Urban Renewal | No More Nova Luz

The victory of Fernando Haddad in the recent mayoral elections was bound to produce some high speed 180-degree turns in public policy, I thought.

The most visible so far has been the suspension of the Nova Luz urban renewal project for the historic downtown of S. Paulo. Some background posts:

• «Nova Luz, Uma Ova Luz» | The Day in Sambodian Urban Planning
• Panic in Sambôdia: From Crack City Nights To The New Light

Source: Rede Brasil Atual

São Paulo –  São Paulo mayor Fernando Haddad (PT), announced today — January 23 —  that he will transform a judicial order suspending construction on the Nova Luz urban renewal project into a opportunity to rethink the project from a fresh perspective, based on a plan to reoccupy the downtown area with an emphasis on the construction of residences.

“I have not seen the legal ruling yet, but certain aspects of the project bother me. For example, delegating to a private  agent the decision on which properties will be expropriated. I have never approved this way of delegating urban space,” he said.

The  Nova Luz project was created during the city administration of José Serra (2005-2006) and wound up as one of the main rallying points of his successor, Gilberto Kassab (PSD). It provided for the rezoning of 48 city blocks near the Luz train station by means of an «urban renewal concession» and granted the power of expropriation to private sector contractors. The judge in the case ruled that there had been no popular participation in the drafting of the measure.

Haddad’s proposal for the downtown area is to promote the reoccupation of the area by local residents. Yesterday, Haddad and state governor Geraldo Alckmin (PSDB) signed an agreement to develop living spaces in the downtown area.

According to Haddad, plans have already been drawn up for the construction of 28,000 residents in the area.  “We want São Paulo citizens to reoccupy the downtown area as residents and not just as workers in the area. For every resident, there are five more persons working in the area,” he said.

President of the Associação Amo a Luz, Paula Ribas, who has lived in the area for more than 30 years, Haddad’s decision to abandon the Nova Luz projects of his predecessors is excellent news. The Association was the plaintiff in the civil suit that led to the suspension of the project. “We had a meeting to urban development secretary Fernando de Melo Franco in late December, and abandoning the project already seemed to be a prime directive of the new adminstration,”he said.

Ribas said the new plan is a good one, but added that City Hall still has to rezone the area, take into account commercial properties, and cope with the region’s social ills, such as crack-addicted street dwellers.

A controversial program of forced hospitalization for street addicts is about to be rolled out.

Electricity | Waiting for the Waters of March

As the date draws near for the early renegotiation of generation, transmission and distribution concessions in the Brazilian electrical sector,  Jornal da Energia suggests that major players — including the state-owned Copel and Cesp and the privately owned Tractebel — will fare better in the stock markets than will companies that agreed to the renegotiation.

I cannot offer an authoritative translation of the article because I am still trying to catch up on my investor education regarding the ins, outs and bureaucratic tesseracts of the industry.

It does seem plausible that the state-owned companies refusing early renegotiation, the aim of which is to reduce electricity retail prices by 20%, represent political alliances acting in concert.

Copel, Cesp, and Cemig are all owned and operated governments of the opposition PSDB party. Their combined market share — my half-assed pie chart, above — represents a near-perfect counterweight to the federal Eletrobras.

Cemig is not, however, included in the list of higher performing concessionaires, and has demonstrated systematic seasonal volatility over the past 5 years — above, the company’s ADRs.

Where is the Cash for Carnaval?

In certain Brazilian cities, the theme music for 2013 ought to be the famous Carnaval march “Me dá um dinheiro aí“ — Give me some money! — by the brothers  Homero, Glauco and Ivan Ferreira.

A vintage clip of the marchinha in question is provided, above.

Assuming, that is, that Carnaval will be celebrated in those towns.

Related story: São Luiz do Paraitinga, famous for its syncopated brass band music, outlaws funk during Carnaval celebration

Saddled with debt by previous administrations and tightening their belt accordingly, incoming mayors continue to cut funds allocated to the escolas and the blocos, which has meant the postponement or even the cancellation of traditional celebrations. All because of a budget shortfall.

