Peru hopes new anti-corruption law will jump-start infra pipeline
February 9, 2018 |
Congressional committee reviews a follow-on draft that it expects to put on the President’s desk this week
Market makers in Peru’s infrastructure sector are banking on an anti-corruption law to kickstart the country’s long-stalled project pipeline.
The High Commission of Anti-Corruption within Peru’s Congress is reviewing the Plan Nacional Integrado de Lucha Anticorrupción, and expects to submit a follow-on draft to President Pedro Pablo Kuczynski (PPK) by the end of this week.
PPK requested amendments to the initial draft of the new law, which will replace the Supreme Decree, signed last year by the President and due to expire on February 12.
The existing Decree blocked all accounts of Brazilian construction firms linked to the country’s Lava Jato corruption scandal. It also prevents all guilty parties of bidding for new contracts.
Approving a revised law will prevent companies found guilty of repatriating their funds overseas. It is also expected to provide clarity regarding fines for companies found guilty and future due diligence processes.
The Odebrecht-linked scandal has been growing in recent months, with judicial authorities stepping up their arrests and investigations of local and foreign companies with past ties to the Brazilian company.
This has limited developers’ ability to advance projects and halted progress of any financing agreements. Developers are hesitant when selecting EPC and service companies, while banks are reluctant to fund companies that may affect their reputation.
Amidst the ongoing scandal, Peru’s infrastructure agency, ProInversión, has refrained from unveiling new projects.
“We will be very cautious with any name under suspicion,” one project finance banker in Peru said. “It is not that we want to end relationships with construction companies, but we do not want to embark into a new operation, only to see news related to the investigation a month later.”
A second PF source in Peru stressed the importance of local firms being able to continue operating and felt the talked-about punishments so far, were “unreasonable.”
“The most important thing is for it not to be too drastic and that it enables local firms to continue operating,” he said. “Hopefully, they can issue reasonable fines to enable the companies to get back on track, because so far, the fines and punishments mentioned have been unreasonable”, said another local project finance banker.
And before lenders get comfortable, they seek individual analyses on potential projects and concessions, the first banking source said.
To help quell at least some of the doubts, Luis Diaz Oliveros, CEO of local constructor Graña y Montero (GyM), revealed a dialogue between Peru’s Minister of Economy and some banks was underway.
In GyM’s earnings call earlier this month, he expected “something good” to emerge and preserve companies operating in Peru’s construction sector.
“Otherwise it would be hard for me to understand their objective,” he said of the discussions between the ministry and financiers.
He also acknowledged that the probe into GyM has impacted its asset sales program and the awarding of third-party service contracts.
Feeling the pinch
Speaking to local television program Radioprogramas, finance minister Claudia Cooper said the scandal potentially impedes progress on a PEN30bn ($9.5bn) project pipeline comprising state-led initiatives and public-private partnerships (PPPs).
"Not to mention the new projects that we should award this year," she added.
Take Peru’s pipeline project Gasoducto Sur Peruano (GSP), which was cancelled by the government in January 2017. As Odebrecht failed to sell its 55% stake on time, the project consortium was unable to raise project financing by the deadline.
ProInversión was poised to award a new concession in January, but is now eyeing to launch the newly named Sistema Integrado de Gas Zona Sur towards the end of this year.
GSP was made up of a consortium comprising Odebrecht, Spain’s Enagas and GyM. Several banks had supplied a $600m bridge financing for the project in August 2014. The debt has had to be refinanced with each individual sponsor while they await potential reimbursements claimed for the cancellation of the project.
In addition to GSP, a $2bn mining project in the Cupríferos reserves of Michiquillay was postponed and the $520m Cusco airport project was canceled in January due to uncertainties over the project financing.
“From the discussions we have had with government, these projects have faced scrutiny, just like many others,” a New York-based PF banker said of the Cusco airport.
The Kuntur Wasi consortium, comprising Argentina’s Corporación America and Peru’s Andino Investment Holding, initiated an international arbitration process for the contract annulment this week.
ProInversión in November, however, awarded two 30-year transmission line project contracts to Colombia’s ISA totaling $272m in construction costs and a little less than $7m in operation and maintenance.
In December, the government agency also received nine bids for two broadband telecommunications PPPs, which are expected to corral $300m in investments.
ISA will, however, fund its project contracts through its own balance sheets, a second banker in New York said. And the winners of the telecoms projects will receive non-reimbursable finance from Peru’s telecommunications fund Fitel.
The two projects were also deemed more strategic than others for the Peruvian government, according to the sources.
Another project expected to move forward is the expansion and renovation of the Lima international airport. Works entail a $1.5bn investment for a second runway and another terminal among other developments.
Japan’s SMBC was named financial advisor to project sponsor Lima Airport Partners and financing plans are due in the coming months, sources have said.
“A few more projects will be launched, I have faith for the Lima airport renovation, but I do not expect a wave of projects to be unleashed,” the Peruvian PF banker said. “I think this year will be a year to see how to design auction rules for projects in 2019 and 2020.”
ProInversión aims to generate $10bn in infrastructure investments annually for the next three years.
“I do not think there will be a scarcity of able construction companies… I expect American companies to position themselves to enter Peru,” the New York-based banker said. “There are also companies unscathed in the region… France’s Vinci, Spanish companies Cobra, Bragados, Tecnicas Reunidas, OHL, Sacyr.”