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Exclusive - Peru would face 'huge sum' if it scraps Odebrecht contract: junior partner
December 3, 2016 / 12:17 AM / a year ago

Exclusive - Peru would face 'huge sum' if it scraps Odebrecht contract: junior partner

PARACAS, Peru (Reuters) - Odebrecht SA’s junior partner on a natural gas pipeline project in Peru told Reuters Friday that the government would have to pay $1.2 billion to $1.4 billion in compensation if it decides to rescind the current contract as financing is stuck on corruption concerns.

Resuming construction on the $5 billion project could take up to three years if the Odebrecht-led group misses a January financing deadline and the government holds a new auction, said Mario Alvarado, corporate general manager of Peruvian construction group Grana y Montero.

Grana controls a 20 percent stake in the pipeline project, Spanish energy company Enagas SA 25 percent, and Odebrecht - a Brazilian construction conglomerate ensnared in Brazil’s biggest ever corruption scandal - 55 percent.

In an interview on the sidelines of a business summit, Alvarado said he is still optimistic Odebrecht will be able to find a company to replace it on the project - a condition of banks that would provide a $4.1 billion loan for construction.

A deal that Odebrecht struck with U.S.-based Sempra Energy collapsed last month after Peru refused to strip an anti-corruption clause from the contract that Sempra said would leave it on the hook for any corruption by Odebrecht.

Alvarado said Grana and Enagas were working hard to find a solution that would allow them to avoid losing the contract, a scenario that he said “would do great harm to the country.”

“We’ll recover our capital, the contract stipulates that. That’s not the problem,” Alvarado said. “The government would have to pay a huge sum, between $1.2 and $1.4 billion, to the banks and to all of us” who have invested in the project.

Government officials were not immediately available for comment.

Peruvian President Pedro Pablo Kuczynski, who has promised to fight widespread graft while pushing out new infrastructure projects, has said he will not budge on the anti-corruption clause.

Kuczynski’s government has also said that if the pipeline consortium cannot secure financing in January it would quickly find a new operator after tweaking the current contract, which was designed during the government of former President Ollanta Humala.

Odebrecht won the contract in 2014 after its sole competitor was disqualified the day of the auction. The bid is under investigation in Peru and prosecutors have accused Humala of taking illicit funds from Odebrecht, which they both deny.

Grana bought its stake in the project from Odebrecht for $215 million in 2015. Alvarado said it has plans to build some $4 billion in projects in coming years, excluding the pipeline.

Reporting by Marco Aquino; Writing by Mitra Taj; Editing by Sandra Maler and Leslie Adler

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