High Tension in Low-Lying Places | NIMBY in the Alto de Pinheiros

I suppose I have lived here in Sambodia long enough now to be drawn in to local NIMBYism — «not in my backyard» lobbying in defense of narrow interests.

Hell, taking a gander at our IPTU — property taxes, basically — is turning me into someone with a valid opinion on the subject.

A case in point, featured on Page C1 of the Folha de S. Paulo today:

Source: Folha de S.Paulo
Translation: C. Brayton

The legal battle between residents of the Alto de Pinheiros neighborhood — Western Zone — and electricity supplier AES Eletropaulo over the network of high-tension wires that crosses the neighborhood has arrived at the federal supreme court, the STF.

• System is totally safe, company says
• Electricity grid should be buried, says local resident
• Cell phone antennas also the target of lawsuits.

The STF will hold a three-day public hearing in March to discuss whether high-tension towers lead to health problems, such as cancer.

Residents are paying international specialists to defend their position in Brasília.

Elite Squad II | Reviewing the Review

I read it on the Web site of the Instituto Ludwig von Mises Brasil.

Cristiano Fiori Chiocca reviews the film Tropa de Elite II — Elite Squad II: The Enemy Within, directed by José Padilha.

As I may have mentioned, a recent regulatory clampdown on audiovisual content producers and distributors here in Brazil means that foreign-owned cable TV operations — Sony, Disney, Universal, Fox, A&E, TNT, Telecine, AXN, MGM, HBO, MAX, NatGeo, Discovery, History Channel … must air a certain proportion of content «made in Brazil».

I always think what a shame it is to see Brazilian theatrical talent relegated to the quick as a wink dubbing credits at the end of every Simpsons episode — and how it grates on your nerves that the dubbers chose to make Bart a baritone.

It is equally disappointing to see that the available back catalogue of the Brazilian film industry seems so shallow, though we hope that programmers will start digging deeper, striking it rich with such classics as Assalto ao Trêm-Pagador.

At any rate,, as our cable plan complies with regulation, we are starting to see the same movies over and over and over  and over, day after day after day — case in point: Elite Squad and Elite Squad II: The Enemy Within, two films about official corruption and the culture of violence in Rio de Janeiro.

This sort of regulatory activism  is just the sort of thing that drives the libertarians of the Instituto Millenium crazy.

Closely associated with ABERT, the Association of Radio and Television Broadcasters, on the one hand, and neoconservative and neoliberal movements in Germany and the U.S. — its game plan comes straight from the Atlas Toolkit — IMIL is mostly a forum for venomous libertarian rantings of the third degree.

Veja and the Virginity Auction

We are all prostitutes
Everybody has their price …
– The Pop Group

Source:  Lux | Portugal

Catarina Migliorini, the young Brazilian woman who became widely known for the «quasi-unprecedented» auctioning of her virginity, is on the cover of Editora Abril’s Playboy Brasil, January edition.

Catarina’s virginity was auctioned off to a Japanese bidder for $780,000, or about €591,000.

The contract must withstand judicial review before being consummated. According to Catarina, the deal  with the Japanese man is for the act to occur aboard an aircraft, during a private flight.

The young girl achieved such notoriety during the auction that she plans to film a documentary on the subject in Australia.

Feminist-libertarian blogger Cynthia Semíramis offers a close reading of the publicity stunt and its gender-political ramifications.

It is curious to observe how Veja, a bastion of capitalism and the free market, changes course when a woman decides to sell her virginity — as is her right! — in a process that is strictly capitalist in nature.

Expecting Veja to navigate according to any steady moral compass at all is poor political and cultural seamanship.

What I personally found curious was the double use made of the episode by Veja and its sister publication Playboy Brasil.

Is everything for sale? Votes? Political support? Citizenship? Justice? Blood? Kidneys? Babies?

