Brazil 2014: “Stadium Budgets That Border On Complete Fiction”

This column is part of a continuing special report by Professor Christopher Gaffney.

Previous entries in the series: I, II

Not going off without a hitch...

While the clock is counting down to the 2014 World Cup, Brazil hurries to get the necessary infrastructure in place to host the tournament.

A recent report by the Tribunal das Contas da Uinão (TCU, Brazil’s Federal Accounting Authority) has indicated that many of Brazil’s World Cup projects are being conducted with a gross lack of transparency, a lack of concrete planning, and exploding budgets.

The main targets of the TCU report are Rio’s Maracanã  and Salvador’s Novo Fonte Nova, stadium projects which have jumped into the billions.

The report was firm in declaring that the Maracanã stadium’s contract process was completely opaque and that the budget “borders on complete fiction”.

The TCU highlighted the fact that while the Minerão stadiumproject in Belo Horizonte presented 1309 architectural drawings and the Verdão project in Cuiabá presented 702, the Maracanã presented 37. In the budget for the Maracanã, “multiple items are included multiple times, there are innumerable opportunities for inflationary costs to be written in, and items included in the engineering budget have nothing to do with engineering.”

The Maracanã

I asked SUDERJ (Sports Superintendent for Rio de Janeiro State and the owner of the Maracanã stadium project) to respond to some questions regarding the  TCU report and the Maracanã project at large.

TSG: The TCU Report points to big problems in the delivery of the Maracanã project. What are the steps taken by SUDERJ to attend to the demands of the TCU?

SUDERJ: The edital and all of the documentation were analyzed and approved by the TCU of the State of Rio de Janeiro, which audits state works. It is important to clarify that the TCU report was not sent to the state government. The state secretary of public works (EMOP) is responsible for the project, audited by the control organs of the TCE (State Auditor).

TSG: Adding together the 2005-2007 reforms and the 2010-2012 reforms, the Maracanã will cost around R$1.5 billion (US$900 million), making it one of the most expensive stadiums in the world. What were the cheaper alternatives to have the stadium attend FIFA’s demands?

SUDERJ: The project was contracted for approximately R$705 million. This represents a savings of around 2% from the initial budget of R$720.

[Note: the May 2009 cost was R$ 500 million]

TSG: One of the surprises of the TCU report was that a project of R$709 million only presented 37 architectural drawings, in comparison the Minerão stadium project which presented 1307. What is the reason for such a low number?

SUDERJ: The basic project contains 189 designs, five descriptive reports, and twenty five architectural drawings, detailed in 800 pages, that involve all of the aspects of the project in execution in order to adequate the Maracanã to FIFAs exigencies for the 2014 World Cup.

TSG: In addition to the TCU, who audits the project? Does the public have a way to accompany and participate in the project?

SUDERJ: The edital and all of the documentation regarding the project were analyzed and approved in their entirety by the TCE. The whole process of licitation, including public hearings, launching of the project, etc, were open to the public.

[Note: There is no clear indication on either the TCE or SUDERJ website about where this information can be found currently.

There were at least two public hearings on the stadium, Sept 4 2009 and January 27, 2010.

These hearings were no more than presentations of a finished product. For instance the 2010 meeting was held just a few days before the CBF went to FIFA’s offices in Zurich to present the stadium project. There is little or no room for the general public to insert their comments and / or objections.]

TSG: What is the post-cup destiny of the Maracanã? Will it be privatized, turn into a public-private partnership, or remain in public hands?

SUDERJ: The Maracanã belongs to the State Government.

There are clear patterns with mega-event hosting throughout the world, and the dizzying trail  of paperwork and broken promises continues to grow as quickly as the events themselves. There is no reason to suspect that mega-events in Brazil will unfold any differently than they have in South Africa, China, India, Portugal, Greece, Salt Lake, Vancouver, London, Montreal, etc.

