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Odebrecht to replace PYSA in failed road projects

Martín's new contractor was key player in Brazilian political scandal

by Eric Jackson

Although all the official notices have yet to go out, The Panama News and several of the daily newspapers have learned that the public concessions to build, own and operate the Corredor Norte and Colon - Panama Autopista is being transferred in a no-bid process from the insolvent PYCSA to Odebrecht Panama, a subsidiary of Constructora Norberto Odebrecht SA, a Brazilian-based multinational conglomerate whose core business is large-scale construction. Many of the details, including the terms by which the new company will assume the concessions, the fate of PYCSA's creditors and which Panamanians hold a stake the Odebrecht subsidiary here, are being carefully guarded by the Torrijos administration.

The largest construction company in South America, Odebrecht has moved onto other continents and into a number of public controversies. Most notable of all, however, was the key role it played in a massive public contract bid-rigging operation during the administration of impeached Brazilian President Fernando Collor de Melo.

Odebrecht traces its roots to a small civil engineering company founded in the 19th century by a German immigrant to Northeast Brazil's Bahia state. In 1944, after his father's company had become moribund due to materials shortages during World War II, Norberto Odebrecht reorganized and incorporated the business and exploited political ties to make a living on state highway and power plant contracts. Looking south from its Recife base, it got the contracts to build Rio de Janeiro's airport and state university campus, and became a national player in the 1970s by buying out one of the contractors in the Itaipu hydroelectric dam mega-project on the Parana River near the Paraguayan border. In this period it also built subways, bridges, railroads, refineries and nuclear plants for Brazilian government agencies.

So what was the secret of Odebrecht's success? A big part of it turned out to be bribery. In the series of scandals that led to the ouster of Brazilian President Fernando Collor de Mello, it was discovered that more than $55 million in payoffs had been funneled to politicians by a nine-company bid-rigging cartel managed by Odebrecht. Police seized records from an Odebrecht executive detailing the elaborate operation, which included "designated losers" who would get a cut of the action for playing a game that inflated the costs of public works throughout Brazil. One legislator alleged that Odebrecht ran a "parallel power structure," and several of his colleagues were forced out of public life in disgrace for their ties with it.

Odebrecht survived the scandal, creating a charitable foundation to polish its public image and diversifying abroad now that its old ways of dominating Brazilian government contracting were, for the time being, no longer useful. (However, the company remains a big player in its home country and is in fact the biggest contributor to Lula da Silva's presidential re-election campaign.)

With the civil war between the MPLA government and the UNITA rebels still raging, Odebrecht joined a consortium to get a diamond mining concession in Angola. As the war ended government troops moved in to clear away thousands of artisanal diamond diggers and local residents from the fields in former rebel-held areas where the consoritium had its concessions.

In the US state of Florida, Odebrecht went into highway construction and made a $70,000 contribution to the Foundation for Florida's Future, which was founded by Jeb Bush in the wake of his unsuccessful 1994 challenge to then-Governor Lawton Chiles. The foundation published a book by Bush, established a charter school and more or less continued the campaign that won the governor's office for the presidential son and brother in 1998.

In Peru, Odebrecht's public contracts got it into a series of run-ins with the law: allegedly downsizing the capacity of an irrigation project from agreed specifications to cut corners on materials, receiving money for work not done, and making false declarations on government disclosure forms to hide pending court cases in order to obtain a highway contract from the former Alejandro Toledo administration. This last accusation is the subject of ongoing criminal proceedings.

Odebrecht's entry into the Panamanian market was with a $54.2 million contract with the Ministry of Agricultural Development to build an irrigation system in David.

PYCSA, the company that Odebrecht will replace in the Corredor Norte and Colon - Panama Autopista concessions, leaves behind a trail of unrealized optimistic toll revenue projections, unmet construction deadlines, unpaid debts, shoddy work and fraudulent transfers to avoid creditors. Its work began with the destruction of archaeological sites in the Parque Natural Metropolitano and along the way one of its elevated roadways crumbled, killing three boys playing below. Unsecured loans to the company's CEO, Máximo Haddad, played a role in the collapse of Miami's Hamilton Bank. The biggest losers in the PYCSA affair may be the Panamanian people, as the state-owned Banco Nacional de Panama had lent the company many millions of dollars.

Also in this section:
Rubén Blades assesses national tourism effort
Odebrecht: company whose corruption brought down a Brazilian president replacing PYCSA
ACP in denial as Parson Brinckerhoff's Big Dig woes grow
USAID supports forest products certification
Business & Economy Briefs