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Current Accounts | “Iffy Subway Contracts Maintained”

FB_vs_MB (1)

Source: Estado de S. Paulo | Brasilianas.Org

Investigations seek to discover cartel formation in current contracts.

By: Fernando Gallo e Fausto Macedo

State prosecutors (MPE) suspect that the collusion among railway sector companies denounced by Siemens, continued on into 2008. The MPE has been analyzing public works on Lines 1 and 3 of the São Paulo subway, which cost R$ 1.7 billion, since 2012.

Four current contracts between the S. Paulo subway authority and the companies denounced  by Siemens for cartel formation in the subway and commuter rail system — including Siemens itself — are the target of an MPE investigation.

Prosecutors probing the contracts suspect that the cartel, which according to Siemens lasted between 1998 and 2008, may have been more active than Siemens alleges.

The investigations, which began in 2012 and are still at a preliminary  stage, are based on information from a former Siemens employee in Brazil.

The contracts, at a nominal price of R$ 1.75 bllion, were celebrated in 2008 and 2009 for a period of 68 months. Siemens, along with Alstom, Iesa, Bombardier, Tejofran, Temoinsa, T’Trans and MPE, was  hired to renovate 98 trains on Lines 1 (Blue) and 3 (Red) of the subway system.

The state accounting tribunal (TCE), which has yet to complete its analysis of the contracts, … said that “there was llittle evidence of competition” in the bidding process, given that only one bid was received for each lot. There were four participatingconsortia, each of which was awarded the contract on which it had bid.

“This was not, properly speaking, a bidding process, but rather a process of consortium building,” said ex-TCE councillor Eduardo Bittencourt in 2010. … He claims he observed the same state of affairs in 2011 after the parties submitted their bids.

Regarding the option for a national rather than an international competition, Bittencourt pointed to the “risk of substantially reducing the level of competition in the dispute, which resulted in damages to the public treasury in a sector whose expansion and improvement are of vital importance to the well-being of the population, on whose shoulders the onus of all of these investments rests.”

Suspicions. In private, prosecutors say that the conditions for the contract bidding process indicate that the cartel was still operating in the subway system until at least June 2008, the date the refurbishment contract was awarded to the Alstom/Siemens consortium..

In its plea agreement with CADE, the federal antitrust authority, SIemens admitted committing fraud in two subway auctions, as did other participants.

Governor Geraldo Alckmin (PSDB) announced last week that the state will sue Siemens, but the current contracts with the company are being maintained.

An MPE task force is probing irregularities pointed out in June 2012 representation by state legislator Simão Pedro (PT), thet current Secretary of Public Services of the city of São Paulo. The accusations were made by a former Siemens employee.

Sought for comment, the secretary limited himself to saying that he has received accusations from a number of Metrô personnel and that he trusts the MPE to get to the bottom of the situation.

Among the irregularities in the contract is that the Metrô would spend the equivlanet of 86% of the value of a new train on the renovation of old trains — according to international best practices, when this cost reaches 60% it is recommended to buy new cars.

The MPE is also looking into whether the Metrô failed to execute the  clause that provides for the possibility of a financial rebalancing in cases where foreign exchange rates vary more than 10%. At the time the contract was executed, according to Pedro, the dollar was trending downward, a trend that was subsequently verified. Prosecutors are trying to discover why the company  hired four different executive projects, one for each lot , rather than one, costing the public treasury R$ 70 million.