Infrastructure Investments for the Olympics Rio 2016

The recent selection of Rio de Janeiro as host city for the 2016 Olympic and Paralympic Games just underlines what many have being saying for some time now: that Brazil has truly arrived as a power on the international stage. Even before the Olympics arrive, Brazil will be hosting the Confederations Cup in 2013 and the FIFA World Cup in 2014.

Brazil’s stable economic policies and burgeoning domestic market mean that it has been less affected by the world economic slowdown than many countries, so it has come to be seen as something of a safe haven for investors. The discovery of massive oil reserves off its coast has boosted Brazil’s geopolitical importance and economic prospects.

Despite all this, there are many saying that Brazil, and more particularly Rio, are not ready for the Olympic Games. There are certainly a number of areas that will require serious attention and the authorities have a lot of work to do between now and 2016 to improve Rio’s infrastructure. However, the same could be said of London, with just over two years to go until its Games.

The Federal, State and Municipal Governments have committed to invest US$14.4 billion in hosting the Rio Games and in improvements to the city’s infrastructure. As well as the sports facilities themselves, Rio’s candidacy dossier proposed significant investments in transportation, hotels and urban redevelopment, which have the potential to transform this city and give an additional boost to the Brazilian economy.

These infrastructure investments will present opportunities for consultants, developers and contractors. The experience of British firms in developing the infrastructure and dealing with masterplanning and transportation issues for London 2012 may prove particularly sought after.

Major Infrastructure Projects

Major investments planned in connection with the Rio 2016 Olympic Games include the following:

• Development of an Olympic training centre in Barra da Tijuca, combining various sports facilities that will be used for training and competition during and after the Games;
• Construction of the Olympic village and media village in the vicinity of the Olympic training centre, to house athletes and press during the Games, and over 4,000 families after they finish;
• Redevelopment of the Rio port area, to include residential, entertainment and tourism facilities;
• Adding 20,000 hotel rooms to reach a total of almost 50,000, some of which will be temporarily provided during the Games in cruise ships that will be moored in the newly redeveloped port;
• Expansion of the international airport from the current capacity of 15 million passengers per year to 25 million, including the construction of two satellite terminals, refurbishment of the existing terminals, extension of the runways to accommodate Airbus A380 jets and additional car parking and cargo storage;
• Improvements and extensions to the Rio metro and commuter trains, including the construction of seven new metro stations;
• Creation of three rapid transit bus systems with designated bus lanes connection the North and South zones of the city to the main Olympic facilities in Barra da Tijuca;
• Construction, extension or widening of around 170 kilometers of roads, including a new ring road.

It is clear, even from this abbreviated list, that delivering all of these improvements by 2016 will be a logistical and financial challenge. In fact, the majority of these works are planned to be completed in advance of the World Cup in 2014, which shortens the time frame even further.

So how will these investments be managed?

The Rio 2016 candidacy committee liaised closely with the London 2012 organisation throughout the planning stages and they seem to have adopted a very similar corporate governance structure. An ‘Olympic Development Authority’ (ODA) will be created to co-ordinate the delivery of capital investments and Government services required for the Games across all the various organs of Federal, State and Municipal Government. Within the ODA, the Government will also establish an Olympic Traffic and Transport Division (OTTD) and Olympic Sustainability Division (OSD) to deal with these specific aspects of the preparation.

There will also be established the Rio 2016 Olympics Organising Committee (OOC), which will be a non-governmental, non-profit making organization incorporating private sector and community stakeholders. The OOC will manage operational planning and delivery of the Games and will be funded from the proceeds of transmission rights to the Games, as well as from private (45%) and governmental (24%) sources.

The ODA and OOC will work together in a Joint Olympic Steering Committee and both will be subject to the overall supervision of the Olympic Board, which consists of the chairmen of both entities, the Federal Minister for Sport, the State Governor, the City Mayor and the presidents of the Brazilian Olympic Committee and the Paralympic Committee.

So how will these investments be financed and contracted?

In the case of the sporting venues, a number of them have already been constructed, for the Pan-American Games, which Rio hosted in 2007. These are operated by private companies or the Brazilian Olympic Committee under concession from the municipal government.

New venues, such as the Olympic training centre, the extreme sports park (hosting BMX and slalom canoeing) and the modern pentathlon park, will be financed by the Government through the ODA. The applicable construction contracts and supply contracts are therefore subject to the Brazilian tender legislation, which requires an open, fair and transparent tender for Government works. Tenders will be open to qualified Brazilian and international contractors and judged according to the criteria of capacity, quality, experience and sustainability.

Temporary works required in connection with the Games will be contracted by the OOC. As such, the legislation relating to public tenders is not applicable, but Rio’s candidacy proposal committed to tender these temporary works in accordance with those rules.

The Olympic village and media village, on the other hand, will be private initiatives. The site is owned, and these facilities will be built, by Carvalho Hosken, a major Brazilian property developer, with financing at concessionary rates of interest guaranteed by the Brazilian Federal Savings Bank. However, the Organising Committee will be responsible for the overlay of temporary facilities and so will be involved throughout their development.

Other facilities, such as the International Broadcast Centre and the Media Centre will be developed by public private partnerships. These developments will subsequently host commercial, office and hotel facilities.

Transport projects will be coordinated by the OTTD, although they will be implemented by the relevant Government organs currently responsible for the various forms of transport. In the case of airports, this is INFRAERO (a public company owned by the federal Government); in the case of trains, this is SETRANS (the State transport authority); and in the case of roads and buses, this is DER (the State highways department) and various municipal departments. Private sector investment will be involved in road and rail projects.

Olympic Challenges and Dreams

You will note from the foregoing that delivering on Rio’s Olympic dream will depend on a rich tapestry of different governmental and non-governmental entities with interwoven responsibilities. One of the most important challenges will be ensuring transparency and accountability within this system. Rio’s experience in hosting the Pan-American Games provides a cautionary tale in this respect; having faced criticism for exceeding its budget, with allegations of over-charging by contractors, and failing to deliver the legacy infrastructure that was promised.

Cost control is always a challenge when the most important driver is finishing on time, but the risk of overruns can be minimized during the contracting process through appropriate sharing of risk and the inclusion of sufficient audit rights. Likewise, timely delivery must be properly addressed, with a focus on prevention, rather than remedies. What use are liquidated damages if the Olympic stadium is not ready when the eyes of the world turn to Rio, or London?

The Government is taking these issues seriously. The governance structure they have proposed contains a series of checks and balances. They have also launched a Rio 2016 transparency website to inform residents about development proposals, budgets and construction timetables.

It is to be hoped that lessons have been learned from the Pan-American Games, because if Rio is able to deliver on its ambitious plans for the Olympic Games in 2016, this will be a truly transformative event, giving this marvelous city the infrastructure it deserves and stimulating private investment. If it achieves this, Rio 2016 will be an international showcase for the best of Brazil.

CMS Cameron McKenna LLP has an Energy, Projects and Construction Group comprising 18 partners and over 100 lawyers. A team led by Victoria Peckett has been advising on major projects for the London Olympics for the last four years.