Before passing on the presidency, Luiz Inácio Lula da Silva wanted to have slid along the rails of Nova Transnordestina train track. He also intended that the oil refinery Abreu e Lima be working, the São Francisco River be diverted, and the BR-101 highway between Alagoas and Rio Grande do Norte be doubled. He was unable to inaugurate any of the above projects, but he announced them pompously, along with other investments in the Northeast, which helped to elevate his already significant prestige in the region, helping to elect his successor. If the rate at which these projects are going is considered, however, there is a risk that current President Dilma Rousseff may not even be able to inaugurate them herself.
A study by Valor regarding the main ventures announced for the Northeast of Brazil in the Lula administration – which total over R$116 billion in investments – points to an average execution delay of three and a half years. This excludes projects which, due to their complexity, have no forecast completion date. The lethargy, naturally, is due to costs, which have risen a lot. Poorly carried out agreements and contracts, environmental questioning and accountability irregularities, according to specialists, must be avoided in future projects, such as the announced new roadway and railway concessions package.
The news that Petrobras put the refineries he promised for the state of Maranhão (Premium I) and Ceará (Premium II) on the back burner caused a frenzy in the Northeast. Their budget was nearly R$60 billion. In January 2010, the former president buried a box in the municipality of Bacabeira, 58 kilometers of São Luís, in the state of Maranhão, filled with objects having to do with the enterprise, in a ceremony in which Ms. Rousseff, then minister, participated. The box, considered by the Maranhão press as an unfortunate trunk, was expected to only be dug up on the day the refinery was inaugurated, originally projected for September, 2013.
The unit will produce high-quality diesel and offshoots like jet fuel, naphtha, liquefied gas and coke, with capacity to refine 600,000 barrels per day. The venture, however, was placed “under evaluation” in Petrobras’ investment plans for the period between 2012 and 2016. The state-owned oil giant alleges that it will seek “international alignment” for the refineries, which are scrutinized by segment specialists due to costs, location and relevance.
Announced by Lula in December 2010, in the municipality of São Gonçalo do Amarante, in the metro region of Ceará’s capital, Fortaleza, Premium II has also been postponed. The plant, initially expected to enter operation in 2014, no longer has a date to begin operations. The postponement irritated governor Cid Gomes, who even called Lula. Later, he received from Petrobras CEO Maria das Graças Foster the guarantee that the enterprise will be carried out. Mr. Gomes is currently in South Korea seeking a technological partner for the unit.
Refinery Abreu e Lima, after a long history of problems, is underway but dragging its feet on the southern coast of the state of Pernambuco. The unit’s history is composed of questioning by the Federal Audit Court, TCU, successive strikes, and uncertainty regarding partnership with Venezuela’s PDVSA, and its cost leaped from $2.3 billion to over $17 billion. The start of operations was forecast for November 2014. In February, 2008, the first balance of the Growth Acceleration Program (PAC) projected the beginning of operations for December 2010.
Those who defend the new refineries in the Northeast considers them essential to include the region in the oil and gas productive chain, which should condense most industrial investments over the next few years, starting from the beginning of pre-salt exploration. According to economist Tânia Bacelar, from the Federal University of Pernambuco, or UFPE, the Northeast runs the risk of being left behind in the national economy if it stays out of this sector.
It’s no different with infrastructure. Both railways expected for the Northeast are also very late and have no conclusion date. Nova Transnordestina, 1,728 kilometers long, has gone through an exchange of contractors, delays in resources by the Federal Government and a traumatic dispossession process. After these hurdles were surpassed, the project is now on the stretch that cuts the states of Pernambuco and Piauí, expected to be ready in December 2014. The Ceará stretch, however, is still stuck and without positive perspectives. Currently, concessionaire TLSA is arguing about new prices and deadlines with the Federal Government.
Even so, the last PAC balance points to the Transnordestina’s progress as “adequate,” much different than the “worrisome” appraisal of the West-East Railway, known as Fiol, slated to cut Bahia from the municipality of Ilhéus to Figueirópolis, in the state of Tocantins. The railroad’s main goal – with a budget of R$3.5 billion – is to make the exploration of iron ore feasible in western Bahia, but the project has been mired in difficulty. Of the 1,500 km expected to be built, only one-third is underway, and slowly at that.
The railway had its license suspended by Brazil’s environmental agency, Ibama, in 2011, due to a number of issues that were not being followed through by the responsible firm, state-owned company Valec. The goal now is to get the 500 km stretch that ties the cities of Caetité and Barreiras, both in the state of Bahia, going. Along with not having an installation license, the stretch had works suspended by the TCU. One of the most interested parties in seeing the Fiol project underway, José Francisco Viveiros, the CEO of Bahia Mineração, known as Bamin, says the delay is frustrating the company’s mine exploration plan and is causing losses as a consequence.
When it is able to be transported, which will not be before 2015, ore from the interior of Bahia will be exported via Porto Sul, another large out-of-service project in the Northeast. The environmental impact generated an interminable battle of interests. The port is divided in two areas: one for Bamin’s private use and a public port, which may be part of the new concession system drawn out by the Federal Government. According to Bahia’s government, construction will last at least five years, starting when the installation license is granted, which it has not yet been.
To Paulo Godoy, president of the Brazilian Association of Infrastructure and Base Industries, Abdib, it is essential to improve planning and quality of these projects before work is begun on them. He says it is also important that legislation be “revisited,” in order to lend more security and predictability to the ventures. Losses with such large delays on large-scale projects, he says, are “astronomical.”
A good example of poor planning is the São Francisco River’s water diversion project, in which part of the works were contracted based only on the basic project, originating various additional requests by contractors. As a result, the project’s cost has already surged over 40% to R$6.8 billion, while the conclusion deadline – initially estimated at December 2010 – is yet undefined. The east axis, the most advanced so far, is only 55% executed and should only be inaugurated at the end of 2015.
Doubling and modifying federal highway BR-101, which runs along most of the Northeast coast, is considered essential for improving tourism. The project is delayed, however. According to PAC’s first balance, the initial goal was to finish the 410 km stretch between Rio Grande do Norte and Alagoas by December 2010. Only 30% of the work is done, even though 75% of the funds for the projects were used up by 2010. The cost has also grown significantly, from R$1.4 billion to R$2.5 billion.