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Brazilian President Dilma Rousseff in Brasilia June 4, 2012. (UESLEI MARCELINO/REUTERS)
Brazilian President Dilma Rousseff in Brasilia June 4, 2012. (UESLEI MARCELINO/REUTERS)

analysis

Brazil’s next hurdles: sticky fingers, red tape Add to ...

The ministry overseeing Brazil’s new $66-billion (U.S.) infrastructure plan was also ground zero for a spectacular corruption scandal last year in which officials allegedly demanded 5 per cent kickbacks on highway construction projects and then pushed carts down the hallways to hand out the cash.

The transport minister and most of his staff resigned or were fired in July of last year, and a new, supposedly more scrupulous group is now in charge.

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Yet the incident helps illustrate why President Dilma Rousseff’s plan to involve the private sector in more public works projects is not a cure-all – and why she still must make major inroads against graft, red tape and other obstacles in order to succeed.

Senior officials told Reuters they realize deep changes are needed in order to attract foreign capital, especially from companies that were scared off in the past by corruption and cost overruns. While there do not seem to be any truly game-changing reforms in the pipeline, the officials did outline some initiatives aimed at increasing transparency, efficiency and making the Brazilian government a less onerous partner.

“I think this government, of Dilma Rousseff, has clearly shown that it is not going to tolerate corruption,” Transport Minister Paulo Passos, a bespectacled career technocrat who assumed the job after last year’s purge, said in an interview.

“What happened here is one sign of that,” he added with a faint smile.

Ms. Rousseff hopes the infrastructure plan, unveiled on Wednesday, will revolutionize Brazil’s decrepit highway and railway system. She is also betting it will provide a boost to an economy that has barely grown during the past year, and is struggling to upgrade its infrastructure before hosting the 2014 World Cup and the 2016 Summer Olympics.

The initiative marks a major shift from practices over the past decade in which successive left-leaning governments oversaw planning, execution and maintenance of most infrastructure projects. Under the new scheme, which some have labelled a privatization, businesses will be responsible for most aspects of building or improving about 7,500 kilometre of highways and 10,000 kilometres of railroads.

Ms. Rousseff said she will outline similar initiatives for sea ports and airports in coming weeks.

Observers generally praised the spirit of the plan, but pointed out that it does not remove the state entirely from the equation. Brazil’s notoriously slow environmental licensing process, a legal system that allows projects to be halted for tenuous reasons, and continued problems with graft mean that the plan is likely to fall short of Ms. Rousseff’s expectation of $50-billion in investments in just five years.

Richard Dubois, a partner at PwC Consulting, said private companies usually build construction projects in Brazil in half the time and at 60 per cent of the cost of the public sector. But once mandatory public hearings and other formalities of the tender process are taken into account, the time from start to finish sometimes ends up being “about the same,” he said.

As an example, Mr. Dubois said his firm was recently hired by Sao Paulo’s city hall to design plans for a 5,000-space parking garage – under a system that, like Ms. Rousseff’s, put the private sector in charge. The plans themselves were completed in eight months, but another 14 months passed before the auction could proceed because of Brazilian bureaucracy, he said.

“This was despite the diligent efforts of the mayor’s team on a project where, by the way, there was no real political struggle,” Mr. Dubois said. “At the federal level, things are often even more complicated. There is going to be a learning curve.”

‘SUPERPOWERS’ FOR NEW COMPANY

One pillar of Ms. Rousseff’s strategy to avoid such delays is this week’s creation of a new state-run company that will have “superpowers” to cut through red tape across multiple ministries and government agencies, officials say.

While technically part of the transport ministry, the Planning and Logistics Company will in practice be more powerful – and its creation represents a clear attempt by Ms. Rousseff to circumvent troubled or inefficient areas of the government.

The company will be headed by Bernardo Figueiredo, a relatively apolitical public servant who has been working in Brazil’s transport sector since the 1970s and is one of Ms. Rousseff’s most trusted aides. He also has good ties in Brazil’s business community, which he says was consulted extensively for months to help design the new plan.

“Our mission is to make sure all these pieces fit together, and to minimize any problems or delays,” Mr. Figueiredo said in an interview inside the presidential palace on Thursday.

Mr. Figueiredo said Ms. Rousseff has “absolute” interest in foreign companies participating in the building plan, and emphatically denied speculation that the tender process could favour Brazilian firms. Ms. Rousseff’s government has mandated high percentages of locally made content in other sectors such as oil.

“If we’re doing a program where we have to build this much this fast ... if we don’t open up (to foreign companies), it’s not going to happen,” he said. “We want quality.”

Mr. Figueiredo said the average rate of return for the projects will likely be between 5.5 and 6.5 per cent – slightly lower than local media reported this week, and well below the double-digit returns offered by Brazilian infrastructure projects in the recent past.

Still, the offer by the BNDES state development bank to finance up to 80 per cent of the projects should make them attractive, he said. The government is also taking steps, such as guaranteeing the purchase of new railway capacity, to help ensure demand and reduce risk for contractors.

The government will create a website that will allow the general public to track “every step” of the auction process and the construction of the new projects – a new idea for Brazil that will lead to greater transparency, and hopefully attract a larger group of companies to the concession, Mr. Figueiredo said.

He also outlined steps to accelerate the auction process itself. He said the government will try to secure environmental approval for projects prior to the auction – a break from the typical Brazilian practice of consulting the environmental agency only when blueprints are advanced.

Some business leaders think such efforts will not be enough, and have called for Ms. Rousseff to make more dramatic reforms to the judicial system that would make it harder for government auditors and rival companies to freeze projects.

Pressed on such issues, Mr. Passos, the transport minister, demurred, saying that “good management” by the public sector – and the injection of efficiency by business – would be enough.

“The government is tied to a series of rules, and there’s no question that by doing these concessions, things will move much faster,” Mr. Passos said.

“We’ve also tried to professionalize things here,” he said, gesturing around his office, “and we’re going to work for things to go well… But, it’s true – it won’t be easy.”

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