Odebrecht's trail of destruction
The builder's region-wide corruption scheme has endangered energy projects across Latin America, none more important that Peru's Southern Gas Pipeline
The fallout from Brazil's Lava Jato (Carwash) corruption scandal is spilling out across Latin America. The Brazilian builder Odebrecht, whose fall from national corporate champion to national disgrace has been swift and spectacular, admitted in December as part of a $3.5bn plea deal with the US government to systematically bribing officials to win business across 12 countries, mostly in Latin America. The US alleges that the company, along with Brazil's Braskem, paid $0.788bn in bribes to win more than 100 contracts, mostly for public works and infrastructure. It was the biggest settlement ever under the US' Foreign Corrupt Practices Act.
Odebrecht, according to the suit, essentially exported the Lava Jato bribery model throughout the region. The company worked with public officials to fix contracts at artificially high prices, and used the excess cash to enrich executives, politicians and political parties across the region. According to the US, the company had a whole team dedicated to the task. "Odebrecht and Braskem used a hidden but fully functioning Odebrecht business unit - a 'Department of Bribery,' so to speak - that systematically paid hundreds of millions of dollars to corrupt government officials in countries on three continents," US prosecutors said.
As the region's largest engineering and construction firm, the Odebrecht case has inevitably ensnared several major energy projects. The company's oil and gas unit, built on the back of Brazil's pre-salt boom, had contracts and partnerships in Venezuela, Colombia, Mexico and Argentina that will all attract fresh attention.
None, though, is more important than Peru's $7bn Southern Gas Pipeline, the region's largest pipeline project, where Odebrecht was a majority shareholder.
In late January, Peru's finance ministry cancelled the Southern Gas Pipeline contract when it became clear that the whiff of corruption around the project was making it impossible for the Odebrecht-led consortium to raise the financing needed to finish it. That decision came shortly after US pipeline builder Sempra Energy pulled out of a deal to buy Odebrecht's 55% stake in the project on fears the contract was tainted by graft.
The collapse of the contract throws the project into disarray. The pipeline aims to bring 0.595bn cubic feet per day of gas 1,000 km south from the Camisea gasfields through the Andes to the energy starved south of the country, where the government hopes to establish a new industrial base. It is around 35% built and the consortium said in January it had 4,000 workers at 20 camps along the route building the line. Many of them will likely have to go home as construction comes to a halt and new investors are sought.
The government plans to launch a new tender for the project as soon as possible, though lawyers say it is likely to take at least a year as the terms of the deal are renegotiated. Odebrecht's fall from grace opens the door to new investors to finish the project. Sempra Energy is one obvious potential bidder. It put forward a bid in the original 2014 tender and wanted to buy Odebrecht's stake last year. France's GDF Suez also took part in the 2014 contest for the contract. Argentina's Techint has also been involved in the project.
More likely, though, is China will use the opportunity to deepen its economic ties with Peru. China National Petroleum Corporation (CNPC) owns Block 58, near the existing Camisea resource base, which is expected to underpin supply to the new Southern pipeline. CNPC acquired the block from Petrobras in 2014 for $2.6bn and said in November it had discovered a total of 3.9 trillion cf and gas and condensate reserves - a roughly 25% boost to the nation's gas reserves. That was followed up with a memorandum of understanding between CNPC and Peru's president Pablo Kuczynski to "step up joint efforts in exploration and production, refining, transportation and distribution infrastructure construction, natural gas transportation, gas chemicals, as well as R&D". Odebrecht's pain may be China's gain.
Pipedreams: Peru’s southern gas-infrastructure plans Source: Petroleum Economist