ODEBRECHT CONSTRUCTION PROJECTS REPORT ADDITIONAL COSTS OF OVER US$6 BILLION IN COUNTRIES IN WHICH BRIBES WERE PAID

61% of these projects are under investigation by the Public Ministry or Comptroller, and of these a quarter appear on the accounts of the “Bribes Department” of the construction company.

Milagros Salazar y Aramís Castro/ Convoca
Flávio Ferreira/ Folha de Sao Paulo
Reporters of Investiga Lava Jato*

Thursday June 15, 2017
Updated on Wednesday July 5, 2017

Odebrecht, the Brazilian civil engineering giant currently being investigated over the payment of bribes, built colossal trains, bridges, interoceanic freeways, dams, oil pipelines, tunnels and an airport across Latin America and Africa, with million-dollar budgetary increases marked by irregularities, secrecy and even the creation of special norms favoring the company.

In seven countries in which the company admits that it paid bribes to officials and intermediaries, 50 construction works within the projects conducted by Odebrecht under various modalities of investment and concession contract reported additional costs of over US$6 billion above the original amounts between 2001 and 2016. This was revealed by the database constructed by journalists and media outlets that participated in the collaborative project “Investiga Lava Jato.”

Most of the increases were linked to deadline extensions, additional works and engineering alterations, and several cases are under investigation by the justice system. These extra operations did not involve public tenders and were managed by the Brazilian firm and its partners through repeated modifications to the contracts or special norms that bypassed procurement laws.

Of these projects involving budgetary increases in Peru, Panama, the Dominican Republic, Ecuador, Mexico, Colombia and Mozambique, 31 are being investigated by the Public Ministry or Comptroller of the country concerned. That is, 61% of the total number. Meanwhile, seven of these projects, which represents 23%, appear on the accounts of Odebrecht’s Structural Operations Department, known as the ”Bribes Department”, according to an analysis of the documents conducted by the journalists of “Investiga Lava Jato” until June 15 th .

As the Odebrecht case is in the midst of an investigation by the authorities of each country, and obtaining a contract is frequently a lengthy process, the information will continue to be updated on the web application #VíaSobrecosto, which has been available since June 5 th for our readers, to follow the million-dollar increases in the constructions projects awarded to Odebrecht and, soon, the projects of other construction companies investigated in the Lava Jato case.

A revealing estimate

Since it is not currently possible to determine the final amount paid by Odebrecht in bribes, the over US$6 billion identified in budgetary increases is a first estimate. However, the analysis enables us to clearly perceive patterns of irregularities and clues, which contribute significantly to the inquiries conducted by the prosecutors.

In December 2016, the Justice Department of the United States disclosed a document stating that the bribes indicated by the contractor were linked to “over 100 projects in 12 countries.”

The report details the payment of bribes to authorities in Angola, Argentina, Brazil, Colombia, the Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru and Venezuela.

In several of these countries, investigations have been conducted by local authorities into the increase in the budgets of projects carried out by the company, individually or within a consortium. The lion’s share of these are infrastructure works.

Líderes de millones

Peru tops the list of budgetary increases, with over US$1.7 billion distributed over 15 projects, followed by Panama and the Dominican Republic, where public funds were used in most cases, or the State took out loans under various contract modalities (Ver detalle en #VíaSobrecosto).

In Peru, Odebrecht scaled up its operations with the help of officials in the last three governments, who are currently being investigated for the payment of bribes, including former president Alejandro Toledo (2001-2006) (2001-2006), currently a fugitive from justice. The latter is under investigation by the authorities in connection with an alleged payment of US$20 million by Odebrecht for sections 2 and 3 of the Interoceanic Highway, which figures among the ten projects with the highest budgetary increases.

On section 2 of the Southern Interoceanic Highway, the budget rose by US$263 million to a little over US$688 million, an increase of almost 50%. For the Northern Interoceanic Highway, the budget soared by US$258 million to over US$620 million; that is, an increase of over 150%. By coincidence, the works with the greatest budgetary increases in Peru are also under investigation for the payment of bribes to government officials.

Of the 71 addenda to contracts signed with Odebrecht for 11 infrastructure projects carried out during the last three presidential terms, 34 of these documents were signed under Alejandro Toledo (2001 – 2006). 14 of these modifications concerned a rise in the budget, for a total increase of over US$40 million.

