500 days out, Rio risks Olympics cost surge as building lags

RIO DE JANEIRO, May 8 (Reuters) - With less than 500 days until Rio de Janeiro hosts the Olympic Games, construction of several venues has not started and some major contracts have not even been tendered, setting the stage for a last-minute rush that will likely drive up costs.

It may seem like a familiar script for major sporting events. As the start date nears, the headlines invariably focus on delays and the scramble to get ready on time, and yet the games end up going ahead without major hitches.

Rio 2016 may, though, end up being one of global sport’s closest calls yet, resulting in a race against time that would inevitably inflate the current 40-billion-real ($13.2 billion) price tag and add to the burden on Brazil’s struggling economy.

At around this stage in the run-up to the 2012 London Olympics, almost 80 percent of venues and infrastructure had been completed. In Rio, only about 10 percent of 56 Olympic construction, overlay and energy projects have been finished.

While the latter figure excludes 11 existing stadiums that need no renovation, the figures highlight a gulf in preparations that could put Rio in the same league as Athens in 2004, where only half of the venues were ready five months before the start.

In the Greek capital non-essential parts, such as a roof for the aquatics center, had to be scrapped. Worryingly for Rio, a quarter of projects have still not started and don’t even have fixed time frames or cost estimates.

“There’s still a lot to be done,” said Michael Payne, who worked at the International Olympic Committee (IOC) for over 20 years and helped Rio put together its bid, adding that a last-minute scramble was probably inevitable.

In Brazil, any hike to the overall cost will be hard to stomach for a country in the midst of an economic slump and a fiscal austerity drive. Public anger over issues including the inflated costs for World Cup stadiums brought more than a million people on to the streets in 2013.

A giant corruption scandal at state-run oil company Petrobras, which has implicated several construction firms delivering Olympic projects, adds to the possibility of delays.

So far companies and the government say the scandal will have no effect, but a number of smaller engineering firms have gone bankrupt as a result. Curtailed access to credit markets means cash flow could become a major headache for builders.

Brazil’s government, as with all Olympic hosts, has guaranteed to finance any cost overruns.

Costs tend to surge during a last-minute scramble ahead of big events as contractors can demand higher prices for urgent work.

For Athens, the final push, with three shifts being worked at every venue, meant the initial budget doubled to $11 billion. Economists say the debts the country took on to complete the games contributed to Greece’s financial decline.

For sure, Brazil could better absorb an expanded Olympics bill. The estimated total budget, even with huge infrastructure projects like a subway extension and port regeneration, is only half a percent of gross domestic product. In Greece the final cost was nearly 5 percent of the country’s GDP that year.

“The longer you wait the more expensive it gets,” said Bent Flyvbjerg, an Oxford University professor who specializes in major construction projects.

Brazilian officials bat away criticism, saying comparisons with other Olympics are misleading. They point to Brazil’s hosting of the soccer World Cup last year when, despite stadiums being handed over later than ever, the event was a success.

“London and Rio are very different. The laws are different, the processes are different. We are a developing country and we have our own characteristics,” said Marcelo Pedroso, acting head of the Public Olympic Authority. “I’m relaxed about saying that there is no problem with where we are in our preparations.”


Such confidence seems at odds with the scene at Deodoro, the second-largest cluster of Olympic venues located west of Rio, where 11 sports including equestrian, BMX biking and kayaking will take place.

Trucks now busily shift dirt around, but major construction is still limited. A few pieces of scaffolding, about two storeys high, emerge from the flattened red earth.

On the other side of town, organizers still need to tender contracts for a beach volleyball stadium on the sands of Copacabana. As for the picturesque but polluted Guanabara bay where the sailing will be held; the city has admitted promises to get it clean will not be kept.

Companies have also not yet been selected to build other temporary venues for rugby and mountain biking. These structures can be put together relatively quickly, but experts say long-term planning is vital to ensure the venues are safe and of high quality.

Last year, John Coates, a senior IOC official, described Rio’s preparations as the “worst I have experienced.” Since then work has accelerated and the IOC has adopted a softer tone, but acknowledges the timeline remains tight.

One of the most crucial contracts yet to be tendered is for the supply of power to Olympic venues, a complex job that involves hundreds of kilometers of cable and thousands of distribution panels, sources involved in the projects say.

In London the power contract was announced 20 months before the Games began. In Rio there are now just 15 months to go.

The delay can slow the progress of other projects, which need to be designed and built in conjunction with the power supplier to integrate the amount of available energy.

One thing, however, is certain: the Olympics start date of Aug. 5 next year.

“It means you just have to throw more money at the thing to get it finished... The only variable you have is to spend more money,” said Flyvbjerg. ($1 = 3.03 Brazilian reais) (Editing by Todd Benson and Stuart Grudgings)