(Bloomberg) -- The construction site at the Dominican Republic's Punta Catalina power plant should be booming, but work has slowed to a crawl. An ocean away, along a river that snakes through canyons in southern Africa, Angola's Lauca hydroelectric dam faces a similar fate.
Both are casualties of an ambitious state lending program gone awry as Brazil's development bank, once a rival to the World Bank by both the size of its loan portfolio and disbursements, retreats following accusations of gross overreach and questionable spending. Of the $7 billion that BNDES committed to 25 construction projects abroad since 2009, only $2.3 billion has been disbursed, and the lender said in October it suspended any more payouts after a sweeping corruption investigation revealed that many of the builders had paid bribes to secure lucrative contracts at home.
Angola's Lauca hydroelectric dam in 2015.
In its wake, the bank's withdrawal behind Brazil's borders has left a trail of unfinished projects from Latin America to as far away as Africa, as well as frustrated foreign leaders. Angola's presidency said last month it's sending a delegation to urge BNDES to resume the financing. The governor of Argentina's Chaco province came in September to plead his case.
“We found a series of problems we need to address, and that requires discussion because it affects activity, government, people and companies,” BNDES President Maria Silvia Bastos said in an interview at the bank's headquarters in Rio de Janeiro. “We're working to resolve this. What generates stress is paralysis, and we don't have any of that here.”
Identity Crisis
Today, BNDES is facing something of an identity crisis. The 64-year-old institution was created to develop industry and infrastructure, but under the governments of President Luiz Inacio Lula da Silva and his successor and protégé, Dilma Rousseff, lending exploded fivefold. Much of that backed companies dubbed national champions by local newspapers as they set out to take over the world -- or at least the global industries in which they competed.
Maria Bastos, left, meets Domingo Peppo, right.
Odebrecht SA, the builder whose former CEO was sentenced in the graft scandal at state-run oil giant Petroleo Brasileiro SA, was one such champion. BNDES gave the construction powerhouse almost $6 billion in so-called supplier credit for exports between 2009 and 2015, to be repaid by foreign governments. Odebrecht's key export was its engineering prowess. In theory, the company was also tasked with promoting the export of Brazilian goods for each project abroad.
When Rousseff was suspended in May and later impeached for masking the size of near-record budget deficits, Bastos took over the daunting task of scaling back the bank's ambitions. Known as the "Iron Lady," a nickname that stems from when she ran steelmaker Cia. Siderugica Nacional SA from 1999 to 2002, Bastos in her new role is shifting the bank's focus to projects that generate social returns in Brazil, such as sewage systems.
Six months after BNDES suspended financing for foreign nations, some are signaling they're tired of waiting. Chaco's governor said after meeting with Bastos that BNDES intended to keep supporting an aqueduct product, but last month asked his provincial legislature for approval to seek funding elsewhere. Angola, the largest recipient of BNDES funds, said it has mobilized other resources for two hydroelectric plants amid layoffs and work stoppages. And the Dominican Republic in October announced it will issue as much as $600 million in bonds to finish the Punta Catalina plant.
Compliance Accords
BNDES has “no intention” to stop supporting engineering exports, Bastos said, but will no longer finance the majority of any undertaking. And in the wake of the bribery revelations, builders like Odebrecht and Andrade Gutierrez SA will be required to sign compliance agreements that impose sanctions for impropriety. Both declined to comment for this article.
No new funding for engineering projects overseas will be approved before revised rules are issued, which probably won't be until the end of 2017, Leonardo Pereira, BNDES's superintendent of foreign trade, told reporters last week. BNDES will resume payouts for only some of the 25 projects abroad that are already underway, he said.
“Contracted projects need to be reevaluated as fast as possible,” said Jose Augusto de Castro, president of Brazil's foreign trade association, which has directors from Odebrecht and Andrade. “If something is wrong, correct it and pay a fine. What they can't have is a lack of definition.''
One such project left in limbo is Caracas's Metro Line 5. On a recent afternoon in Chuao, a neighborhood in the capital that's still bustling with both private and public works despite a severe fiscal crisis at home, the work site for a future station was cordoned off with razor wires and cement walls. Odebrecht's logo was nearly unrecognizable under the graffiti, and none of the stream of trucks waiting to load at a temporary cement plant were there because of the subway work.
Not so long ago, the plant filled 40 to 50 trucks a day for Odebrecht, said Jose Luis Mato, 40, a manager at the cement installation. “Compared to the pace they'd been operating at, it's practically stopped,” he said. “A column here, a wall there. It's all at a minimum.”
--With assistance from Andrew Rosati and Ezra Fieser To contact the reporter on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net. To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Jessica Brice, Melinda Grenier
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