Daniel Villar: Trans-Oceanic Highway "project means a great deal to the country, particularly the southern portion (Photo courtesy of La Republica).

Since opening shop in Peru in 1979, Brazilian-based Odebrecht’s Peruvian arm has grown to become the largest construction company in the country. In slightly more than a quarter century, the company has built more than 40 major infrastructure and mining projects here and is involved in more than $1 billion in projects across the country this year. A trophy project is Odebrecht’s piece of the $900 million Trans-Oceanic Highway project.

Daniel Villar , the company’s project director, has been responsible for the company’s roadwork in Peru since January 2003. The 32-year-old Brazilian began working with Odebrecht in Ecuador in1995 and has been with Odebrecht Peru since 1999. Previously he was in charge of the company’s efforts to expand the Yahanococha gold mine near Cajamarca in northern Peru.

What type of logistics will you be dealing with on the Trans-Oceanic Highway project? It is a very tough job in terms of logistics. It is expensive. For example, from Iñapari to Urcos it is 700 kilometers and it takes us seven days to get from one point to the other. The only trucks that can now make it through the road are single-axle trucks, which means the equipment we will be using will have to be transported in parts and we will have to reassemble the equipment at the job. And we will have to continue doing that until we build a wide enough road to transport them directly. We will also have to transport the equipment, the fuel and all the materials we will be using for construction.

There are many different sectors in terms of geography. We will be working at 4,700 meters above sea level and parts at 300 meters above sea level. Many of the necessary bridges do not exist which means that during the rainy season — which starts in November and ends in March — there is no way to get through the rivers there. Our plan for the first year is to build the bridges. We are talking about 70 bridges that have to be built.

What types of materials may pose a problem? Peru has a problem with asphalt. Peru does not have enough plants and enough production that is going to be needed for the job. But if that happens we can use asphalt from Brazil. In one of the sectors we are going to build is very close to Brazil and we will be able to bring it in.

We think we will have enough cement. There is enough cement in Peru and in the south of Peru to complete the project. While we expect to have the material what we are concerned about is that the prices may rise due to the ongoing demand. We don’t expect much of a problem with steel since there is not that much on the job. The bridges are all designed in concrete and only the largest have any steel in them.

Where will you be obtaining the equipment? We are going to mobilize part of the equipment we have here in Peru, we are going to mobilize equipment we have in other countries and we are going to purchase new equipment. And we are also going to be using equipment from our partners in the consortiums that may be rented or subcontracted from Peruvian companies.

Can you describe the importance of this project to Peru? This project means a great deal to the country, particularly the southern portion. The Madre de Dios region is currently like an island — totally isolated from the rest of the country. The first goal of this project is to join this region with the other departments of Peru. The second goal is to implement the commercial and communication connections between Brazil and Peru. Currently Brazil is the only country Peru has an accessible border with that there is not a highway connecting it. And Brazil is the biggest country in South America.

What are the project delivery methods in Peru? In all the (Trans-Oceanic Highway) concessions the design is our responsibility. Usually the government comes up with the project and does all the phases of the engineering. Only after they have that they bid for the project. The government is transferring the risk of engineering they used to absorb to the contractors. We have done private projects that were design build in the past. It is something that is becoming more common in South America.

How is the financing being handled with the Trans-Oceanic Highway project? The job is being financed through a bridge loan from CAF (The Andean Development Corp.). The loan contract will be signed between the concessionary and CAF and the government will sign a guarantee with CAF for the payment of the project. That only represents the initial financing — about 20 percent of the whole project. The other 80 percent of the investment will be have to be from the concessionary equity, their own money, and by other funding that it is our obligation to find. We have a 12-month deadline to come up with a plan for the government to approve. For that we can issue bonds and we can use more CAF private financing. One of the options the concessionary has is to use Brazilian financing for the maximum amount of $417 million. It is not financing that is certain but it is an alternative.

Related Links: Odebrecht-led Consortium Snags $900-million Contract for InterOceanic Highway's Peruvian Leg, August 19, 2005

If the government waits for the whole concessionary to come up with the financing they have to wait one year to start the construction of the project. This is how we are working in Olmos. We signed the contract in July 2004 and we haven’t started the construction yet because we are working on the financial closing. In this case (The Trans-Oceanic Highway) the government intended to start the construction earlier so they are guaranteeing the initial amount necessary for the concessionary to begin work.

