Toachi-Pilatón: What Putin & Correa Don’t Know

0

In January 2008, President Rafael Correa laid the first stone in the construction of the Toachi–Pilatón hydroelectric plant, a project which had been awarded to the Brazilian firm Norberto Odebrecht. Toachi-Pilatón is one of the Ecuadorian Government’s key hydroelectric projects, which it considers essential for the change in the productive matrix and the achievement of energy sovereignty.

Lea el texto completo en español:
Focus Ecuador

The project, contracted in 2008 at a cost of $336 million, was designed to generate 234 MW and would supposedly save the country $112 million per year from 2012, the tentative inauguration date. However, in September 2008, due to serious flaws in the San Francisco hydroelectric plant, the Government decided to unilaterally suspend all contracts with the company Odebrecht, among them Toachi-Pilatón.

The Government’s decision involved a series of legal actions which led to additional expenses for the country: a July 2010 ruling from the Arbitration Court at the Quito Chamber of Commerce forced the Ecuadorian Government to pay Odebrecht $5.6 million. The Brazilian firm failed to acknowledge an amount of $8.24 million, accrued in interest over 11 months from a $112 million advance payment from the Government. Odebrecht returned $98.3 million to the State after discounting $13.8 million for work already completed on access roads.

Thereafter, the State company CELEP EP, through the Hidrotoapi Business Unit (UNHTP for its Spanish acronym), sought new partners for the continuation of the project. Contracts were signed with the Chinese company CWE (China International Water & Electric Corp.) and the Russian company Inter RAO UES. Financing was led by the Russian bank Roseximbank and BIESS (Bank of the Ecuadorian Institute of Social Security).

Russian company threatens legal action and work stoppage
Now, the project is again on the verge of paralysis. Inter RAO UES (with 57.34% of its shares owned by the Russian Government, considered a friend of Ecuador), which has been contracted to complete the project’s electro- and hydro-mechanics, is threatening to halt construction due of lack of payment.
CELEP EP’s accumulation of debt and lack of financing are the main reasons for the threatened stoppage. In a letter dated December 1, 2015, addressed to the Coordinating Minister for Strategic Sectors, Rafael Poveda (copied to the Minister of Electricity, Esteban Albornoz, and the CELEP EP Director, Edmundo Ruales) Inter RAO UES details some disturbing figures.

Additional costs incurred by the Russian company due to the postponement of project’s completion date have reached $65 million. The letter also states that, in order to accelerate the process, Inter RAO UES decided to commence the execution of additional works and activities without waiting for the change orders to be signed. In doing so, the company has already invested $10 million.

The letter further explains that, by the end of 2015, delayed payments from the Government amounted to $16.9 million and could reach $56.2 million by the end of the second quarter of 2016, excluding the fine for breach of contract. It goes on to say that CELEC must pay Inter RAO UES $99.2 million for additional works and activities.

These items are in addition to the core project cost, which in 2011 rose to $517 million. Of this, $373.2 million was obtained via external financing for civil works and hydro- and electro-mechanical equipment. In April of that year, Hidrotoapi EP and Russia’s Roseximbank signed a loan agreement to finance 85% of the contract for hydroelectric mechanical equipment for the Toachi–Pilatón project; $123.2 millions over 7.5 years, with a 4-year grace period and an interest rate of 7.90%.

On May 23, 2011, Hidrotoapi EP and BIESS created the Trust for the Investment, Administration, Guarantee & Payment of the Toachi-Pilatón hydroelectric project, designating the National Finance Corporation as Trustee. BIESS committed to providing $250 million over a 20-year disbursement schedule for the construction of the project, with a 4-year grace period and an interest rate of 7.65%. The civil works remained in the hands of the Chinese company CWE.

The latest update from CELEC states that the project now represents an investment of $588.7 million, not including the additional expenses reported by Inter RAO UES.

Why does the Government not pay its debts?
According to the letter from Inter RAO UES, signed by the Head of Export Division at PJSC Inter RAO, Maxim Sergeev, the problem arose due to negligence on the part of CELEC which, despite early warnings, did not renew its line of credit with the Russian bank. Sergeev states that his company does not know the timescales or sources of financing with which Ecuador plans to cover the additional costs incurred after a series of delays, which he considers not attributable to Inter RAO UES.

Sergeev explained that “CELEP EP committed a violation of the payment terms for the major works, after failing to make the necessary arrangements to extend the terms for the credit line from Roseximbank.” The deadline to secure such financing expired on September 20, 2015.

The Russian company now warns that the process to renew the credit line can now not be completed until the second quarter of 2016.

According to Sergeev’s letter, the whole situation makes for a “pessimistic scenario”. Without a plan which identifies the source of financing for the repayment of CELEC’s debt, “which continues to accumulate,” the Russian subcontractors could seek to “suspend the execution of works for realizing the Toachi-Pilatón project (with corresponding lawsuits) with a view to avoiding losses on both sides.”

The letter also clarifies to the Ecuadorian authorities that, in accordance with the terms of the contract, “in case of a late payment from CELEP EP, after 45 days Inter RAO UES reserves the right to postpone the project’s completion deadlines and, in the case of a payment delay of over 60 days, suspend the execution of the project.”

The impasse with Inter RAO UES has already reached the highest levels of Ecuador’s regime. In early December, the Ecuadorian ambassador to Russia, Julio Prado, asked the Foreign Minister, Ricardo Patiño, to intervene, stating: “What worries me most is that for the first time the company is talking about a lawsuit against the State for breach of contract which, as you will understand, would be extremely serious, as well as paralyzing the construction work, which the President would very much like to see completed this year or by early 2016 and it seems this will not happen.”

The diplomat also expressed his concern that Inter RAO might bring the matter to the attention of President Vladimir Putin, “not only for what might be expressed, but because his own interests are at stake and his ruling might be tough,” he commented.

The secret Rafael Correa does not know
Surely, he is referring to international reports that Inter RAO UES is 28% owned by the Russian State energy holding company OAO Rosneftegaz, which is led by CEO Igor Sechin, an ally of President Putin and a member of his inner circle.

Prado also mentioned an opinion that Sergeev had shared with him: the impression that CELEC does not want to tell the Ecuadorian President what is really happening with its projects, especially the many problems with Toachi-Pilatón. Sergeev had commented to the ambassador that “already in Russia, nobody trusts CELEC.”

Prado went on to state that the bank is requesting a technical audit of the construction project and, as per the contract, this will be used to generate a schedule of payments to be made by CELEC. Regarding the completion date for the project, he said that it will not be ready by June 2016, but by February 2017.

Russian involvement in other projects
In addition to Toachi-Pilatón, Inter RAO UES, in partnership with Roseximbank, has a contract worth $195.2 million for the construction and financing of another power plant project, Termogas Machala in the El Oro province.

Designed to generate 187 MW, the project was scheduled for completion in 2016; another execution date which will pass unfulfilled.

Inter RAO UES and Roseximbank have other agreements with the Ecuadorian Government for the construction and financing of the Cardenillo (596MW) and Chontal (190MW) hydroelectric projects, located in the provinces of Morona Santiago and Pichincha/Imbabura respectively.

Share.

About Author

Comments are closed.