Q&A Benedicto Barbosa da Silva Junior - President of Odebrecht Infraestrutura
Odebrecht Infraestrutura has been responsible for some of Rio de Janeiro’s most high-profile infrastructure projects in recent years, from the crucial Porto Novo regeneration to the Maracana stadium. Company president Benedicto Barbosa da Silva Junior has overseen the series of public-private partnerships (PPPs) that have almost doubled the company’s revenues and continue to make Odebrecht an omnipresent force in the city’s transformation into an Olympic host.
The Report Company: Between 2009 and 2011, Odebrecht’s revenues in Brazil jumped from US$5.7 billion to US$9.9 billion. What have you been doing right that other companies with less impressive results haven’t?
Benedicto Barbosa da Silva Junior: Odebrecht is an innovative company. Back then, we bet on the still-untapped market of public-private partnerships (PPPs) and engaged in a lot of these kinds of projects between 2008 and 2011. The public sector needed the participation of the private sector, and we believed in and invested in it. The growth followed.
Moreover, between 2005 and 2010, we did a few internal spin-offs, making companies out of Odebrecht projects such as the operation of sports arenas. As these have grown, they have generated business for the construction company. So there are these two factors, but I also think we believed in the growth of the country more than our competitors did.
TRC: It is claimed that Brazil needs to invest R$900 billion to reach the same level of infrastructure that the US is currently at, so there is a lot of work still to come. Has Odebrecht ever been concerned about the prospect of working with the public sector?
BBJ: We always believed in the public sector, and have used our competitor's lack of belief in our favour. We still need a lot of infrastructure improvements and Brazil won’t grow if the private sector doesn’t participate. England did the same and then helped Asia follow suit, but Brazil is poorer, and its private sector needs to focus on doing what the government cannot afford alone.
TRC: There are many different models for PPPs and they certainly don’t always work. What criteria does Odebrecht look for in these partnerships?
BBJ: I believe that a successful PPP has to include two elements. Firstly, the project has to be essential for the community in which it is going to be implemented. Secondly, the government should provide some kind of insurance for the project that, even though it remains unused, attracts investors with its security. When these funds start being used is when the PPPs stop working.
TRC: Paulo Godoy (president of the Brazilian Association of Infrastructure and Industry) wants the country to attract international investment funds to infrastructure projects and Julio Bueno would like to see more competition with foreign companies. Why have foreign companies come here without success; is the sector closed off to them?
BBJ: This sector is not closed; tenders are open for foreign companies to compete for. I think the problem is that the Brazilian market is very different. Companies can't just come here and think that everything will work at the first attempt. There is a whole history of large European companies that came to Brazil in a rush without first getting to know the culture. I think that problems arise because they don’t study the country's practices beforehand, rather than because they get a bad deal. Or sometimes they go in without an adequate partner to assure that the proposal is feasible and that the financial structure will hold. There is a big gap between theory and practice.
TRC: Odebrecht is ubiquitous in Rio’s biggest projects, be it Ilha Pura, Rio Mais, Porto Novo, Maracana, the Metro or Complexo do Alemao's cable car. Is this down to a lack of competition?
BBJ: Some of these projects are PPPs. Some bring with them risks that not every company is willing to take on. Public works such as the Maracana and the cable car are regular, open bid processes. The Metro was a concession made to a private group who could not make it work, so we bought their share and came on board.
More important is the fact that Odebrecht's headquarters are in Rio de Janeiro and the company has spent a lot of time here doing small projects. When, Rio then started to stand out again, naturally, because it was already here and aware of the market, Odebrecht saw opportunities first and was better prepared while others stood back watching, afraid of potential consequences. Odebrecht has a huge number of PPPs now in its portfolio; others are still learning.
TRC: Back in 2008, did you have any idea that your revenues would double in this way? How have you found enough skilled professionals to satisfy demand?
BBJ: The availability of professionals has always been a problem, but we have been bringing people in from other states, plus our operations abroad have been reduced so people are naturally returning. We have 60 directors in Brazil - 14 in Rio alone - and each is responsible for one of these large projects. We achieved revenues of US$4.5 billion last year, which should be repeated this year, and Rio de Janeiro represents about a quarter of that. This is not out of the ordinary for a company whose central nervous system is in Rio.
TRC: What about EPL, the ‘project-making machine’? Do you think it will continue to feed Odebrecht with projects?
BBJ: The EPL (the government’s logistics and planning department) is a big step for long-term planning in Brazil, but we don’t have any projects through them yet. They have railway projects that could be attractive for us over the next 5-6 years.
TRC: There still seems a lot of doubt as to whether the high-speed rail link from Rio to Sao Paulo will ever come to fruition. What is your take on the situation?
BBJ: The high-speed rail is more complex than regular railroads and roads, but there is the political will to carry out detailed studies and find a way to make the project feasible. I believe it will happen. The model is still problematic – it has to cover 400km and a 1km altitude difference – and it has to adapt to the interests of operators and suppliers, but I believe everything is falling into place.
TRC: Has the Maracana been something of a headache for you?
BBJ: It was not just the Maracana. We also had problems in Salvador and Recife, but we have been hired to ready the stadiums for the World Cup, not for the Confederations Cup. It is normal for the country that will host the World Cup to host the Confederations Cup a year prior the World Cup, so we had to change the deadlines for three of the four arenas we are working on (Recife, Salvador and Rio de Janeiro) as these three stadiums had to be ready for hosting the Confederations Cup.
The Maracana was built in the 1950s, and the roof had never been structurally renovated. After our work had already started, we realised that the load the stadium will bear would be greater, and that the movement in the stadium would generate movement in the roof that it would not be able to take. Halfway through we had to do a study and make another decision and this change added a few million in planning.
TRC: What will happen to the 6,500 people that are working on the Maracana after it is finished?
BBJ: We have plans for them. We have a training and reallocation programme. Plus, the Brazilian market is still very strong, so there is nothing in sight that should worry them about unemployment.
Because of tight deadlines due to the large events, and the fact that the country as a whole has improved, wages have also gone up. However, we haven't been able to turn these wage increases into productivity, which would produce more wealth for everyone, including the workers. Wage and benefits negotiations with the unions have been adding costs without bringing any greater efficiency, so the end product does not get cheaper. I'm concerned here with productivity.
TRC: How can you get people to be more productive?
BBJ: By training them and making them concentrate more. Instead of having five cups of coffee every working day, have just one, for instance, otherwise we won't reach the level that Brazil needs to reach. With the current load of costs, the projects in infrastructure will end up diluted, and the country will not be able to do everything it has to do. This is the greatest challenge for us today.