The Veja cover — above — uses the case to promote a classic moral panic

Our barcoded Jezebel is framed as an allegory for money changers in the temple and the 30 pieces of silver and all the other elements of a sense of diffuse and pervasive moral decay: cultural, political, economic, religious. She is the muse of the «mensalão» — the money-laundering slush fund scandals affecting both government and opposition.

Those who start the panic when they fear a threat to prevailing social or cultural values are known by researchers as moral entrepreneurs, while people who supposedly threaten the social order have been described as “folk devils”. –Wikipedia

This commonplace theme is frequently found in the writings of Globo columnist Arnaldo Jabor, author of Pornopolitica. It is, in fact, Jabor’s one-note samba.

I have used up all the scale I know
and in the end I find
I’ve come to nothing, or nearly nothing

There is a long tradition of moral panic journalism over the past century in the Brazilian press — including the most tragic  moral entrepreneur of them all, Carlos Lacerda.

Take a trivial example: a comment on the Web site of the opposition-learning Consultor Jurídico regarding a recent influence peddling charge involving second- and third-echelon officials of  the federal presidency.

The big lie is one of the cardinal sins that make up the molecular structure of this gang of thieves, bums and scam artists that compose the PT and its “allied base” — the latter made up of measly little political prostitution rings who parade their wares in the public square.

Some enterprising rhetoric grad student should attempt some day a critical history of Brazilian indignation.

Paperback Writer & The Bearback Rider

The image of Catarina straddling a large white teddy bear borders on the pedophiliac.

The cover shot betrays the widely documented and typical preference of the Brazilian gentleman reader for the bunda rather than the breasts.

Nothing could be more distinct than the conceptual framing of the two covers.

The Playboy Catarina takes us on an innocent romp through the nursery  and extends to Elvis the invitation he sang about:

Let me be your teddy bear

I have not much time to bring to bear on the topic at the moment, but it would be interesting to compare the case of Catarina with that of Mônica Velloso, the political marketer and ex-Globo journalist who, during her long-term affair with a federal senator, secretly taped their pillow tall, in a scandal that led to the senator’s stepping down from the presidency of the Senate.

«Diogo Mainardi: All politicians are bums to some degree»

A curious set of synergies were at work in that case.

After Mônica and her lawyer negotiated an exclusive interview with Veja — Mystery woman reveals all! – the same lawyer negotiated the fee for her appearance in the altogether — Mystery woman reveals all! — in Playboy, a sister publication to Veja.

The centerfold ran with an exclusive interview of Veja columnist and noted moral entrepreneur Diogo Mainardi, above.

It should probably come as no surprise, of course, that different magazines targeting different readerships would differ in their overall orientation and editorial line. It should probably not come as a surprise, by the same token, that Abril magazines engage in editorial synergies when they want or need to.

The degree of centralization and cross-promotion in content production at Abril would be an interesting factoid to have on  hand.

Remembering Fawn

Finally, the case is of a certain historical interest to note the parallels with the Fawn Hall scandal — the former secretary was named a sex star of 1987 — [*] named  during the Iran-Contra hearings.

Catarina signs a contract at the offices of the Abril group. Source: Veja.com

Risk Shopping | Brazilian Cases in Point

Source: Folha de S.Paulo.

Risk evaluation agencies assigned high ratings and low risk to several Brazilian banks that recently failed.

Banco BVA, for example, received a BBB rating from ratings agency LF Rating four days before suffering a Central Bank intervention on October 19.

Austin Rating assigned  BVA a BBB+ less than two months before its collapse.

The same occurred with  Cruzeiro do Sul, liquidated in September with R$ 3.1 billion in debt, and  Panamericano, which underwent a federal intervention on November 9, 2010.

Esteemed customer: you will be able to access funds in your StarCash account until December 13, 2012. Starting December 28, 2012, control will pass to Banco Bonsuceso, which will deal with new cards, card replacements, and so on

Risk ratings affect companies in one of two ways. On one hand, investors use the ratings as a guide to potential investment. Some funds invest exclusively in paper declared risk-free .