Rio: How much of the budget is not going to keep it beautiful, but into greedy pockets?

One of the reasons we can expect more of the same in Rio is that the majority of the people who were in charge of the 2007 Pan American Games are in directorship positions for the 2014 World Cup and 2016 Olympics. The Pan American games were ten times over budget and were the subject of multiple processes from the TCU. The TCU, condemned Ricardo Leyser (head of the Pan construction projects and now head of the Empresa Brasil 2016, responsible for Olympic construction), noted in their report that there is a risk of “added contractual costs, over-charging, un-necessary projects, and emergency contracting procedures that will follow in the pattern of the Pan 2007.” The report cites the case of the Nova Fonte Nova in Salvador, whose price went from R$ 400 million in 2009, to R$ 591 million in 2010, to an estimated R$ 1.6 billion in 2011. The Maracanã started at R$500 million in 2009 and has now climbed to around R$ 1.1 billion.

The TCU also confirms suspicions about Orlando Silva’s renewed position within the Ministry of Sport saying,  “there are indications of a possible lack of accompaniment on the part of the Minister, a characteristic that will make controlling the projects more difficult.” Initially, Silva was nominated as a potential head for the APO (Public Olympic Authority, which will employ Leyser’s BRASIL 2016) but after some negotiation he remained in his post as MoS.

What the TCU report does, in addition to bringing to light what everyone has known all along, is warn the cities that they may actually be held accountable for what they are or are not doing. The very same TCU minister that produced this most recent report warned that Fortaleza is in serious danger of having their World Cup Host status revoked. Natal has not yet completed their contracting process which the TUC has also cited for irregularities. The main issue cited is the forced removal of communities that are “in the way” of transportation lines designed to bring tourists from the beach to the stadium. As I have mentioned elsewhere, the Fortaleza project is more about massive real-estate projects than anything else, as a massive residential complex is in the works right next to the suburban stadium. FIFA only ever asked for 8-10 cities, so there is a real possibility that one or two cities are going to fall off the World Cup map.

The problems in all of the World Cup cities were cited in an OGlobo report (in Portuguese). It is important to remember that when discussing cites such as Natal, with little or no national-scale football tradition, that Brazil has been preparing to host the World Cup since 2007. Natal’s project involves demolishing the current, functional stadium (Machadão) and building the Arena das Dunas for R$ 400 milllion (US$ 250 million). The project has yet to go through the public contracting process, has hired consultants without open bidding, and is now under the watchful eye of the TCU.

So what is going to happen with the key infrastructure projects for the World Cup? In Rio de Janeiro, the TCU has asked that BNDES, the Brazilian National Development Bank, suspend 80% of the financing for the Maracanã until SEMOP (Municipal Works Secretary), SUDERJ (State Sports Secretary), and Rio 2014 (the consortium of Rio’s big boy construction firms) can find a way to make their jogo-do-bicho a little more palatable to government authorities. BNDES has opened R$ 400 million in financing for all of the World Cup cities, a massive stimulus for the funneling of public money to private interests. The TCU is not capable of beginning legal proceedings as it is an arm of the executive branch. In order to force the cities and states that are scheduled to host the World Cup, the Federal Prosecutor’s office will have to justify a lawsuit using the TCU’s data. However, this is a delicate political game that might only result in more cost over runs through the inevitable judicial delays that the lawsuit would cause. This is a massive problem. The World Cup projects are clearly happening in such a way as to augment their costs and hide the movement of money from public coffers to private hands, but in order to prevent that very same thing from happening the public authorities would run the risk of increasing those very costs, which might yield the very same result.

The contention of money flowing from public coffers to private hands is not a claim that is made lightly.

In one year the public spending for the World Cup has jumped from 17.27 billion to 23.25 billion, without making significant progress on many of the projects in infrastructure, which are the most costly. Tthis comes from two distinct tcu reports, one in 2010 and another in 2011.

