Manduriacu: doubts about the “flagship project”

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The National Anti-Corruption Commission, an initiative established by various social movements, has challenged the cost and auditing of Rafael Correa’s ‘flagship’ project, the Manduriacu hydroelectric plant. The Commission denounced the project’s massive increase in cost (the final price was $102 million higher than the initial contract), blaming the Prefecture of Pichincha; the Electricity Corporation of Ecuador (CELEC); the construction company Odebrecht; and the Comptroller. The Commission has also questioned the plant’s output (10 MW, rather than the forecasted 60 MW) and lack of environmental license.

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The National Anti-Corruption Commission of Ecuador (CNACE for its Spanish acronym) was established on August 10, 2015, by the National Collective Unit of Social Organizations, which consists of the United Workers Front (FUT); the Confederation of Indigenous Nationalities of Ecuador (CONAIE); the Popular Front; professional unions;  organizations for workers, retirees, merchants, indigenous peoples, students and women; and environmental groups. The Commission’s first investigative report focuses on the construction of the Manduriacu hydroelectric plant, a project sponsored by the current government through the Prefecture of Pichincha and the hiring of the Brazilian company Odebrecht .

The report states that the cost of the project was initially agreed at $124,881,250. The final cost, however, was $227,389,966.63.

Part of the additional cost is outlined in three supplementary contracts with a total value of $45,046,496.40. Furthermore, an unaudited sum of $57,462,220.23 “should be cause for rigorous examination by the State Comptroller General, a body which, in this specific case, has not fulfilled its stated role; a behavior not only anomalous but complicitous with the overpricing”.

According to the report, Public Procurement regulations state that the combined worth of any supplementary contracts cannot exceed 35% of the initial cost of the project.

The increased cost corresponds, firstly, to the three additional contracts declared as such; and, secondly to a sum equivalent to $57,462,220.23, which is missing and not mentioned in the project audits. Thus, the combined cost increase is $102,508,716.63, a sum 82% higher than the initial budget. If the cost increase is added to the budgeted cost, it gives a final price of $227,389,966.63.

The essence of the Commission’s complaint is that “additional contracts for this project were the perfect excuse to increase its initial value, and were signed in order to address the technical shortcomings of the project’s pre-feasibility and feasibility studies. Supposedly, the signing of these contracts makes the operation of the project viable, i.e. the hiring company (CELEC) awarded additional contracts as a result of poor technical studies.  This features in the Comptroller’s “audits” but the latter does not establish the responsibilities of those who breached the Public Procurement regulations (Art. 100 of the Organic Law of the National System of Public Procurement)”.

According to the Commission, the responsibilities for a project’s contracting parties are clear.
The report mentions that the project’s negotiation process, plus its pre-contract, contract and execution phases, were subject to confidentiality formulas that infringed national sovereignty, “causing damage to the Ecuadorian State”. In view of this, the Anti-Corruption Commission has announced that it will submit the details to the Attorney General with a legal complaint, requesting that entity to fulfill its responsibility.

On this basis, the Commission “has serious suspicions of fraudulent behavior in the management of public resources in relation to the construction of the Manduriacu hydroelectric plant”.
Furthermore, the report continues, after an investment of $227,389,966.63, the installation cost per megawatt is $3,667,580.11, an amount which far exceeds the international average, which ranges between $1,700,000 and $1,800,000.

No environmental license
In addition to “evident overpricing”, the Commission found that the required environmental license was never obtained for the construction of the hydroelectric plant. This omission is described as “a very serious matter which once again demonstrates that the rhetoric on defending the rights of nature is merely a slogan; one of many uttered during this period, by the Provincial Prefect of Pichincha, among others. In the face of this reality, the Comptroller was absolutely complacent, so much so that this omission is relativized to the category of suggestion, so that this serious illegality is not repeated with future construction projects”.

The contracting model
The Anti-Corruption Commission added that this project constitutes a type of “case study” of the national public procurement system in recent times, when it comes to the participation of Odebrecht (e.g. the procurement process for the Pacific Refinery; the La Esperanza Aqueduct; the Pascuales-Cuenca pipeline; the Ruta Viva road, among others). The Brazilian company operates a strategy of increasing costs through supplementary contracts, or the appearance of additional items which did not initially appear in the main construction contracts. Through these means, the corporation “conceals its monetary objectives amid a complicity that must be unmasked”.

According to the Commission, part of the responsibility lies with the company who undertook the prefeasibility and feasibility studies, Hidroequinoccio, represented by the Prefect of the Pichincha province, Gustavo Baroja, as Chairman of the Board. The report also holds responsible the board of the public enterprise CELEC, which managed the recruitment process for the Manduriacu hydroelectric project.

The commissioners place a portion of blame with representatives of Tractebel-Caminosca, the consulting firm for the pre-feasibility and feasibility studies, which would be subject to the responsibilities laid out in Art. 100 of the Public Procurement Act.

Representatives of the Federal Electricity Commission of Mexico (CFE) were also singled out for their part in the overpricing scandal. The representatives, “by acting as watchdogs on consultancy studies carried out by Tractebel-Caminosca, endorsed the actions of these consultants”.

Among the others allegedly responsible, the Commission identified members of the oversight consortium (Inclam Typsa Hospiplan – ITH), which supposedly audited Odebrecht.

The Commission also pointed at the Brazilian construction company Norberto Odebrecht. Finally, they blamed the Comptroller General of the State, “who allowed his attitude to affect the interests of the country”.  Jorge Rodriguez from the Commission stated that the regulatory body had been “an accomplice and accessory” in this case.

Unofficially, a source from the Comptroller’s office rejected the Commission’s claims, stating that the regulatory body considers the Commission to be confused between price adjustment and overpricing. The source, who asked to remain anonymous, defended the Comptroller’s management of the hydroelectric project, claiming that “maximum administrative sanctions” had been applied.  A representative of the provincial Council of Pinchincha commented that the Council would read the report and issue a statement. The spokesperson did draw attention to the Commission’s singling out of the provincial Prefect in its report, when little or nothing was mentioned of the then CELEC President or Minister of the Environment.

The provincial Prefect of Pinchincha, Gustavo Baroja, later told the newspaper Expreso that “The Electric Corporation took responsibility for all hydroelectric projects over a hundred megawatts four years ago. I do not belong to any committee. I know nothing, I do not know how CELEC handles recruitment (. ..), they have made a mistake”.

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