During Alan García’s presidency (2006 - 2011), 24 addenda were signed, of which 12 approved additional amounts to the projects’ budgets, for a total of US$355 million.

While Ollanta Humala was president (2011 – 2016), 13 addenda were subscribed, of which eight authorized budgetary increases for projects, to the tune of over US$189 million.

However, the addenda to the contracts have not been the only method to guarantee increases in budget in Odebrecht’s favor.

In the case of the two sections of Line 1 of Lima’s Metropolitan system, the cost of the project soared by over US$400 million following the approval of special norms overseen by the government of Alan García who, on key dates of the process of adjudicating the works, met at the Government Palace with Marcelo Odebrecht, currently serving a prison sentence, and the company’s representative in Peru at the time, Jorge Barata.

According to the investigations conducted by Peruvian prosecutors, Odebrecht paid bribes for the Lima Metropolitan through offshore companies.

The General Comptroller of Peru has established that the irregularities in the projects carried out by Odebrecht between 1998 and 2015 cost the country approximately US$263 million.

Spokespersons for the company in Peru responded by email that “the additions made to the works or addenda to the contracts require an exhaustive analysis for each case. (...) The budgetary changes are based on and regulated by the State Contract Law and are therefore official mechanisms executed by the infrastructure sector."

Convoca.pe has repeatedly requested, through the Transparency Law, that the Peruvian Ministry of Transport provide the technical reports of the addenda that justify the increase in the budget. However, to date the latter has not handed over these documents.

The investigative commission for LavaJato in the Congress in also making inquiries regarding the matter. According to a preliminary report from the work group, which has not yet been made public, over US$1.6 billion has been identified in 14 Odebrecht projects, and if this is added to the budgetary increases of projects carried out by the Brazilian firms OAS, Camargo Corrêa, Andrade Gutiérrez and Queiroz Galvão, the total exceeds US$2.9 billion.

Colossal projects

Of the ten projects with the highest budgetary increases, Peru, Panama and the Dominican Republic stand out as the most striking cases. For Panama, the additional costs for 12 works total US$1.7 billion.

Over the course of ten years and three governments, Odebrecht secured contracts worth US$9,226,000,000 for public works in the country. These were three adjudications for over US$500 million under former president Martín Torrijos, 14 projects costing over US$5 billion under Ricardo Martinelli and three others under Juan Carlos Varela, awarded after the Lava Jato scandal broke, for over US$2 billion. Those three heads of state figure among the ten Latin American presidents who granted the highest number of projects to Odebrecht.

The bribes that have been identified thus far in Panama are for a total of US$59 million, and range from 2010 to 2014, according to documents published by the Justice Department of the United States. The Panamanian comptroller Federico Humbert declared that the bribes exceeded that amount and time period: “I do not believe that we are dealing with merely US$59 million, four persons and a single company. Many more individuals and multiple companies were involved.”

The Costal Belt project, also known as the “Bribe Belt”, generated the greatest controversy due to overpricing, alleged bribery and the mechanism implemented. The work changed the face of the city, did not solve the problem and is a clear example of failed institutions.

The first phase of the construction began in 2007 and cost US$189 million.That tender was designed for companies with a minimum annual turnover of US$100 million, which left local companies unable to compete.

In 2009, through an addendum to the original contract, a US$52 million extension was commissioned, known as Coastal Belt II. Its price per square kilometer became as expensive as the most advanced engineering projects in Europe: the State went from paying US$3.2 million per completed hectare to US$5.2 million. The work cost a total of US$271 dollars.

Next to follow was Coastal Belt III. Two years later, in 2011, the former Panamanian president Ricardo Martinelli called for bids for US$ 776,918,389 for an underground tunnel. However, without changing the method, he ultimately produced a viaduct that in practice cost much less, but for which the government paid the same amount. The State paid US$781.1 million, and that stage of the project was dubbed the “Megabribe Belt” by its critics.

All the other works executed by Odebrecht in Panama ended up costing much more than the amount established in the tender. The Don Alberto Motta Highway tops the list of projects with the greatest budgetary increase, with US$626 million in additional costs.

Nevertheless, this was not the first time that the company, acting alone or in a consortium, obtained a tender and ultimately expanded a project without this involving a new public selection process.