Rio gives up on Olympic pledge as bay clean-up workers fired

[RIO DE JANEIRO] Rio de Janeiro is abandoning its promise to treat the raw sewage polluting the Guanabara Bay as workers building a pipeline network and treatment plant are being fired and the state sinks into fiscal crisis.

A US$450 million loan agreement with the Inter-American Development Bank to build the infrastructure needed to collect and treat sewage will expire in March and the Brazilian Treasury won't allow its extension, according to Rio's environment secretariat.

That means works will slow to a halt, its press office said in a statement. In a written response late Friday the Treasury said that legal doubts prevented its external financing commission from evaluating the loan extension requested by Rio two months ago.

Of all the pledges to win Olympics hosting rights, ceasing the torrents of raw sewage into its postcard bay became one of Rio's most high-profile legacy projects, and its most glaring failure. Authorities said two years ahead of the games that the IDB-financed program wouldn't be done in time for the sailing competition, but maintained hope for its completion thereafter.

Rio's government has since declared a state of fiscal emergency and is struggling to pay civil servants while it pushes for austerity measures and lobbies Finance Minister Henrique Meirelles for federal aid.

The so-called PSAM program to clean the bay, which features the famed Sugarloaf Mountain at its mouth, entailed hiring a consortium of companies for massive build-out of the existing sewerage network and construction of a new treatment plant. The financial director of the consortium's leader, Sondotecnica, referred questions about the firings to the state's environment secretariat, which said dozens of workers have already been served dismissal notices.

"We have the IDB's support to continue this program, which is fundamental for the Guanabara Bay, and we're being impeded by Minister Henrique Meirelles," Andrea Correa, Rio's environment secretary who's temporarily on leave to participate in the austerity legislation vote, said in an e-mailed statement. "I hope good sense and sensibility prevail and President Michel Temer saves this program."

Doing so requires extending the IDB loan agreement for two years because works only gained traction in 2015, the environment secretariat said in the statement. Five years after the loan was approved, the IDB has disbursed less than one-fifth of the funds, according to its website. Jockeying for control of the program and attempts to divert IDB funds hampered its advance, according to a Bloomberg Businessweek investigation published in July.

As part of the loan's terms, Rio agreed to provide an additional US$188 million - no small sum for a state whose finances are among the most precarious in Brazil, partly due to a drop in oil revenues but also a result of billions of reais in tax breaks it granted to companies.

Governor Luiz Fernando Pezao played a key role in striking a grand bargain that renegotiated states' debts, and continues to shuttle back and forth to Brasilia to address the crisis. Relief achieved thus far hasn't prevented salary delays for teachers, policemen and judges.

Rio's water and sewage utility estimates about half the waste produced by the millions of residents around the Guanabara Bay is treated. Critics say that figure is overestimated. Some treatment plants are inactive or operating at reduced capacity after the 1990's program that produced them, also partly funded by the IDB, failed to complete associated sewerage networks.

The IDB declined to comment on the firings or whether they effectively mean the end to the PSAM project, and said in an e-mail that is an issue for Rio de Janeiro. The Treasury said it will evaluate the loan extension proposal in a meeting scheduled for Dec 21, after dispelling doubts regarding the use of federal guarantees.

BLOOMBERG