A $1.39 Billion Hydro Deal in Limbo as Peru Debates Fine on Sale
(Bloomberg) -- Peru is debating a law that’s threatening a $1.39 billion hydropower deal.
Odebrecht SA agreed in August to sell the Chaglla hydroelectric project to China Three Gorges Corp. The deal was supposed to close by Feb. 23 but has been on hold for months as the government decides how much of the proceeds to keep as a penalty and how much will go to Odebrecht, the Brazilian builder that’s embroiled in a global corruption scandal.
The delay shows the far-reaching impact of Brazil’s so-called Carwash investigation. Odebrecht has admitted to bribing officials around the world, and agreed in 2016 to pay the largest corruption penalty ever levied by global authorities. It’s under investigation in Peru, Colombia, Ecuador, Panama and other countries, and this latest hangup underscores the difficulties it may face as it seeks to sell assets to repay debts while working to rebuild its reputation.
After multiple Odebrecht projects in Peru were put on hold or slowed because of heightened scrutiny, the government had to shave a percentage point off its 2017 forecast for gross domestic product. It passed a law that year to retain part of the proceeds from asset sales by companies that have been involved in illegal activities, preventing Odebrecht from transferring money abroad without government approval.
$1 Billion Penalty
A key issue is that the existing law doesn’t specify the amount, and prosecutors have proposed slapping Odebrecht with a penalty of as much as $1 billion. There’s a new version of that law under debate that would set the charge at 50 percent of the proceeds. That’s about $300 million for Chaglla, according to a person with direct knowledge of the sale. Odebrecht and Three Gorges have asked the government to reduce the charge to 30 percent.
In the meantime, Odebrecht and Three Gorges are negotiating a 30-day extension for the sale, according to the person, who asked not to be identified because the matter is private. Three Gorges declined to comment on the deal.
The Finance Ministry and Congress’ economy committee didn’t respond to inquiries seeking comment. The new bill was set for a committee vote Monday and may get a full vote in Congress as early as March 8.
Odebrecht plans to use proceeds from selling the 456-megawatt Chaglla project to pay debts, workers, suppliers and taxes, as well as fines to the government. The company has another deal in Peru that’s been stalled for the same reasons, the sale of its Olmos irrigation project to Brookfield Infrastructure Partners LP and Suez SA.
Suez said in an email it’s still interested in the Olmos project and is waiting for Congress to approve the legislation. Brookfield declined to comment. The Olmos Project reroutes water from the Huancabamba River to the Pacific Basin through a 20-kilometer (12-mile) tunnel through the Andes Mountains to irrigate arable land and generate electricity.
“Exceptional measures instituted by decrees have created a series of obstacles for the company and generated an atmosphere of great uncertainty among investors,” according to an email from Odebrecht. “It’s hoped the approval of a new legal framework can make the sale process viable and revive the infrastructure sector in general.”
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