On the other hand, financiers evaluate risk using these ratings: the lower the rating, the more expensive it is to borrow money.

With the blessing of the ratings agencies, pension funds such as Petros, Brazil’s second largest, is able to invest in riskier fixed income paper, stamped “safe” by the agencies.  Petros had R$ 80 million in three funds with ties to BVA and invested in the bank’s bonds.

Shopping for Ratings

A practice still allowed by the market aggravated the problem: the so-called “shopping mall of ratings.”Companies needing positive ratings request a preliminary report from a given agency. If the rating is low, they try again with another agency, and so on until receiving the rating desired.

Since it is not yet required to make public these preliminary findings, the investor never suspects that the company has a bad credit rating.

To counter the negative effeects of this practice, the Brazilian SEC — the CVM — will as of January 2013 require the publication of preliminary ratings reports on the Web site of the rating agency

“This new CVM rule should mitigate the «ratings shopping center»  deve mitigar esse shopping de ratings,” says Rafael Guedes, CEO of Fitch Ratings Brasil.

“In Brazil, every agency has its own criteria, and there are major discrepancies,”say Sergio Garibian, ratings director, Standard & Poor’s, Latin America.

In February 2006, Cruzeiro do Sul exited its contract with Fitch, which had assigned it a rating of BB+(bra),  with “elevlalted risk of default.” The same year, the bank signed with Moody’s, which assigned it Baa1 for long-term deposits, and then three months later raised it toA3. Both are considered indicative of investment grade.

Responding to these contradictions, federal deputy Eduardo da Fonte (PP-PE) presented a bill that would make agencies responsible for “damages caused by intentional or negligent conduct in arriving at risk ratings.

“It is not norml for some agencies to classify a bank as low-risk and then watch it go out of business a few days later,” Fonte says. “Either the bank coopted the agency or else the agency is not qualified to rate anyone.”

Erivelto Rodrigues, CEO Austin Rating, says the “shopping mall of ratings” only occur in structures such as FIDCs — investment funds in rights to future receivables.”I don’t believe this happens with companies and banks,” he said.

Para Paulo Rabelo de Castro, CEO of SR Rating, which classified none of the banks in question, “strict regulation is required at a moment when the government is trying to stimulate the market for debentures.”

Brazil’s largest pension fund, Previ only accepts ratings from three agenices: S&P, Moody’sand  Fitch. Funcef, meanwhile, buys private debt instruments that are evaluated by at least one ratings agency, it matters not which.

Funcef was holding notes from both  PanAmericano and Cruzeiro do Sul. In the  Cruzeiro case, it received its entire investment back thanks to a special guarantee clause.

The Risk Mall 101

I can hardly claim to be an expert on the subject, but a study byVasiliki Skreta and Laura Veldkamp — «Ratings Shopping and Asset Complexity: A Theory of Ratings Inflation» seems like a good place to start. The abstract:

Many identify inflated credit ratings as one contributor to the recent financial market turmoil. We develop an equilibrium model of the market for ratings and use it to examine possible origins of and cures for ratings inflation. In the model, asset issuers can shop for ratings — observe multiple ratings and disclose only the most favorable — before auctioning their assets.

When assets are simple, agencies’ ratings are similar and the incentive to ratings shop is low. When assets are sufficiently complex, ratings differ enough that an incentive to shop emerges.

Thus, an increase in the complexity of recently-issued securities could create a systematic bias in disclosed ratings, despite the fact that each ratings agency produces an unbiased estimate of the asset’s true quality.

Increasing competition among agencies would only worsen this problem. Switching to an investor-initiated ratings system alleviates the bias, but could collapse the market for information.

The lede:

Most market observers attribute the recent credit crunch to a confluence of factors: excess leverage, underestimation of risk, opacity, lax screening by mortgage originators, improperly estimated correlation between bundled assets, market-distorting regulations, a rise in the popularity of new asset classes whose risks were diffcult to evaluate, as well as credit rating agency conflicts of interest.