Further, private financing accounts for 1.44% of total investment, a sign to this writer that the private sector does not see this as a good investment.

The lack of public transparency mechanisms in Brazil is endemic of the nation and a continuing problem. There is a law in waiting that will establish more transparency in public spending, but it has been stalled in the congress for some time.

Back to the stadiums….

Nearly all of the games of the Campeonato Carioca are being played at the Engenhão. Indeed, all of Rio’s teams are going to be playing their big matches in Engenho de Dentro until 2016. Once the Novo Maracanã  is finished, sometime towards the end of 2013, it will be used sporadically for clássicos in order to test new security systems and general functioning in the months leading up to the World Cup. After the World Cup, the stadium will undoubtedly suffer more investments in preparation for the 2015 Copa América and 2016 Olympics. Then, when Rio’s real-estate bubble bursts and the only people who can afford tickets to the Novo Maracanã are jumping off of their coberturas, who will go to the games? Not that the teams really want fans to go anyway as only 8% of their income results from ticket sales. (Last year, Flamengo offered tickets for R$10, filling the Engenhão and recording their highest receipts of the year, yet the club said that this was not a viable economic model because, “it’s complicated”) .

In other news, two of the major infrastructure works being planned for the World Cup have been paralyzed for lack of transparency in their contracting process. Rio Metrô has had their Linha 3 project stopped and São Paulo’s Garulhos (international) Airport has been halted. The latter is perhaps the most critical link in the entire World Cup construction process as São Paulo is the main point of entry to Brazil. Will Brazil be able to pull all of this together in time and if they do, what will be the cost, and who will pay? If it results in anything like what happened in South Africa, the outlook for Brazil is not encouraging.

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29 responses to this post.

  1. Posted by EFG on 2011/02/22 at 6:45 AM

    Numbers have never been my thing (I’m more of a sciences man), so can someone answer me this question: Am I saving money to go to Brazil in vain?

    Reply

    • Posted by Jake C on 2011/02/22 at 9:34 AM

      Probably. Check out the first post on this topic ($5,500 a person not including the exorbitant flight).

      Reply

  2. Posted by Joe C on 2011/02/22 at 8:59 AM

    Great column with lots of interesting facts. I still think they will find a way to get this done. But of course I wonder if USA2014 could happen.

    Reply

  3. Posted by Jake C on 2011/02/22 at 9:39 AM

    Glad you guys are covering this topic. For all Blatter’s harping on the English league, the spectators for the 2014 WC will bear a striking resemblance to those in the Premier league, at least socioeconomically. This really is an ethical issue for me (disclaimer: seminary student speaking), and it’s disgusting that only a handful of individuals will pocket the profits from this while communities are destroyed.

    Reply

  4. […] the Shin Guardian, which has an article discussing Brazil’s preparations for the […]

    Reply

  5. Great stuff. Brilliant research. So who is going to pocket the “overspend”
    Andrew Jennings

    Reply

  6. Interesting stuff here. I’m curious about where the construction money is going — are the same firms going to be involved in Brazil that did work in South Africa, for example? Does FIFA benefit financially from this process, either directly or indirectly? If so, it could provide motivation for the awarding of World Cups to countries that required substantial construction/infrastructure improvements rather than nations with existing, robust facilities.

    (Nice to see a comment from Andrew Jennings here, too — one of the few journalists to shed light on FIFA’s activities, despite the repercussions.)

    Reply

  7. First, Chris: Great piece. Ya’ll really continue to impress with this series. Let’s put the infrastructural issues at the forefront for a moment (as all the corruption has surely caused delays– just as the gentrification necessary to finish a few of the South Africa stadiums did), and ask the following: How much will be done by 2013 and the Confed Cup? It surely seems like even with the corruption things will be finished by 2014– but before then it truly seems doubtful. You only need a few cities for that tournament, but it is growing in prestige and serves as a dress rehearsal. Most the South African writers felt it did wonders to prepare them down there, for example– and they were able to put it on with very few problems.

