Brazil Scandal Leaves Dreams Undone in Venezuela

By ANATOLY KURMANAEV, SHEYLA URDANETA and LUCIANA MAGALHAES

THE WALL STREET JOURNAL

Hugo Chávez contracted Odebrecht to build grand projects costing billions, but most remain frozen

Construction of the 8-mile Mercosur Bridge across Venezuela’s Orinoco River, shown in July 2015, is now frozen. PHOTO: MERIDITH KOHUT//BLOOMBERG NEWS

EL LABERINTO, Venezuela—A thousand abandoned concrete huts dot a plain beneath a remote mountain range here in western Venezuela, surrounded by empty, rusting silos and irrigation canals covered with weeds.

This is the Diluvio agro-industrial commune, built with $2 billion of Venezuelan capital by Brazilian construction giant Odebrecht SA, which last month admitted to giving out almost $800 million in bribes to secure contracts in 12 countries, including Venezuela.

The administration of late President Hugo Chávez awarded Odebrecht $11 billion in contracts to build communes like Diluvio in remote parts of the country and connect them to the heartland with grand bridges and railways, according to company employees and state documents.

But while the company completed roads, pipelines and railways elsewhere in Latin America and Africa, few of the dozens of projects contracted under Mr. Chávez came to fruition.

“They were throwing money by the billions into projects that were never going anywhere,” said a civil engineer who worked for Odebrecht at Diluvio.

What remains includes an unfinished, abandoned 8-mile bridge structure over the Orinoco River, four hours’ drive from the closest city in the southern Bolivar state. Further north, the skeleton of a soya processing plant put up by the company stands in the arid savanna of Anzoategui state; the fields there haven’t yielded one grain of soya.

The demise of such projects mirrors the collapse of the dreams of Mr. Chávez, a Socialist leader who vowed to use an oil windfall to transform his country into a network of agricultural and industrial communes.

Odebrecht latched on to those dreams, eventually pitching and winning infrastructure contracts in an advisory role to Mr. Chávez, according to current and former employees from the closely held firm.

The company paid $98 million to intermediaries for services in Venezuela, knowing the money would be passed as bribes to officials, according to a plea deal signed by the company and published in December by the U.S. Department of Justice.

Abandoned buildings at the unfinished Diluvio agro-industrial commune in western Venezuela. PHOTO: SHEYLA URDANETA/THE WALL STREET JOURNAL

Odebrecht declined to comment on the case and other aspects of its activities in Venezuela. “The company is implementing the best compliance practices, based on ethics, transparency and integrity,” it said in a statement in which it said it was committed to cooperating with authorities.

With the plea deal, Odebrecht agreed to pay the biggest corruption fine in history to authorities in Brazil, the U.S. and Switzerland. The deal doesn’t identify contracts for which the company paid bribes in Venezuela or elsewhere; the Justice Department declined to name the projects when contacted by The Wall Street Journal.

Venezuela’s information and planning ministries didn’t reply to requests for comment, nor did the office of Mr. Chávez’s successor, President Nicolás Maduro.

Odebrecht became Mr. Chávez’s contractor of choice with the help of his close ally and friend, the former Brazilian President Luiz Inácio Lula da Silva, according to current and former company employees.

Brazilian prosecutors accuse Mr. da Silva of illegal lobbying to win Odebrecht contracts in a number of countries outside Brazil, including Venezuela, according to a spokeswoman for the prosecutors. His lawyers deny any wrongdoing by their client, who also faces other charges in Brazil.

Venezuela under Mr. Chávez became Odebrecht’s biggest Latin American market outside Brazil, with a division reporting directly to Chief Executive Marcelo Odebrecht, according to a company executive. Mr. Odebrecht is now serving a 19-year prison sentence for corruption, money laundering and conspiracy.

Part of Odebrecht's abandoned Diluvio commune in western Venezuela. PHOTO: SHEYLA URDANETA/THE WALL STREET JOURNAL

The company donated $35 million to Mr. Chávez’s last presidential campaign in 2012, according to testimony given to Brazil’s Federal Police in February by a campaign adviser to Mr. da Silva’s political party.

It also hedged its bets, as it did in Brazil, by donating to parties across the political spectrum, according to the company executive. It made donations through third parties to the opposition-controlled government of Miranda state, where some of its biggest Venezuelan projects are located, the executive said. A spokeswoman for Miranda Gov. Henrique Capriles didn’t respond to a request for comment.

By the late 2000s, Odebrecht began pitching projects to Mr. Chávez that it said would win him more votes, and he consistently approved them, according to Odebrecht managers. With these new projects, Venezuela’s public-works focus shifted from utopian communes to metro and light-rail lines around the capital Caracas, according to former company employees.

Venezuela also gave billions of dollars to Belorussian, Russian, Iranian and Chinese contractors to build communes and large infrastructure projects, state documents show.

None of the communes was completed, nor were any of Mr. Chávez’s massive projects outside greater Caracas or Venezuela’s second-largest city, Maracaibo. Some were abandoned before he fell ill with cancer in 2011; others after his death in 2013. The collapse of oil prices in 2014 all but halted such construction.

At the impoverished indigenous villages around Diluvio—“Deluge” in English—residents say the demise of the commune project shattered their dream of a better life promised by Mr. Chávez’s Revolution.

Many here, like 31-year-old José Lopez, had worked for Odebrecht building the huts. They received farming courses to make the most of the promised irrigation system and materials to equip their new homes. “Everything was going well until we were told that Odebrecht is not coming back. Now nothing is left,” he said.

The canals were never completed and the crops never came. Most of the 500 or so families that had moved into the commune’s huts have returned to their villages, taking with them everything they could carry, down to doors and flooring.

“I believed it would change my life,” said a watchman at an evangelical church in one of the huts. “But it didn’t come to be; we were cheated.”

—Jeffrey Lewis in São Paulo contributed to this article.

Write to Anatoly Kurmanaev at Anatoly.kurmanaev@wsj.com and Luciana Magalhaes at Luciana.Magalhaes@wsj.com