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