Peru considers rescinding Odebrecht's pipeline contract

11/21/2016

LIMA, (Reuters) -- Peru is considering rescinding Odebrecht SA's $5 billion natural gas pipeline contract after the Brazilian company's attempt to sell its majority stake in the project got snagged on corruption concerns, a government source said Friday.

As a condition to buying Odebrecht's stake, a Sempra Energy-led consortium asked to remove a clause in the contract that could hold it liable for any corruption during the awarding of the project, said the source, who spoke on condition of anonymity.

Photo Courtesy of Reuters.

The government of Peru's President Pedro Pablo Kuczynski has refused to remove the clause from the contract and is growing impatient as it seeks to untangle billions in stalled infrastructure projects to bolster growth, the source said.

Odebrecht, entangled in a vast corruption investigation in neighboring Brazil, must exit the pipeline project in order for a group of banks to disburse a $4.1 billion loan needed to finance its construction.

If Sempra does not change its mind on the clause and close the deal, the government could rescind the contract as soon as the end of the month and hold a new auction to find a company to build and operate the pipeline, the source said. Sempra would be welcome to bid on the project, the source added.

A separate source with direct knowledge of negotiations said the government would have no legal basis for rescinding the contract until early next year when the concession holder must meet deadlines on advancing the project. The source, who spoke on the condition of anonymity because negotiations are still ongoing, also said the clause on corruption has been discussed by both companies.

It was unclear what rescinding the contract would mean for Odebrecht, which has been trying to sell off assets to cut its bloated debt in the wake of a massive graft scandal in Brazil.

Odebrecht, Sempra Energy and Techint Group, part of the Sempra-led consortium, did not respond to requests for comment.

The 34-year concession to build and operate the pipeline was awarded to Odebrecht in 2014 after its sole competitor -- a Sempra-led group -- was disqualified the day of the auction for making last-minute changes to the share each company held in the consortium.

Public prosecutors in Peru have been investigating potential wrongdoing in the bidding process, which Odebrecht and public officials have denied.

Prosecutors carrying out a separate investigation have alleged ex-president Ollanta Humala, whose term ended in July, of taking illicit funds from Odebrecht.

Humala and Odebrecht have denied wrongdoing in Peru.

Reporting byy Mitra Taj; Additional reporting by Guillermo Parra-Bernal in Sao Paulo; Editing by Bernard Orr