This paper investigates the misrating of structured credit products, widely cited as one contributor to the crisis. Our main objective is to critically examine two arguments about why ratings problems arose and to show how combining the two could produce a ratings bias that imperfectly informed investors would not anticipate.

One argument focuses on asset issuers who shop for the highest ratings. The New York Times explains: The banks pay only if [the ratings agency] delivers the desired rating . . . If Moody’s and a client bank don’t see eye-to-eye, the bank can either tweak the numbers or try its luck with a competitor like S&P, a process known as ratings shopping.

A final thought: the Sadia and Aracruz derivatives crises of 2007 — exchange rate swaps — seem to illustrate the same logic. Risky assets kept off the books until the roller coaster came to a full stop..

In reality, the two largest agencies, Moody’s and S&P, account for 80 percent of market share. When a structured credit product is issued, the issuer typically proposes a structure to an agency and asks it for a \shadow rating.” This rating is private information between the agency and the issuer, unless the issuer pays the agency to make the rating offcial and publicize it. In the model, an asset issuer can purchase and make public one or two signals about the payoff of an asset. We call these signals “ratings.” After choosing the number of ratings to observe and which ones to make public, the issuer holds an auction for his assets. After each investor submits a menu of price-quantity pairs, the asset issuer sets the highest market-clearing price for his asset, and all investors pay that price per share.

Brazilian Electricity Wars | The R$ 5 Billion Feud

Surprisingly informative:

• Electricity sector in Brazil | Wikipedia

The history lesson is especially useful, as are the league tables – which may need touching up, however. The Brazilian government has set up a useful informational page on the New Model for the Electricity Sector, passed in 2004. Three of the largest state-owned — as opposed to federally-owned — generation groups are refusing to play ball.

IstoÉ Dinheiro magazine leads with a mocking headline:

Honey, I Shrank CESP

São Paulo electricity concessionaire will lose nearly 80% of its revenues by 2015. Learn how other companies who refused the federal plan to reduce electricity bills are faring.

After a period of intense political gamesmanship, scores of Excel spreadsheets and a sharp decline in their share prices — an estimated R$19.2 billion — Cesp, Cemig e Copel decided last week not to accept the federal goverment’s new rules for the electricity sector.

The three companies represent 60% of the generation capacity in play as part of Dilma Rousseff’s plan to reduce energy prices by 20% in 2013.

The most emblematic of these is Cesp, whose directors are overseen by governor Geraldo Alckmin of the opposition PSDB. In saying no to the proposal, the state-owned CESP will lose 77.8% of its revenues starting in 2015. Based on data from 2011, this implies a loss of R$ 2.3 billion in cash reserves, currently at R$ 3 billion.

[Caption] Alckmin: Govenor prefers to reduce the size of CESP rather than reduce the lighting bill of São Paulo residents.

“CESP will become a minor company,” says Ricardo Corrêa of the Ativa Corretora brokerage firm.

In Minas Gerais and Paranhá, respectively, Cemig and Copel have renewed their transmission concessions but plan to give up a number of generation plants, and so will suffer the same effects in 2015.

The three companies have three PSDB state governments as majority shareholders: the Alckmin government, in São Paulo, along with Antonio Anastasia in Minas Gerais and Beto Richa in Paraná. In turning down the concession renewals, these state-owned firms may make it impossible for Dilma Rousseff to keep her promise to reduce the average energy bill by 20,2% starting in March 2013.

Leaving out Cesp, Cemig and Copel, the guaranteed savings would be just 16.2%, according to data from the ministry of mines and energy.

We will take it, for now, and thank you very much.

The president, however, seems firm in her desire to provide cheaper electricity. “Reducing the price of energy is a decision from which the government will not back down, although it laments the lack of sensitivity on the part of those who fail to recognize the importance of this step for the sustainable growth of our economy,”Dilma told a group of business executives in Brasilia on Wednesday.

To realize its target, the government has a tax gambit up its sleeve, market analysts say.