    What do you think ?

    Reply

  8. And point of clarification: would you say the situation is worse than in South Africa for now– the parallels are clear– but this reads as if it is even more intensely problematic…

    Reply

  9. […] Read more here: Brazil Stadiums: “Budgets That Border On Complete Fiction” « The … […]

    Reply

  10. […] the infrastructure necessary to host the 2014 World Cup, please do so as soon as you are able. The third piece, posted today, explores the gross abuse and transparency issues surrounding stadium … and truly highlights the obstacles Brazil faces moving forward. What’s most scary is that they […]

    Reply

  11. […] Read more from the original source: Brazil Stadiums: “Budgets That Border On Complete Fiction” « The … […]

    Reply

  12. Posted by BW on 2011/02/22 at 6:47 PM

    in comparing to South Africa…will Brazil have more use of the stadiums and infrastructure after the WC tournament? It seems like one of the biggest issues with SA was that it was all a one time gig. Perhaps like Qatar…wait did I say that out loud?

    Reply

  13. […] Brazil 2014: “Stadium Budgets That Border On Complete Fiction … […]

    Reply

  14. Thanks for the comments everyone. I want to remind Joe C that there is NO CHANCE that the World Cup will not happen in Brazil in 2014. The question is not whether or not the stadiums will be ready, but why will they have the form that they do, who will pay, for how long, and at what opportunity cost to soceity? Brazil will have more use for their stadiums than South Africa, but the average attendance at first division matches is not actually that much higher than MLS. so, 50,000 seat state of the art stadiums that cost many millions to maintain every year simply do not make sense, especially in places like Cuiaba, Manaus, Natal, and Brasilia.

    There was a newspaper report yesterday that said that the organizing committee had basically given up on airport reforms for the cup and that they were now going to concentrate on temporary insallations. There are huge bureaucratic bottlenecks to be overcome in Brazil but this won’t prevent the tournaments from happening.

    I don’t think the Confed Cup is too much of a test for the World Cup. How many international tourists really come for that? IT’s more of a dress rehersal for four or five stadiums, security systems, communication networks, and for FIFA to get their drink on.

    For visitors, Brazil 2014 is going to be more expensive than Germany 2006. Start saving your money now. It will be a great party, the stadiums will be ready, getting between cities will be a nightmare, and things won’t exactly work out like anyone planned. The problem for now is to find ways to insert mechanisms of control and the voices and needs of civil society in a already opaque and closed circiut of private interests and public money.

    Reply

    • Posted by Rich Stallman on 2011/02/26 at 10:14 AM

      ..nd the voices and needs of civil society

      I love humour.

      Its like all politics, the voters-citizens are the last thing they care about.
      If youre Goldman Sachs or military, you have top priorities.
      Thats why social services are slashed by the Obamas and military expenditure isnt (do you know that the govt gives more money for military bands, 500 million, than for public TV and that like all military budgets it is NOT subject to cuts).

      The NEEDS of the people are never a priority… unless its election time, then they tell you what you want to hear.

      Reply

  15. Doctor Gaffney, well done.

    Reply

  16. Posted by Rich Stallman on 2011/02/26 at 10:09 AM

    Construction in Canada and the US are mob controlled, that is no secret.
    The same thing is true in Greece and Im told by my friend that its the same in italy.

    Throw in politicians who are always in positions and have the willingness for bribes and kickbacks and its a bad combination.

    If Brazilian construction and politics is the same as ours, then I have no fear that it will be overbudget.

