SPOTLIGHT: Odebrecht hits hurdles in October

Monday, October 17, 2016

Latin America's largest engineering group Odebrecht has been the focus of a number of negative headlines since the beginning of this month as it tries to recover from corruption investigations and a lingering recession

During the first week of October, São Paulo state prosecutors announced the opening of three lines of investigation into the construction group's "kickback department," which was uncovered during the federal police's Lava Jato graft probe.

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The department was used to make illicit payments in works throughout the country, including contracts signed with the São Paulo city hall, the state's urban transport company EMTU and state metro company CMSP. Among the contracts being scrutinized are those related to works on metro lines No. 2 and No. 4.

Moreover, last week, new corruption charges were filed against former president Luiz Inácio Lula da Silva and Marcelo Odebrecht, the jailed former CEO of the construction giant.

According to federal prosecutors, the former president used his power to secure loans from development bank BNDES to finance Odebrecht projects in Angola between 2008 - when he was president - and 2015. In return, the construction company allegedly paid Lula and others 30mn reais (US$9.4mn) in bribes.

Meanwhile, national development bank BNDES has put a temporary halt to export-related financing worth US$7bn for several firms implicated in the Lava Jato investigation. Besides Odebrecht, other companies under the spotlight are OAS, Andrade Gutierrez, Queiroz Galvão and Camargo Corrêa.


Two Odebrecht-led consortiums in the city of Rio de Janeiro are looking to pull out of their concession contracts. One is for operating the  Maracanã football stadium and the other is for operating Galeão international airport.

According to the group, changes to the original agreement have negatively affected returns at the stadium, and problems with financing and other woes have undermined business at the airport. This year the group has failed to make concession payments on both contracts.

Maracanã stadium (CREDIT: Brazil federal government).

While Odebrecht has teamed up with US-based sports and entertainment company AEG, which has a 5% stake in the stadium concession, its partner at the airport is Singapore airport operator Changi which holds a 40% share of the contract.

Instead of pulling out of these contracts, Odebrecht and other concessionaires will try as hard as possible to hold on to their contracts, according to logistics expert Paulo Resende.

"Although Brazil's concession-holders have been negatively impacted by the recession and other issues, an economic recovery has started and investors know that user demand will increase shortly," Resende told BNamericas.

Currently, maintaining concessions during this slow period or partnering with current contract-holders looks likely to pay off in the mid to long term, says Resende who is a professor and head of infrastructure and logistics at local business school, Fundação Dom Cabral.