“All it takes is a reduction of the PIS/Cofins tax on the energy bill,” says Nivalde de Castro, coordinator of the energy studies group at UFRJ.

Amid an exchange of accusations with the federal government, São Paulo says that the CESP decision was entirely technical.

Proof of this, according to state energy secretary José Aníbal, is that another of São Paulo’s state-owned firms, EMAE, accepted the federal government’s conditions and signed the contract. In the case of Cesp, the difference between the indemnity for unamortized investments offered by the feds and the sum judged correct by the state is R$ 5.4 billion.

Márcio Zimmermann, federal executive secretary for mines and energy, says: “We cannot understand the logic that led this company not to renew its concessions.” But CESP accepted lower energy prices, according to Anibal, it would have difficulty honoring existing energy contracts, worth R$130 Mw/h on average. “They suggested we buy this energy on the free market, but the price there is R$ 200 Mw/h,” Anibal said. “I challenge the federal government to show us their calculation. The situation of Cemig and Copel and very different from that of CESP. On Wednesday, Djalma de Morais, CEO of Cemig, took part in an analyst conference call and said that eventual losses, and especially those in the area of transmission, will be compensated with internal adjustments.

“Our plan provides for a 20% reduction of operating expenses in this segment, as a method of controlling costs,” Morais said. The CESP executive announced that the company will maintain its investment plan and, if necessary, will go to court to guarantee the right to renew concessions under the old rules, which apply to 3 of its 21 generation plants.

In the Senate, Aécio Neves (PSDB-MG) gave a speech in which he accused the presidency of “committing a foolish act in tryiing to reduce the price at the cost of bankrupting the sector.”

Currently, generation is responsible for 40% of Cemig revenues. Transmission accounts for another 20%. The rest is accounted for under “other businesses,” which include supplying natural gas to residences and industry.

“In the future, gas may also be used to generate electricity,” says Luiz Fernando Rolla, Cemig COO, who does not rule out the acquisition or construction of new plants.

Copel is already traveling down that path. By year’s end, the Mauá and Cavernoso 2 generating plants, with joint capacity of 380 MW, will begin operations. That is more than the 272 MW in capacity that Copel did not renew. Like Cemig, Copel adhered to the federal program only with respect to its transmission assets. In this case, the company took a hard blow. “Our revenues in this area are down 58%,” the company said in a note to investors.

Though they did not release their spreadsheets, Mines and Energy and ANEEL affirmed that the sums offered are more than sufficient to guarantee the profitability of the generation sector. “We do not understand the logic behind the refusal of these companies to renegotiate and renew,” said Márcio Zimmermann

Eletrobras, controlled by the federal government, adhered in full to the new rules, reasoning that a state-owned firm must take into account not only its balance sheet but is social role as well. Eletrobras intends to compensate for reduced income with cost-control measures.

“We will review our expenses and investments in the short, middle and long term,” said José da Costa, CEO Eletrobras. Investors did not like this news and Eletrobras shares plummeted 50%, costing it R$ 11.6 billion in market cap. Cesp, meanwhile, by not renewing its concessions, has laid to rest a persistent dream of the PSDB: to privatize the company.

“Not viable,” said Aníbal. “Who would want to buy a company with two concessions expiring in the next two and a half years?” The only other asset in the company’s portfolio is a large hydroelectric plant in Porto Primavera, whose concession expires in 2028. If it wants to rebuild its profile, CESP will have to compete in future auctions, a possibility no discarded by the S. Paulo state government.

Taking Out A Contract | Waterfall’s São Paulo Dealings

The oppositionist Diário de Manhã  warns Brazilian federal deputies in the government alliance that an investigation of crooked contracting practices in the «Waterfall» case might also hurt the ruling PT and the allied PMDB.

Recently read:

Leandro Fortes, “Cachoeira leaves fingerprints on São Paulo,” Carta Capital(Brazil), 19 September 2012.

I translate a passage or two.