    Reply

  17. Posted by Rafael Oliveira on 2011/03/08 at 8:00 PM

    It’s very interesting the preference of FIFA to take de WC to places with lack of transparency in the public finances. Everybody may be sure that the stadiums will be working with the minimal infrastructure needed, and, everybody may be sure that it will cost much more than the real costs.
    The problem here is the popularity of football. Politicians were elected promising the WC in their cities (not promising an acceptable conduct) for example. So, the Federal Government and the Governments of the Brazilian States, are exploring that popularity. Personally, I think that TCU is being used too. The judicial delay will be used to justify emergencial contracts that will higher the costs… It’s imoral… It’s ilegal… It’s a shame… But, the ilusion of WC is so strong here that if the governments ask the population to build with their own resources everything that is needed to the WC, the population would accept.
    The private sector won’t invest in the WC because, if they do that, they will pay all these raises – yes… if the pulic sector don’t “personally” work, it will find out a lot of “legal” exigences…
    To finish my comment, I’m from Brasilia, Brasilia don’t need a new Stadium… The “Bezerrão Stadium” was completely built a few years ago and, the only moments with good attendance was in 2008: the first match: Brazil 5 X 2 Portugal; and São Paulo 1 x 0 Goiás, when, São Paulo wins the Brazilian Championship… the other matches attracted only a few “witnesses”…

    Reply

  18. Welcome to Brazil, folks. This is how the things go on here when it involves the politicians.

    Reply

  19. Posted by jo on 2011/03/11 at 8:21 AM

    Lulla´s Brazil was a Fairytale. There´s no money for the OG and WC, but for former president Lulla´s sons and friends money isn´t problem…

    Reply

  20. Posted by Joe Smith on 2011/04/28 at 2:03 PM

    Of course Brazil will be prepared for the World Cup. I think you should use your time to discuss American Problems. Brazil is fine Thank you! That’s why your country is so broke now. You pay too much attention to other countries, You should invest ypur time not worrying about Brazil but about your corrupt government and your defict with China. America is broke and will be broke and consumed in debt that is owned by foreign countries.

    Reply

    • Posted by dth on 2011/04/28 at 2:38 PM

      This may be the first time I’ve ever seen the accusation that the American public cares too much about other countries. You do realize that most Americans can’t locate Iraq on a map, right?

      Reply

  21. Posted by Marcia Pizetti on 2011/04/28 at 2:07 PM

    Go Brazil! Your are right Joe… While Americans worry about other countries problems, there are few more reasons why America is going straight to Hell in a handbasket

    Reply

  22. Posted by John on 2011/04/28 at 2:20 PM

    http://www.cnbc.com/id/42683787/

    “Anand Hemnani, director of Madison Williams investment bank in Sao Paulo says the World Cup is potentially going to be a disaster.”

    “Marcos de Souza, director of Portal da Copa 2014, an independent website that covers all news related to the World Cup, says the event is likely to be catastrophic.

    “Now we have a very, very short time to work, and probably a lot of money will be spent and wasted in new arenas without planning, without good projects and maybe we’ll have a legacy, for the next 10 to 20 years, of problems and debts for the country,” he says.

    Reply

  23. Posted by Gabriel on 2011/05/01 at 11:02 AM

    Calm down everyone…
    Brazil,yeah,it’s quite late but nothing to lose the FIFA 2014 WORLD CUP.
    The problem here are the AIRPORTS.They are over capacity because of the new medium class that are expending more and using this kind of services.Highways,public transportation like bus,taxis,subways are ok.Airports need a big investments and we do have money but the burocracy as enviromental problems,and a lot of investigation to prevent corruption.BUUUT,some brazilian politians are doing this on purpose for gaining money from the black market as some bulding companies.Nothing that we dont see in Brazil.FIFA will not change the world cup for another country because BIG brazilians companies as SEARA,OI,ITAU and etc have already payed bilions for merchandising.All we have to say is to have some pacience.Sad but true.

    Reply

  24. […] FA (which, by the way, is definitely not still supercorrupt and forcing local governments to foot enormous bills for World Cup 2014 construction projects)) says he will reform FIFA if re-elected […]

    Reply

  25. […] Brazil 2014: “Stadium Budgets that Border On Complete Fiction […]

    Reply

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