Is governmental corruption a concern? Our Company has strict policies against corruption and wouldn't participate in projects anywhere around the world with this type of practice. This is an ethical matter. Also, That is something we have not faced here in Peru. The concessions being bid in Peru have restrictions to control corruption. One of the reasons is because most new jobs here place the risk on the side of the concessionary. So there are fewer decisions being made by the government during the contract. Everyone sees everyone else’s hand from the very beginning so there cannot be many changes and opportunities to interfere with the decisions being made by the concessionary.

What are wages like in Peru? In Peru, compared with other (South American) countries the wages are higher. There is a minimum wage law in the construction industry. Our country has also established different ranges for salaries we use depending on the experience of our employees. Every job that we start, we have to register each worker we hire with the ministry of Labor and each month we have to demonstrate they are being paid as required by the law.

What are the unions like in Peru? The civil engineering union in Peru is one of the best organized in the country. We always have good coordination with them in all the projects we do in Peru. They are very proactive in not only providing well-trained personnel they also help us maintain worker skill levels. The unions also help us maintain the records for pay levels of employees with the government. They negotiate different salaries with the companies but they push the government to raise minimum wage levels.

Current Odebrecht Peru projects in Peru: Trans-Oceanic Highway — A $613 million, four-year effort to construct and improve more than 700 kilometers of road that will connect Peru’s southern port cities with Brazil. Odebrecht is a 70 percent partner of a concession with three Peruvian companies, Grana & Montero, JJ Camet, and and ICCGSA, who are working on the engineering and environmental studies. The contract will include a 25-year concession to operate and maintain the highway. Northern Highway — A $205 million project for widening and improving 114 kilometers of road from Yurimanguas to Tarapoto in the northern Amazonian jungle of Peru. The project is currently in the design phase and Odebrecht is a 45 percent partner in the concession. Callao Interceptor — A $40 million project to divert sewage lines to a water treatment plant in the port city of Callao at Lima. The project is currently under construction. Olmos Irrigation/Hydroelectric Project — A $185 million project in northern Peru that includes the construction of the Limon Dam on the Huancabamba River in the Andes and a 15-kilometer outflow tunnel. The design has been approved and the project is awaiting completion of the financial plan. Tingo Maria-Aguaytia Highway — A $35 million roadway project completed in April for the rehabilitation of 42 kilometers of existing roadway in Central Peru.

Where are your employees from? Most of our employees are Peruvian. I guess 3 or 4 percent are from Brazil or other countries. Odebrecht has operations in 15 countries so we have people from Bolivia, Venezuela or other countries where we have operations.

What type of work force will you we be using for the Trans-Oceanic Highway?: We expect to be starting actual construction in 2006 and we are planning to be hiring 2,500 workers for both sections we are working on so about 5,000 in total and we are going to try an prioritize hiring locally.

How are safety issues handled in Peru? We have our own standards but the safety standards in the public sector depend on the contractor. For example, the safety standards in mining are very high. We have the Latin American record for working hours without an accident, which was 7 million hours without an accident in 2000 at Yahanococha (gold mine) project.

What is on the radar in Peru in the next five years? In terms of the public sector, the main infrastructure jobs will depend on the next government. [General elections are scheduled for April] In the private sector we can be sure mining will present a good opportunity for infrastructure projects. The natural gas and oil sectors will also probably be there as well.

In the short term, there will be the two remaining sectors of the Trans-Oceanic project to be bid this year and the Central Peru section of the IIRSA program that runs from Lima to Pucallpa will be bid this year. There is the third phase of the Olmos project that will consist of the construction of irrigation of 150,000 hectares in the northern region.

Is there a concern for the stability of the government particularly in light of the upcoming elections?: I cannot tell you it does not worry us but a determining factor for us to take part in this job is if the project itself is a good one. This is a 25-year project so we are not facing one change of government; we are facing five changes of government over the life of this project. It isn’t a political question. Before we sign a contract we look at the project and ask, "Is this a good project? Is this going to be a project that is important to the community? Is it going to be important for the country?" If we are sure of that then it does not matter who is going to be the next president or the next government, the country will be supporting that project.