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Peru tightens divestiture rules to curb corruption

14 Feb 2017, 8.56 pm GMT

Peru tightens divestiture rules to curb corruption

Lima, 14 February (Argus) — Peru's government tightened rules governing corporate asset sales, a move aimed at tackling the corruption that has stymied major infrastructure projects in recent months.

Peru is among the Latin American countries hardest hit by a sweeping corruption scandal centered on Brazilian construction firm Odebrecht and other local contractors.

In an international plea deal struck in December 2016, Odebrecht admitted to paying bribes in exchange for infrastructure contracts across Latin America, including around $29mn in Peru to secure $13bn in contracts there in 2005-14. Former President Alejandro Toledo (2001-2006), last spotted in the US, is now on Peru´s most-wanted list for his alleged involvement. Lima has asked the US to expel him. A $7.3bn gas pipeline project led by Odebrecht is on ice.

Toledo is the most important politician so far to get wrapped up in the spillover from Brazil's Lava Jato corruption probe. He denies the allegations and claims he is a victim of political persecution.

Prosecutors believe the illicit funds shelled out in Peru are greater than Odebrecht has acknowledged. Toledo alone is alleged to have received $20mn from the contractor to award a highway project linking Peru and Brazil. A former deputy telecommunications minister arrested in January is alleged to have received $7mn to ensure Odebrecht received the concession for Line 1 of the Metro in Lima.

President Pedro Pablo Kuczynski, whose approval rating has fallen by double digits since the scandal blew open in December, went on national television 12 February to say his government would do whatever it takes to rid the country of the "rot of corruption."

He announced a new executive order, published yesterday, which requires companies that admit to or are found guilty of corruption to receive permission from the state before they sell assets. It also requires cash obtained from asset sales to go into a special fund to be used to guarantee all fines and other penalties are paid in full.

The order applies to Odebrecht, and will further complicate its effort to unload assets. The company´s plan to sell its 55pc stake in the southern gas pipeline project to US firm Sempra fell apart last year after the government refused to waive a clause that would have held the new buyer liable for any past corruption that might be uncovered in the future.

The government last month revoked the pipeline contract that Odebrecht held with its two partners, Spain's Enagas (25pc) and Peru's Grana y Montero (20pc), to build the 1,134km (630mi) gas pipeline. The group failed to secure financing by the deadline stipulated in the contract. The state has collected the $260mn deposit for the project and will use the money to maintain the partially built pipeline until a new contract is awarded. The president wants a new operator in place by November.

Odebrecht is trying to sell its 456MW Chaglla hydroelectric plant, which started operating last year. It also wants to sell the 600MW Chadin 2 hydroelectric project. Work on the project has not started, but Odebrecht has secured all permits for its construction.

The disgraced contractor ran into new problems on 7 February when the regional government in Lambayeque state refused to sign off on the sale of the 40,000ha Olmos irrigation and hydroelectric project. Canadian investment fund Brookfield and France's Engie had agreed to buy it.

The government named a special prosecutor and a team of 14 other prosecutors to work full-time on the corruption case. Two other former presidents, Alan Garcia (2006-2011) and Ollanta Humala (2011-2016), are among other high-level officials under investigation.

Kuczynski himself is not above suspicion. He served twice as finance minister under Toledo and was the former president´s last prime minister. Two of his current cabinet ministers also served with Toledo.

The Kuczynski government has forecast that the fallout from the investigations will wrest one percentage point off of economic growth this year. GDP expansion is now forecast at 3.8pc for 2017, about the same as last year.

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