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Stalled Brazilian Odebrecht projects decay in Venezuela

Stock MarketsMay 31, 2017 02:01PM ET
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© Reuters. Commuters drive past a construction site by Odebrecht of the Caracas - Guatire metro rail project in Guatire

By Diego Oré

CAICARA DEL ORINOCO, Venezuela (Reuters) - In the hot and humid town of Caicara, in the heart of Venezuela, some 20 piers jutting out of the vast Orinoco river gather mildew and rust.

Brazilian construction company Odebrecht was meant to build an 11-km (seven-mile) bridge in the town - the longest in the South American country - in 2011 but the project ground to a halt a year ago.

Now, a handful of workers do basic maintenance work.

The bridge, meant to link the towns of Caicara and Cabruta, is just one of several abandoned Odebrecht projects deteriorating under the Caribbean sun and dogged by corruption allegations.

Odebrecht has left at least 23 multi-million dollar projects unfinished or stalled in Venezuela, according to company and government documents, interviews with over two dozens workers, and site visits.

Late last year, Latin America's largest engineering company admitted to paying hundreds of millions of dollars of bribes in 12 mostly Latin American countries in exchange for contracts. The unfolding scandal has already led to the downfall of high-ranking officials across the region.

On Thursday, Brazil's attorney general will share information from plea bargain deals by dozens of Odebrecht executives with relevant countries.

According to a leniency agreement with U.S. authorities, which was made public in December, Odebrecht and its representatives paid some $98 million in bribes to officials and intermediaries in Venezuela between 2006 and 2015 - the highest amount outside Brazil.

CASH-STRAPPED

Yet many of the company's projects in Venezuela ground to a halt even before the Odebrecht scandal exploded, likely due to lack of payment from the cash-strapped socialist government, sources said.

"All the state's projects are paralyzed, not only Odebrecht's," said Wilmer Nolasco, a lawyer and president of Venezuela's largest construction union, speaking in an office in Caracas adorned with a statue of late leftist leader Hugo Chavez.

Odebrecht's stalled projects include the Caicara project, one other huge bridge, subway lines, a train to link dormitory towns with Caracas, hillside cable cars, an agricultural project, an overhaul of the country's main airport, and a hydroelectric dam.

Nolasco, whose powerful SUTIC union works on several of Odebrecht's projects, says that in some cases the Salvador, Brazil-based company stopped receiving payments two years ago and subsequently pulled the plug on building.

"The state hasn't paid Odebrecht," said Nolasco, citing meetings in which Odebrecht asked the government to pay.

Odebrecht representatives in Venezuela and Brazil did not respond to requests for comment, neither did Venezuela's public works and communications ministries.

Odebrecht has not formally left Venezuela, nor has the government of Nicolas Maduro canceled its contracts.

But Odebrecht's projects are under the protection of the National Guard and other government personnel, according to a Reuters witness, and company logos have been erased from the gates of their camps. Maduro in February vowed his administration would finish the projects, though none of them have been reactivated.

As a consequence, some 200,000 jobs have been lost, according to union estimates. Some of the works will also have to be redone partially because of flooding or because the cement has oxidized, project engineers told Reuters.

"This is basically lost," said one worker, pointing to a pile of materials for the construction of line 2 of the Los Teques subway near Caracas, already six years behind schedule. Some 20 workers scour the tunnels to drain water that threatens to flood them.

RISKY FRIENDSHIP

Odebrecht arrived in Venezuela in 1992 to build a mall in the oil hub of Maracaibo near the Colombian border.

It grew steadily but it was not until 2003, with the election of Luiz Inacio Lula da Silva as president of Brazil, that it began a string of mega-projects in Venezuela.

After 2003, Odebrecht won 32 projects worth some $40 billion in Venezuela, according to official numbers. Brazilian rivals Queiroz Galvao, Camargo Correa and Andrade Gutierrez received a total of eight.

Even when Ecuador's former leftist president Rafael Correa kicked out Odebrecht in 2008, accusing it of a scam after a hydroelectric dam it built had severe problems, Chavez publicly defended the company.

"Odebrecht is a friendly company and in Venezuela it's behaved itself extraordinarily well," Chavez said at the time.

While Odebrecht largely completed its works on time until 2007, it then began to delay completion dates, according to government and company records and interviews with engineers that worked on the projects and with Odebrecht personnel.

Anti-corruption campaigners accuse Odebrecht and complicit state officials of prioritizing personal gain.

"Seeing the quantity of unfinished works and the privileges this company was given, we suppose it was better to receive bribes than to see the works through," said Mercedes de Freitas, local head of anti-corruption campaign group Transparency International.

The majority of projects also ended up costing several times their initial price, according to documents on the projects seen by Reuters and speeches by officials.

One part of the Caracas hillside gondola system cost $262 million, five times that of a similar project in the Colombian city of Medellin, though the Venezuelan line is shorter and flatter.

The construction of a bridge over Lake Maracaibo in the west of the country is only 17 percent completed but has cost three times the original budget, according to the documents and speeches.

OPPOSITION INVESTIGATES

Odebrecht and its petrochemical unit Braskem in late December agreed to pay at least $3.5 billion, the largest penalty ever in a foreign bribery case, after pleading guilty in a U.S. federal court in Brooklyn.

In mid-February, Venezuela's state prosecutor's office raided the headquarters of Odebrecht in Caracas. It has not given details of what it found.

The opposition-led National Assembly in February began an investigation into possible embezzlement of some $16 billion in negotiations between the Venezuelan government and Odebrecht, according to preliminary inquiries.

The report says six Odebrecht projects were subject to overpricing, commissions, bribes, and poor planning, and also ran over budget. That was just the tip of the iceberg, the head of the congressional comptroller's commission, Juan Guaido, told Reuters.

"Venezuelans paid seven times more to contract Odebrecht," said Guaido, basing his estimate on preliminary investigations by his team.

Guaido said the majority of Odebrecht's 32 projects were directly assigned, via binational agreements, instead of public tenders as in other Latin American countries.

Stalled Brazilian Odebrecht projects decay in Venezuela
 

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