12 host cities was too ambitious, considering the strains on infrastructure already generated by a recent economic boom. Local media reported this month that Rousseff herself was enraged when she made a cell phone call to her predecessor, Luiz Inacio Lula da Silva -- and the call dropped three times.

"Imagine what the Cup will be like," one official told Reuters. "The odds of a problem are significant."


Junior said one way to speed things up would be to have more diverse financing options. Currently, the BNDES state development bank provides the lion's share of financing for infrastructure investments in Brazil, offering subsidized interest rates that private banks are reluctant to match because of concerns over the low rate of return on these projects.

"I don't see the private sector occupying that space until Brazil creates a mechanism" such as, for example, a special fund that allows banks to pool resources to finance infrastructure, Junior said. Brazil's finance ministry is reportedly evaluating such a scheme at the moment.

Junior described as "very positive" Rousseff's recent decision to get the private sector more involved in construction of highways and railroads. However, he said the low projected average rate of return on the projects -- which the government puts at around 6 percent -- "could be a limiting factor."

"It's tough to do a generic evaluation," he said. "It will depend on each individual project."

Despite the challenges, Junior -- an engineer who joined Odebrecht 28 years ago -- is confident that the overall glow of the sporting events will be positive, especially for Rio, which lived through several decades of decline until recently.

"The optimism and growth is the mirror image of when I first came here," he concluded. "It's nothing less than the recovery of Rio's self-esteem."

(Editing by Todd Benson, Kieran Murray and Paul Simao)

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