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

RIO DE JANEIRO - 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 (S$17.8 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 per cent of venues and infrastructure had been completed.

In Rio, only about 10 per cent 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 centre, 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 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 US$11 billion (S$14.6 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. This is partly because more than half the money is coming from the private sector through partnerships.

The total budget estimate, even with huge infrastructure projects like a subway extension and port regeneration, is also only half a per cent of gross domestic product.

In Greece the final cost was nearly 5 per cent 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 football 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."

Rio's City Hall, responsible for building the majority of venues, said in an email that projects were on schedule, with stadium contracts awarded and several venues expected to be completed this year.

"All facilities will receive test events before the Olympic Games," it added.


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, according to two sources following the process.

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.

Rio's City Hall said the mountain bike course would be finished by December.

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.