January 23, 2017 / 6:33 PM / 4 years ago

Peru will not compensate Odebrecht for natgas pipeline project

LIMA (Reuters) - The government of Peru said on Monday that it will not compensate an Odebrecht-led consortium for investments made in a $5 billion natural gas pipeline project after it rescinds the contract over a missed financing deadline.

The headquarters of Odebrecht SA are pictured in Sao Paulo, Brazil, December 21, 2016. REUTERS/Paulo Whitaker

Energy and Mines Minister Gonzalo Tamayo said a new builder and operator of the pipeline project may buy the project’s assets in a public auction that the government will aim to schedule as soon as possible.

“There is investor interest in the project. That’s been confirmed” by companies that approached ministers on a trip to Europe last week, Tamayo said in a press conference.

The Odebrecht-led consortium declined to provide immediate comment Monday. The group announced Friday that it would miss a Monday financing deadline and was ready to start the process of returning the project to the state.

The government will start the contract’s termination on Tuesday and plans to cash in a $262 million guarantee from the consortium for not fulfilling its contractual obligations, Tamayo told local broadcaster RPP.

The announcement caps months of uncertainty over the fate of the contract and opens the door to a potentially messy transition to finding a new company to take over the concession.

Odebrecht S.A., a family-owned engineering conglomerate, is at the center of a growing corruption scandal in Latin America and has acknowledged distributing hundreds of millions of dollars in bribes across the region, including $29 million to secure projects in Peru.

The pipeline project was more than 30 percent finished when $4.1 billion in financing needed for remaining work got snagged last year over concerns about Odebrecht’s troubles in Brazil.

However, Odebrecht was not able to sell its 55 percent stake in the project despite talks with several companies.

Grana y Montero, which bought a 20 percent stake in the pipeline group in 2015, has said that Peru would have to pay more than $1 billion for investments made before holding a new auction.

Enagas SA, which owns a 25 percent stake in the project, said it would recover its investments in three years.

The pipeline was an emblematic project for the government of former president Ollanta Humala, who envisioned it feeding power plants and a future petrochemical complex on the coast while bringing cheaper gas to underdeveloped southern regions.

Odebrecht and Enagas won the contract in 2014 after its sole competitor was disqualified the day of the auction.

Local prosecutors are in talks with Odebrecht about the bribes.

Reporting By Mitra Taj; Editing by Chizu Nomiyama, Bernard Orr

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