BOGOTA, Feb 22 (Reuters) - Colombia's government has begun termination of an $861 million contract to restore navigability of the Magdalena River that was led by Brazil's Odebrecht, the government said on Wednesday.
The decision was made after Odebrecht, which faces allegations of corruption in Colombia and other Latin American countries, failed to provide funding to develop the project or cede the concession to another company.
"We will start the termination process and directly assume the dredging of the river via (government) public works," said Luis Fernando Andrade, director of Cormagdalena, the government agency in charge of the river tributary.
PowerChina has expressed interest in taking Odebrecht's 87 percent stake in the Navelena consortium, which ran the dredging project. It is conducting technical, legal and financial analysis of the project, the government said.
"If the contract cannot be effectively delivered with PowerChina Limited Colombia, Cormagdalena will guarantee normal navigation on the Magdalena River by signing public works contracts," Andrade said.
Odebrecht received the concession in 2014 and construction was originally slated to begin in June 2016.
The government's decision came after Japan's Sumitomo Mitsui bank pulled $250 million in financing from the project in January as the Odebrecht scandal was erupting.
U.S. prosecutors have accused Odebrecht of paying bribes connected to projects in countries including Brazil, Argentina, Colombia, Mexico and Venezuela between 2002 and 2016. The company has admitted to paying bribes to officials in 12 countries, mostly in Latin America, to help secure lucrative contracts
The Navelena consortium, which also includes Colombia's Valorcon, had until Wednesday to find alternative financing, or the contract would be scrapped.
The dredging would increase cargo transport fivefold on a 256-km (159-mile) section of the river to some 10 million tonnes by 2029 to reduce freight costs and help increase exports by commodities producers and agricultural companies.
Navelena sought to benefit from its investment in the project through toll rates for seven years after completing the modernization of the 908-km (564-mile) waterway. (Reporting by Helen Murphy; Editing by Peter Cooney)