Off the rails: how corruption and rising costs stalled the Sarmiento rail project
Odebrecht,the Brazilian construction conglomerate that now finds itself at the centre of a huge corruption scandal,held a key role in the Sarmiento rail underpass project until this month. The scheme,which has barely progressed since it was announced in l
How does a tender for a US$889-million public works project morph into a contract for US$3 billion? Somehow the Argentine authorities, Odebrecht and their partners managed to do so. Fine-tuning engineering aspects of the project; ‘correcting’ the original blueprints; new wheels within wheels; ‘practical’ issues; tax questions; deadline extensions – these are some of the official reasons given to explain why the three main contracts Odebrecht and its partners held in Argentina ended up costing so much more money.
To many, news of questionable costs and Odebrecht will come as no surprise, but three of the Brazilian firm’s contracts in Argentina – for projects including the Sarmiento rail underpass, the Tigre water purification plant and gas pipeline extensions – have something in common which also reflects how public works projects function in this country. The case of Odebrecht is just one of so many examples of how the construction sector operates as a slush fund in Argentina. Once a company and its local allies have clinched a tender at a price which has been audited, all sorts of addenda and administrative notes start appearing, with changes in the state funding for these projects. All this above applies to the pipeline extensions, the Sarmiento project and the Paraná de Las Palmas water purification plant in Tigre.
For now, let’s focus on one of those projects, the second, one not unconnected to this week’s news since it involves both the railway system and former Federal Planning minister Julio De Vido (the factotum of public works for 12 years), whose trial for the 2013 Once rail tragedy began on Wednesday.
With a total budget of US$3 billion, the Sarmiento project has barely crept forward since its tender first went out. Various estimates in the Argentine press over the last year have put the project’s completion at between three or 15 percent complete since it was first announced in late 2005 during the Néstor Kirchner presidency.
Almost nothing happened before last October when President Mauricio Macri inaugurated the Haedo station tunnel. The government is now shooting for completion in 2022, but it will take US$1.1 billion just to finish the first of the three stages in the original project, an official source told the Perfil newspaper back in August.
This week, Italy’s Ghella completed the formalities of buying out the remaining 33-percent share held by Odebrecht in the Nuevo Sarmiento consortium, thus taking its holding up to 71 percent. In the process the underpass consortium has changed its name to G&S (Ghella and Sacde). The latter, re- presenting the company which Marcelo Mindlin bought early this year from Macri’s cousin Angelo Calcaterra, accounts for the remaining 29 percent.
EMPIRE-BUILDING
In the years between 2006 and 2016, Odebrecht at any rate had its own decada ganada in Argentina. During the presidencies of Néstor Kirchner and Cristina Fernández de Kirchner (2003-2015), it enjoyed its biggest gains – deals agreed for the gas pipelines, the Sarmiento underpass, the water purification plant, contracts with the Brazilian mining company Vale and YPF, among others.
Macri’s first year in office, 2016, saw further advances for Marcelo Odebrecht – fresh funding for the underpass and a gas pipeline project in the province of Córdoba was secured – in contrast to the corruption scandal that was unfolding in Brazil. But toward the end of that year, details from Operation Lava Jato (“Car Wash”) started penetrating south of Curitiba, appearing in some Argentine media. Especially after the disclosure of a US Justice Department document revealed the confessions of the Brazilian engineering firm’s executives, saying that they had paid “at least” US$35 million to bribe Argentine officials between 2007 and 2014. The report spoke of “at least” three infrastructure projects being compromised, revealing that the company netted economic “benefits” of US$278 million in Argentina during that period.
Odebrecht has three major infrastructural works in this country: the rail underpass, the water purification plant and additionally, the Escobar aqueduct. Yet none of the whistleblowing executives in Brazil has mentioned engineering projects, thus leaving the gas pipelines off of the list of projects believed to have involved corruption.
This relates to the way the Brazilian firm is structured. Odebrecht breaks down into two main branches: infrastructure (to which the company likes to refer as “cement works”) and industrial engineering (using metal and specialising in gas and oil projects). The gas pipelines are considered as engineering projects, not infrastructure ones, by the firm. Yet on June 4, Investiga Lava Jato – a collaborative group of journalists in Latin America and Africa – and Perfil revealed, quoting records from Odebrecht’s Structured Operations Sector (a glorified name for its bribery department), that bribes had been paid for Argentine dutos (“tubing”) and the the San Martín gas pipeline. Those projects earned Odebrecht its first significant charges in Argentine courtrooms, back in 2007 when the Lava Jato scandal was far from breaking surface – charges which have yet to go anywhere.
In federal courts, Lava Jato has triggered new criminal in- vestigations against Odebrecht and the national authorities, taking old charges such as those concerning the gas pipelines out of their mothballs. The possibility of a deal with the engineering giant to obtain the collaboration and testimony of its executives however does not seem viable in Argentina since guaranteeing whistleblowers immunity is against local law. In the face of that scenario, the courts and the government have begun to probe presumed overpricing in search of evidence which can be used against the company and the authorities of Kirchnerite administrations, now out of power.
ODEBRECHT’S JEWEL IN ARGENTINA
The Sarmiento rail underpass was Odebrecht’s most important infrastructure project in Argentina. Notes from Marcelo Odebrecht’s iPhone (confiscated by Brazil’s Federal Police) show the businessman’s obsessive interest in this ambitious project – a tunnel permitting one of the fullest trainlines in the country to connect the western districts of the Federal Capital with Buenos Aires province, from Once station to Mo-