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Odebrecht-owned company was fined twice: first for its failure to execute the project and second for breach of the contract terms

Colombia’s river management authority Cormagdalena said it will terminate a contract with Navelena a consortium made up of Brazilian company Odebrecht and the Colombian government Valorcon to dredge the country’s Magdalena River.

Cormagdalena declared in late March that the deal was void but Navelena told Colombian media it will appeal the decision. Navelena didn’t immediately respond to International Dredging Review’s (IDR) questions.

The announcement by Cormagdalena to terminate the deal followed a process that ended up with a Colombian pesos (COP) 55.3 million (USD $19350) fine for Navelena for its failure to execute the project. Another fine of COP 914.5 million (USD $320000) was also applied to the company for breach of the contract terms as Navelena failed to keep the contracted depth levels at the river tributary.

“They’re not complying with the [contracted] dredging depths in some important areas of the river. We’ve identified six specific sections of the river where its depth isn’t according to the specifications of what we had [originally] in the deal” Luis Fernando Andrade director at Cormagdalena said while explaining the second penalty.

Andrade said the fine’s value will increase daily until Navelena lets the river at the minimum required depth levels. Cormagdalena said there’s no appeal for the second fine.

But the fines aren’t Navelena’s worst woes. The move to put an end to the USD $861 million project could open up the door for a Chinese contractor.

Earlier this year local port authority Asoportuaria sent a letter to Cormagdalena demanding it to enforce maintenance dredging at the Magdalena River due to its critical depth whether existing contractor Navelena was able to perform the work or not as previously reported by IDR.

The maintenance dredging wasn’t enforced as demanded.

Navelena’s troubles got worse in January this year when Japanese Sumitomo Mitsui Banking Corporation pulled out USD $250 million in financing from the contract to restore navigability of the Magdalena River following increased scrutiny over Navelena’s majority stakeholder Odebrecht which faces a number of corruption charges in Brazil and elsewhere in Latin America.

Since the bank gave up in financing the project Navelena’s ability to assume the project was questioned by Cormagdalena.

“As of today (March 22) they haven’t reached a final solution to the problem” Andrade said.

According to the executive Chinese-owned PowerChina Limited Colombia had shown interest in taking over Odebrecht’s 87 percent stake in the Navelena consortium. The company has sent the government agency responsible for the river tributary a letter of intentions stating its interest in assuming the initiative; however PowerChina was still looking at the technical legal and financials aspects of the project the Colombian government said.

On March 22 Cormagdalena announced that it had started the process to terminate the contract with Navelena.

“We will start today the termination process and we’re ready to directly assume the dredging of the river via (government) public works in case the partnership with PowerChina doesn’t take place” the executive added at the time.

Andrade said it would be “better for Colombia” if PowerChina agreed to enter the joint venture (JV) because the consortium could then commence works in a much faster way.

“We’re ready for any eventuality. If the contract (with Navelena) terminates we already have the resources right here at Cormagdalena to assure dredging at the river between Barranca and Barranquilla so all ports merchants and navigators can rest easy.”

ALTERNATIVES

As the process to terminate the dredging contract with Navelena still takes place the government agency in charge of the river tributary approved a plan to keep maintenance dredging at the river.

“We need to give them (Navelena) time so they can appeal the decision; however we already have a plan to assure the navigability of the (Magdalena) river for the rest of the year” Cormagdalena noted.

According to the Colombian river authority it will work out on a plan with the country’s National Institute of Roads (INVIAS) and state-owned oil producer Ecopetrol to guarantee dredging in different parts of the river from the Pumarejo Bridge and nearby the sea as well as between the cities of Pinillos and Barrancabermeja.

“Besides that we have a fund at Cormagdalena for any other issues we might face” Andrade said.

The river authority has some COP 40 million (USD $14000) which is “more than enough” to continue maintenance dredging at the river. Cormagdalena said the money “exceeds” any amount invested in the past few years to dredge the Magdalena River.

As the Navelena contract finally becomes void Cormagdalena could then open a tendering by July this year. Then by December another company could assume the project.

“Since we knew the risks we already have a new structured private-public partnership (PPP) which we’re working on simultaneously” Andrade said. However the executive didn’t specifically comment if the new PPP involved PowerChina or any other company.

Andrade said deadlines for contracting a new company or consortium tend to be long.

“We first need to have a consensus with ship owners and port operators to assure them the new contract will include what river users are asking. Secondly we have to get the (needed) permits from the Ministry of Finance from Colombia’s National Council of Social and Economic Policy (CONPES) and from the National Council of Social Planning (CNP)” he said.

The executive said Navelena could “solve” its “serious financial problem” however Cormagdalena would evaluate it with all “strictness in order to determine if it’s convenient” for Colombia.