Peru cracks down on contractors over Odebrecht scandal

Tuesday, February 14, 2017

Contractors are going to have to accept tougher terms to secure infrastructure contracts with the Peruvian government in the future.

The government will insist on an anti-corruption clause in all infrastructure concessions and block repatriation of funds by proven corrupt companies after Brazilian construction firm Odebrecht said it paid at least US$29mn in bribes to Peruvian officials, President Pedro Pablo Kuczynski said.

Start your 15 day free trial now!


Already a subscriber? Please, login

Odebrecht, which in December admitted to paying hundreds of millions of dollars in kickbacks to secure contracts across Latin America, has been involved in many of Peru's largest infrastructure projects, including power plants, highways, the Chavimochic and Olmos irrigation ventures and the US$7bn southern Peruvian natural gas pipeline, the latter canceled last month.

The government will also deduct fines from the sale of corrupt companies' assets; reward and provide protection for individuals who report cases of corruption; and triple the special prosecutor's office budget to help speed up an ongoing investigation into the Odebrecht scandal, uncovered in the Brazilian lava jato graft inquiry, Kuczynski said.

"In recent weeks Peruvians have been witness to lamentable accusations of corruption. This generates widespread distrust of our system of government," Kuczynski said in a nationwide broadcast message. "The Odebrecht case is the biggest, but probably not the only one. We need to clean house to be able to carry out the public works we promised, in an honest fashion."

The government last week issued an arrest order and offered a 100,000-sol reward (US$30,000) for information leading to the capture of former president Alejandro Toledo (2001-2006), who has been charged with receiving US$20mn in bribes from Odebrecht in exchange for awarding a contract for the Inter-Oceanic Highway (IIRSA).

Toledo, a visiting Stanford University professor who is believed to be in San Francisco, denied he fled Peru, stating there were no charges pending against him when he left the country.

"I am prepared to cooperate with justice that is fair and within the rule of law," Toledo wrote on his Twitter account. "I am going to defend myself and will never surrender to a politically motivated witch hunt."

Kuczynski discussed Toledo's possible deportation in a telephone call with President Donald Trump over the weekend, according to Peruvian state media. At the same time, Kuczynski wrote a letter thanking Israeli Prime Minister Benjamin Netanyahu for banning the entry of Toledo, who is married to an Israeli citizen, according to the Peruvian presidential website.


The government last month ruled out further contracts with Odebrecht and said the company will have to sell all its local assets. Kuczynski added he and his entire ministerial cabinet have published details of their personal finances and urged other senior government officials to do likewise.

Kuczynski's approval ratings declined to 38%, the lowest since taking office in July 2016, from 43% a month ago due to the ongoing corruption scandal, according to a February 8-10 survey published by polling firm Ipsos. Both Kuczynski and his cabinet chief Fernando Zavala served in Toledo's cabinet.

Infrastructure industry association AFIN hailed the government measures, warning that public and private investment projects may be halted by investor uncertainty.

"All of us, including the private sector, have to play our respective part and make the utmost effort to fight corruption head-on, which is why the corrupt should be singled out and punished," AFIN said in a statement. "The government institutions should act in a proper and timely fashion, without affecting the government's plans aimed at overcoming obstacles and reactivating growth and investment."


In other infrastructure news, the government and the armed forces have sent 7,600 workers, 15 cabinet ministers, 1,110 earth-moving vehicles and 32t of humanitarian aid to 19 regions hit by flooding and landslides, Zavala said in a broadcast press conference.

Torrential rains have left at least 25 dead and damaged roads, bridges, farmlands and over 50,000 homes around the country during the past month, according to the defense ministry.

The Andean region is recovering from the effects of the La Niña phenomenon, where cooler ocean temperatures cause drought in the highlands. Heavy rains have already caused widespread flooding in Peru, Ecuador, Colombia, Venezuela and Argentina this year.

At the same time, the government declared a health emergency in Ica, Ancash, Cajamarca and La Libertad regions due to the danger of dengue, chikungunya and zika epidemics, the health ministry said in a statement posted on its website.