 Technical experts working for the federal parliamentary inquiry into mob boss and lobbyist Carlinhos Cachoeira have just finished a complete survey of all contracts signed by the São Paulo state and municipal governments and Delta, a private contractor linked to the criminal organization headed by the numbers racketeer.

Linked how? That’s the interesting question. Leandro Fortes calls him a “silent partner” of and lobbyist for the engineering firm, one of the largest in Brazil.

In an intriguing sidelight, the scheme apparently used journalists, both witting and unwitting, to smear, with screaming headlines, rivals and government officials standing in the way of its interests . Fortes cites past negotiations over a report that ran in Globo’s Época magazine, for example:

The revelation of a relationship between Globo and its magazine and the group headed by the numbers boss comes just as Leonardo Gagno, the attorney for Cachoeira right-hand man and black bag operator Dadá, told the congressional commission that Dadá and his colleague were tasked with “feeding stories to the news media,” and that “Cachoeira’s interest in using [information warfare] as a part of doing business was well-known by everyone.”

«informações» = information, intelligence, counterintelligence

But back to CartaCapital and Leandro.

The alleged scheme involves sums in excess of R$ 1.2 billion. The results of the study reveal the relationship of PSDB governments with the parent organization of the Cachoeira conspiracy and cast suspicion on seven-figure contracts negotiated by the Kassab municipal government in São Paulo, supposedly influenced by the former DEM senator for Goias, Demóstenes Torres.

Kassab was a member of the DEM until a year or so ago when he jumped ship to the newly founded PSD.

Delta received the contract for the urban renewal of the Paraisópolis shantytown under the Kassab government.

The project is being used as a model urban renewal project in TV inserts for mayoral candidate José Serra.

The indefatigable Paulo Preto puts in an appearance as well. A federal police telephone wiretap conducted during Operation Monte Carlo captured a conversation between Cachoeira and Cláudio Abreu, Delta’s regional director for the Brazilian Center-West, in which th two men discuss Delta’s contracts with the São Paulo city government.

Dated January 31, 2012, the wiretap captures the numbers and bingo boss asking Abreu about a conversation between Delta’s former CEO, Fernando Cavendish and Mayor Kassab about an as yet unidentified contract.

The Delta director makes a revelation: As a favor to Senator Torres, São Paulo’s mayor supposedly tripled the value of the unidentified contract. The converation runs as follows, transcribed from an audio file to which CartaCapital had access:

– Carlinhos Cachoeira: One other thing, Cláudio, Did you speak to Fernando (Cavendish) about that thing with Kassab?

– Cláudio Abreu: … I am going to meet with him later, I am going over there to give him an answer. But tell me, what’s the deal over there? The contract, right? He did the thing, didn’t he? He did it for the Professor (Demóstenes Torres), right?

– Cachoeira: He (Kassab) said he tripled the contract for him (Demóstenes).

An analysis conducted by the CPI indicates that São Paulo city hall signed three contracts with Delta between 2004 and 2012, worth a total of 307.6 million.

A contract with the Companhia de Limpeza Urbana (Comlurb) – street sweeping and garbage collection — was worth R$ 93.7 million. A contract for the urban renewal of the Paraisópolis shantytown, signed with the city housing authority, was worth R$ 15.4 million. A contract with São Paulo Transporte S.A. (SPTrans) — public transportation — was worth R$ 12.2 million.

Given the timeframe of the police surveillance, it is not yet possible to detect exactly which of the contracts was allegedly tripled, since all three were continued into 2012.

City hall spokesman Emerson Figueiredo said that Mayor Kassab “is unaware of this dialogue and its supposed protagonists and considers its content groundless.”

Relations between Delta and the São Paulo state government involve larger sums, totaling R$ 943 million in today’s reais. The contracts were signed under state governors José Serra (R$ 765 million) and Geraldo Alckmin (R$ 178 million) between 2002 and 2012. The deals were signed at the instance of five state-owned firms: Dersa and DER (highways), Daee (hydroelectric power), Sabesp (water and sewage treatment), and Unicamp (state university).

