Magdalena River navigation project and the corruption behind it

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Historically, Colombia has suffered from a deficient transportation system with weak and inefficient networks connecting the country to overseas markets and even making domestic communication between provinces and regions a challenge, up to the point that, as BONUS says “logistical expenses currently account for 18.6% of the cost of doing business in Colombia which is  is 4.3 percentage points higher than the Latin American average”.

But since president Santos proclaimed the updating of Colombia’s transport infrastructure a priority of his administration’s economic policy, progress started to de made with the Public Private Partnership (PPP) program that was devised to usher in a new era of innovative project funding. This new form of partnership aims to empower the infrastructure development by offering a financing vehicle capable of removing the obstacles that historically blocked transport.

The centerpiece of this program is the Magdalena River Waterway PPP, a megaproject that is set to improve the navigability of Colombia’s principal waterway, the 1,500km Magdalena river, to transform it into a pivotal transportation artery and the backbone of an extensive logistics network under a Design, Build, Finance, Operation, Maintenance and Transfer license contract.

The project

The project’s contract amounts to $857 million and contains a CAPEX (capital expenditure) segment of $476m with 70% of that amount earmarked for canal building and the remainder destined for dredging and maintenance work. The financial closing is expected to be approximately $683m and will require an equity contribution of $174m.

The contract is to run for a 13.5-year estimated term which includes a five year construction phase and a seven year maintenance period. During the maintenance period, the private partner will need to guarantee a minimum depth of at least seven feet along the entire length of the waterway. The navigating channel must be maintained at a width of at least 52 metres with a curvature radius of 900 metres.

The Navelena SAS consortium, headed by Odebrecht, won the public bid to execute the contract (works and dredging). As of today, Cormagdalena has received more than forty requests for river ports concessions, representing investments totalling over $1.2 billion. Ultimately, this shows how the project has become a catalyst for investment in the Colombia’s transportation infrastructure as it is expected to have several ramifications.

Benefits of the Project

  • Offers a valuable alternative to shippers that right now only have roads.
  • Decreases the cost of shipping cargoes from Bogotá – Colombia’s capital – and the surrounding central region to the Caribbean Sea.
  • The waterway will be plied by barges with a capacity of 7,200 ton each – equivalent to about 180 trucks
  • It is estimated that internal freight will be reduced between 30% and 40%.
  • 70% of the country’s population is in the basin of the Magdalena River
  • Emission reduction. The inland waterways released 20 times less nitrous oxide, 9 times less carbon monoxide, 7 times less hydrocarbons.
  • Lower fuel consumption. A gallon of fuel in a tugboat by the river can carry a ton of cargo 2.5 times further than the railroad and 10 times further than a truck.
  • Promotes greater integration of the network of transport infrastructure. It encourages the creation of multimodal transport corridors.
  • Reduced congestion on roads improving travel times. Tours today lasting 7 days or longer, will take three days and a half.
  • Augments transportation volume.
  • The country’s main population centres – Bogotá, Medellín, and Cali – will be more efficiently interconnected. Each centre will enjoy easy access to a major port.

Corruption stops the project

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Colombia’s government suspended the millionare contract to restore navigability of the Magdalena River that was led by Brazilian firm Odebrecht S.A, which does business in the fields of engineering and construction industry, and in the development and operation of infrastructure and energy projects, which faces allegations of corruption in Colombia and other Latin American countries of having paid extensive bribes to land infraestructure projects, because the company failed to provide funding to develop the project or cede the concession to another company.

According to REUTERS:

The government’s decision came after Japan’s Sumitomo Mitsui bank pulled $250 million in financing from the project in January as the Odebrecht scandal was erupting.

U.S. prosecutors have accused Odebrecht of paying bribes connected to projects in countries including Brazil, Argentina, Colombia, Mexico and Venezuela between 2002 and 2016. The company has admitted to paying bribes to officials in 12 countries, mostly in Latin America, to help secure lucrative contracts.

 

Odebrecht had to get a strategic partner to fulfill the projects financial closure until February 22 in order to cede the contract since the Japanese bank had retired, while the governmental agency in charge of the Magdalena river, was deciding to proceed with the anticipated termination of the contract, until it was presented the very last day of the deadline by Odebrecht with their new proposal  Power China, a multinational company that participated in the tender of the dredging and is interested in the cession of the contract. Cormagdalena is now analyzing the possibility of the Chinese company assuming the obligations of the license contract.

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One thought on “Magdalena River navigation project and the corruption behind it”

  1. Odebrecht has also been paying bribes connected to projects in countries like Dominican Republic, where the budget from their project results in a instabilization of commercialization of my country nowadays.

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