World Economy

Megaprojects Can Destroy Brazil’s Reputation

Megaprojects Can Destroy Brazil’s ReputationMegaprojects Can Destroy Brazil’s Reputation

Megaprojects are high-risk bets. They can shore up the government that brought them to fruition, but they can also ruin its image and undermine its power – and in the case of Brazil the balance is leaning dangerously towards the latter.

As the scandal over kickbacks in the state oil company Petrobras, which broke out in 2014, grows, it is hurting the image of former president Luiz In?cio Lula da Silva (2003-2011) and his successor, President Dilma Rousseff, both of whom belong to the left-wing Workers’ Party (PT), Mario Osava opined for IPS.

In its 2014 balance sheet, the company wrote off 6.2 billion reais ($2.1 billion) due to alleged graft and another 44.6 billion reais for overvalued assets, including refineries.

But the real magnitude of the losses will never be known. The numbers involved in the corruption scandal are based on testimony from those accused in the operation codenamed “Lava-jato” (Car Wash) and in investigations by the public prosecutor’s office and the federal police, which indicated that the bribes represented an estimated three percent of Petrobras’ contracts with 27 companies between 2004 and 2012.

 Poor Decision-Making

The biggest losses can be blamed on poor decision-making, bad planning and mismanagement. But the corruption had stronger repercussions among the population and the consequences are still incalculable.

Two-thirds of the devaluation of the assets was concentrated in Petrobras’ two biggest projects, the Abreu e Lima Refinery in the northeast, which is almost finished, and the Rio de Janeiro Petrochemical Complex (COMPERJ), both of which began to be built when Lula was president.

Petrobras informed investors that COMPERJ, a 21.6-billion-dollar megaproject, abandoned the petrochemical portion of its activities in 2014 as they were considered unprofitable, after three years of waffling, and was downsized to a refinery to process 165,000 barrels a day of oil.

 Bigger Losses

It will be difficult for Petrobras, now under-capitalized, to invest millions of dollars more to finish the refinery, where the company estimates that the work is 82 percent complete. But failing to finish the project would bring much bigger losses.

Thousands of workers laid off, economic and social depression in Itaborai, where the complex is located, 60 km from the city of Rio de Janeiro, purchased equipment that is no longer needed, which costs millions of dollars a year to store, and suppliers that have gone broke are some of the effects of the modification and delays in the project.

It also endangers the naval industry, which expanded to address demand from the oil company. Shipyards may dismiss as many as 40,000 people if the crisis drags on, according to industry statistics.

The Abreu e Lima Refinery, which can process 230,000 barrels a day, has had better luck because the first stage is already complete and it began to operate in late 2014. But the cost was eight times the original estimate.

 Projects Lagging Behind

Plans to build two other big refineries, in the Northeast states of Ceara and Maranhao, were ruled out by Petrobras as non-cost-effective. But that was after nearly $900,000 had already been invested in purchasing and preparing the terrain.

But many other large energy and logistical infrastructure projects have suffered major delays. These megaprojects mushroomed around the country, impelled by the high economic growth during Lula’s eight years in office and incentives from the government’s Growth Acceleration Program.

The majority of the projects are several years behind schedule. Private projects, like the Transnordestina and Oeste-Leste railways in the northeast have dragged on as well.