Analysis by the editors of Magazine O Empreiteiro 

In 2016, Brazil will host the Summer Olympic Games in Rio de Janeiro. Brazil’s infrastructure construction market could benefit from a similar spirit of international competition, say construction executives.

 Brazil will need plenty of new infrastructure, but international contractors haven’t won much work yet.
Brazil will need plenty of new infrastructure, but international contractors haven’t won much work yet.

Competition bidders for infrastructure projects financed by multilateral agencies and prospective contractors must complete all the formalities to prequalify for important projects in Brazil. For example, they submit price and technical proposals that are evaluated by the appropriate agencies.

Yet companies from outside Brazil have failed to win a very large or complex project, say executives working in the country, and the country’s infrastructure market remains virtually closed to foreign companies.

The international engineering companies that have some experience in this country are blocked by a political “shield” that protects the Brazilian public-works market, construction executives claim. Even procurement rules set by international agencies—such as the World Bank and the Interamerican Bank—haven’t pried open the market, they say.

Because Brazil doesn’t use overseas management, technology or financing, the country isn’t able to exploit its natural resources as much as it could. Those resources currently are absorbed by other countries in Latin America, Asia, the Middle East and Africa, notes one local executive.

Another consequence of not employing overseas companies is that the country is unable to develop its infrastructure fast enough to support the business growth that could create a higher standard of living for Brazilians. For example, the federal government planned to invest $296 billion for transportation, power, water and sewage as well as housing-related projects from 2007 to 2010. However, only $55 billion was spent during that period because of poor management by government agencies, delays in environmental licenses and delays in getting funds released.

One construction executive—who, like others interviewed for this story, asked not to be named—says the only way an international company can perform contracting on Brazilian infrastructure is to set up a Brazil-based firm with local officials and build networks of relationships to the public-works agencies over the years. That will take time, he adds.

Not everyone agrees that Brazil’s infrastructure market is closed to foreign companies. Cristiano Kok, president of Engevix, Brazil’s leading project and engineering consultant, says much of the economic benefit of infrastructure projects should be reserved for Brazilians.

Since construction is performed at the jobsite, a foreign company should have a solid structure in the country, including equipment and personnel available here, says Kok. “While Brazil shouldn’t have any prejudice against foreign companies, it should demand that all services, including the project design, are performed on Brazilian soil, with the participation of Brazilian engineers, as the legal regulations require,” he says.

In addition, all efforts should be made to assure that Brazilian materials and systems are used to preserve the industrial jobs in Brazil, says Kok. New technologies and construction methods are always welcome, he adds.

Over the past few years, Brazil has opened its infrastructure market as far as design and construction management.

Some international project consultants have chosen this path, such as CH2M Hill, which opened its own subsidiary there, and Arcadis, which took control of local project design companies. More recently, Worley Parsons acquired CNEC, one of the five largest infrastructure project consultants in Brazil.

Furthermore, international companies have been able to gain a foothold in Brazil’s mechanical and electrical contracting market. Techint, controlled by a Argentinian group, has established a strong position. More recently, Sweden’s Skanska has started a local operation and won some contracts from Petrobras, the state petroleum company. Skanska runs the biggest construction program in the country, estimated at $224 billion for the 2010-2014 period.

But the infrastructure contracting situation is different; in fact, it is widely perceived to be closed, save for some exceptions far in the past.

Decades ago, Italy’s Impregilo formed a consortium with Brazil’s C.R. Almeida to build the S�o Sim�o hydroelectric project, owned by Cemig, a state-controlled power company in Minas Gerais state. The partnership also built a major highway, with tunnels and viaducts between Santos and S�o Paulo.

In the mid-1970s, a mining company hired San Francisco-based Bechtel to build a 400-kilometer ore slurry pipeline between Minas Gerais and Espirito Santo.

Nothing like that has happened recently, however.

Celso Ming, a well-known economics journalist, says Brazil now faces serious logistical problems in transportation and is near its capacity in electrical power generation. He recommends the new Brazilian government, led by President Dilma Rousseff, take a firm and more welcoming stand on foreign investment. Brazil needs long-term resources for direct capital investment, including for much-needed infrastructure, rather than the speculative hot money from the financial markets.

There is an outstanding opportunity for Brazil to open its infrastructure market: The 14.32-km Rio-Niteroi bridge in Rio de Janeiro has reached its capacity of 144,000 vehicles a day in each direction and must be replaced. It would make an ideal project for an international competition for a design-built-operate contract, funded by the winner’s own resources, suggests one of the construction executives who asked not to be identified.

Unfortunately, this will not occur in time to help alleviate traffic jams during the construction for the Olympics. However, it is a chance to have an international competition in infrastructure as well as in athletics.