Brazil walks toward the future

The executive talks about the 70 years of Odebrecht, the perspectives for the future of the company and of Brazil, where investments in education, health, safety, sanitation, logistics and urban mobility are priority

Interview with Benedicto Barbosa da Silva Junior, president of Odebrecht Infraestrutura - Brasil

Grandes Construções -  Odebrecht is celebrating its 70th anniversary, a story that starts basically in engineering and construction areas but was well-succeeded in the diversification of its activities. How do you describe this path?

Benedicto Barbosa da Silva Junior – We have to point out that—at least in Brazil—company founders are characterized by their intuitive, result-oriented and determined way to face the challenges of managing people, logistics and financial resources (mainly public) to transform nature in infrastructure of transportation, water and power supply, mobility, habitation, etc. I believe—without any scientific support—that this spirit of entrepreneurship—reinforced by learning and by the set of relationships built along the life—was determinant to identify and develop opportunities in the industry and to render services directly or indirectly related to engineering and construction.

GC – The 70s were one of the most dynamic cycles in Brazil, marked mainly by the change of a profile completely turned to agriculture into a (almost) modern country. How do you see the evolution of Brazilian infrastructure in these last 20 years and what are the perspectives for the future?

Benedicto Junior – After two decades of almost complete stagnation—when Odebrecht  had to go to foreign countries to survive—the country restarted to invest in infrastructure. This situation was marked by an increase of private participation in the investments—mainly in management, construction, improvement, operation and maintenance of existing or new assets—carried out through privatization, concession or Public-Private Partnerships (PPPs).

During the last years, infrastructure received a new impulse through public programs focused in structural projects for social, logistics, mobility and energy areas, through tax incentives and stimulus to financing. Even with such effort, the pace of infrastructure works is slow due to regulatory, environmental, financing and management questions that are in the government’s agenda to be regulated. The expectation is that the country will go through a period of regulation of these points—that will unlock several projects—and of discussion of important points to improve production costs (tax and labor restructuration), followed by a retaking of investments.

GC – What are the most demanding and promising areas of infrastructure  today?

Benedicto Junior – Brazil has a demand for infrastructure in all areas, but we have to emphasize that the climatic unbalance that is occurring in the country will demand immediate efforts in the areas of power, water treatment and supply. The areas of logistic infrastructure—that contribute to reduce the Brazil cost—and the works in urban infrastructure, mainly public transport and draining are also demanding. Finally and not less important, the investments turned to education, health and safety of the population will also be among the priorities.

GC – In the area of power, Brazil built the plants of Santo Antonio, Jirau, Teles Pires and now Belo Monte and is preparing to start more plants in the region of Tapajós River. Is there space for more plants in the Northern region?

Benedicto Junior – The Northern region of the country is the last frontier for large hydroelectric projects, with installed capacity above 2000 Mw, remaining at least three plants to be built in that region. Social and environmental questions are the main challenge of so huge projects, mainly if it is necessary to create conditions to install reservoirs. The regulation of the question of Indians and the way to approach these impacts are pre-requirements when planning new projects in the Amazon. All challenges have to be calculated starting from social and environmental feasibility. The recent experience in installing projects in this region (Belo Monte, Santo Antônio and Jirau) will certainly contribute for a better management of the physical challenge. Financial challenge, however, depends directly on the public participation in the process and on the attraction of private investors. A revision of the regulatory framework would be a very positive contribution.

GC – Is the window for large plants closing in the country? What other options may be analyzed?

Benedicto Junior – There are large hydroelectric projects to be developed in the borders with neighboring countries, whose development takes too much time.  There is also a market of low and medium-size plants to be explored.  The economic feasibility of these projects tends to be more difficult if a totally-private investment is considered.

Among other options to be considered are renewable sources of energy (wind, sun, biomass), thermoelectric plants (gas and coal) and even the nuclear plants, whose construction was retaken in several countries because now they are safer—if compared to events occurred in Fukushima—and ensure lower levels of emission of greenhouse gases. It is important to point out that we have important reservations of raw materials with low cost of exploration and that Brazil has the know-how of the whole cycle of enrichment.

GC -  Logistic transport is the great challenge of the country, mainly to increase the dynamics of the internal economy and overseas trading. In your point of view, did any evolution occur in this area?

Benedicto Junior – Yes. A program of investment in partnership with the private industry is being carried out to develop and integrate the transport modes through concessions of roads and railways, airports and ports. Part of this program is already running. More than seven thousand kilometers of roads are under concession, five of the main airports are already being operated by private companies. In the area of ports, some terminals of Private Use (TUP) and Cargo Transhipment Stations (ETC) were authorized, and there are edicts issued for dredging services and for leasing of areas in organized ports. In the area of railways, six edicts  of public call of studies (PMI) were issued, involving more than 4000 km of railways.

GC – What is missing today, after all these comings and goings in the area of ports and railways?

Benedicto Junior – For the leasing of areas in organized ports, we need to finish models of regulation and contract and to define financing conditions of public banks. For railways, we need to define the conditions of payment  guarantee for the use of the infrastructure.

GC – The pre-salt is a reality in terms of production. But the difficulties to be faced to remove the oil of deep layers are not clear. Was this phase of technology overcome?

Benedicto Junior – Considering that the first discovery of oil and gas in the area called pre-salt occurred in 2006, only eight years ago, and that we are producing a quantity of oil above 500 barrels per day, reaching an accumulated production above 360 million barrels, we have no doubt in confirming that pre-salt is now a reality. Until 2018, we expect that Petrobras will have 52 percent of its oil production coming from the pre-salt fields.

From a technologic point of view, challenges are being gradually faced and solved, using a strategy that combines the effort of Petrobras technicians and the participation of Brazilian companies and universities, complemented by successful partnerships with international entities that have the specific technologies. Part of floating installations needed for the works is being supplied by contracts with foreign companies and part is being supplied by national companies that take part in the huge process of transformation and development of Brazilian naval industry. Among these installations, stand out drilling rigs, platforms and production and supporting ships for exploration, drilling and production.

We understand that the phase of overcoming obstacles is being successfully overrun. There is although a real problem not yet resolved: how to get the substantial resources needed to develop this business, considering the evident difficulties of cash from Petrobras, of difficult solution in low and medium terms.

Odebrecht has a very privileged position in this business due to its outstanding position in the activities of engineering and construction of floating installations through its Enseada Shipyard, installed in Maragogipe (Bahia) and of Odebrecht Oil & Gas, one of the most important companies of the oil & gas market of the country. Besides that, the company has total capacity to play a relevant role in the establishment of the infrastructure needed and in the solution of the environmental problems that will come.

GC – In the area of airports, was the challenge of the first concessions resolved?  The bottleneck in the airports of Sao Paulo and Rio will be overcome. But what can we wait from other airports of the country?

Benedicto Junior – The national air transport sector has recently overcome the challenge of attending efficiently the passengers during the 2014 World Cup. It is desirable that this performance continues to improve, but we have to understand that the concessions are relatively recent. Some operational changes were already noticed, but rigorously only three airports are being fully operated under the new model. And a lot of investment has to be spent to offer a better level of service to the passengers.  The expectation is for the issue of new edicts for improvement and enlargement of airports in the main cities of the country, as part of the scope of a development program of regional aviation that started in the beginning of this half year. The challenge of this program is the potential of attraction of these airports

GC – In terms of foreign market, what are the most interesting markets currently, in terms of infrastructure?

Benedicto Junior – For Brazilian companies, the most interesting markets are located in Latin America and Africa, where the demand for infrastructure is currently very high.