The most significant project for which the state contracted Delta was as part of the New Tiete Consortium, which undertook to broaden the Tiete beltway for R$ 150 million. The contract ran from June 22, 2009 to April 10, 2012. Based on an analysis of the transfer of consortium funds to Delta’s accounts, the CPI’s technicians concluded that the companies involved have no controls over the allocation of credits and debits to consortium members. In this way, one firm may subcontract another and pay it the entire amount due for the service. Using this subterfuge, and based on the padding of invoices or  falsification of receipts for services rendered, the difference can be returned to the subcontractor with absolutely no oversight or disclosure.

Delta may have mounted a money laundering scheme using such bureaucratic subterfuges. The experts also noted that Delta’s subcontractors enter into contracts with one another … and transfer funds to one another without accounting for the sums transferred.

The congressional inquiry into São Paulo public works contracts coincides with the results of an earlier survey by Conceição Lemes, of the Web log Viomundo, based on data from the Transparência São Paulo Web log, which specializes in the analyis of public spending.

Based on this information, it was possible to detect that the contract with Dersa with respect to the Tiete project (R$ 415 million) was signed by Paulo Vieira de Souza, aka «Paulo Preto», Dersa’s director of engineering until April 2010, and by Dersa CEO and superintendent Delson Amador.

With intimate ties to the PSDB — social democrats — «Black Paulo» was reputedly a fundraiser for party election campaigns and at one point was accused of making off with R$ 4 million supposedly earmarked for the Serra for President campaign.

Black Paulo and Amador also figure in the federal police Operation Sandcastle in which executives of public works contractor Camargo Corrêa were accused of mounting a bribery scheme in public works projects.

In 1997, when Andrea Matarazzo of the PSDB presided over the company, Delson Amador was named CEO of the state-owned electric company (Cesp),which was later privatized.

He was responsible for auditing public works projects involving Camargo Corrêa, such as the Porto Primavera generation plant and the Ponte Pauliceia, a bridge over the Paraná River linking Pauliceia, São Paulo and Brasilândia, Mato Grosso do Sul. Amador was Matarazzo’s chief of staff when Matarazzo headed the Sé subprefecture in metro São Paulo.

A certificate issued by the São Paulo Junta Comercial – the corporations registry – indicates that Heraldo Puccini Neto, Delta’s regional director for São Paulo and the Brazilian South, is also the legal representative of the Nova Tietê consortium.

Federal police wiretaps show that Puccini is one of the closest confidants of Carlinhos Cachoeira. Documents from federal police Operation Monte Carlo point to to Puccini as one of the persons used by the scheme to prepare bids for public works projects.

Delta Force | A Billion-Real Lobby?

“Supreme Court justice received donations from the Marcos Valério money laundering scheme” — CartaCapital accuses

The construction firm Delta is the largest single contractor in the Brazilian PAC, the federal «growth acceleration» program.

The construction firm Delta has been implicated in the «Charlie Waterfall» affair, currently under investigation by a joint comission of the federal legislature.

For some reason, these fresh facts have not erupted into a media scandal — partly because the congressional commission empaneled to look into the case is in recess during the period leading up to the October midterm elections.

… and partly because it is in the interest of no one to argue that corruption is rampant, rather than that the custo Brasil — risks inherent to the Brazilian business environment —  is being actively confronted and making progress.

That is why the Lula and Dilma governments have received high marks from international observers for their campaigns against corruption and white-collar financial crimes.

A 2009 English-language presentation by the federal Comptroller General — CGU — outlines new legislation passed in recent years and outlines future priorities. The CGU has done an impressive job since its inauguration under Lula I. Or at least I have been impressed!

It may also be an opportune time to shift focus away from new revelations because the ruling PSDB in São Paulo may have signed funky contracts with Delta as well. Emblematic: The Big Dig-delayed cleanup of the Tiete River. The stench of sulphur abides. This I have witnessed myself.

Delta has reportedly been quitely withdrawing from its current federal contracts in order to avoid the spotlight. The government may move to ban it from future bid solicitations.