Colombian Finance Ministry Approves Modeling for New Dredging PPP

Colombia’s Finance Ministry has approved a Public-Private Partnership (PPP) modeling proposal by the nation’s river management authority, Cormagdalena, to recover navigability at the Magdalena River. Colombia expects a new private partner for the massive dredging project, following a contract termination with the original contractor.

A massive dredging project involving nine states and 57 cities was interrupted following the termination of a contract by the government with Navelena. Navelena was a consortium made up of Brazilian company Odebrecht and Colombia’s Valorcon. Odebrecht is a major Brazilian developer implicated in the Lava Jato corruption scandal.

Cormagdalena said in a statement the nation’s Ministry of Finance has approved it to “structure” the financing conditions and associated risks for a new PPP contract to dredge the Magdalena River.

Potential Bidders
About 20 companies are interested in the project, but river management authority couldn’t disclose any names.
“We have U.S.-based, European, Colombian, as well as Latin American companies interested in assuming the project,” Ilse Moncada, a Cormagdalena spokesperson, said.

“I guess we may have even more bidders as the tenders are ready,” she said.

Moncada estimated that the pre-tender would be ready by around the second week of May.

By June, the tender might be ready, while a final contract could be awarded in August, “if everything goes well,” Moncada said.
The dredging project covers a 908-kilometer (about 564-mile) section between Barranquilla and Puerto Salgar in Cundinamarca.
When completed, it will allow the river to transport up to 7,200 tons a day, according to a Cormagdalena estimate.

While the name of potential bidders for the soon-to-be-tendered project remain undisclosed, Chinese-owned PowerChina Limited Colombia had shown in the past an interest in the deal.

Background
Cormagdalena had first hired single purpose venture (SPV) Navelena in 2014 to restore navigability at Colombia’s Magdalena River.
In March 2017, the river authority said the deal was void.

The announcement by Cormagdalena to terminate the deal followed a process that ended up with fines for Navelena for its “failure” to execute the project. More fines were also applied due to breach of the contract terms, as Navelena failed to keep the river tributary at the contracted depth levels.
At the time, Luis Fernando Andrade, then director at Cormagdalena said Navelena was not complying with the contracted dredging depths in some important areas of the river. It identified six specific sections of the river where depth did not meet contract specifications.

Still in 2017, local port authority Asoportuaria sent a letter to Cormagdalena urging it to “enforce” maintenance dredging at the Magdalena River, due to its critical depth, whether existing contractor at the time, Navelena, was able to perform it or not.
But maintenance dredging wasn’t enforced as demanded.

Things got worse for Nevalena in January 2017 when Japanese Sumitomo Mitsui Banking Corporation pulled out $250 million in financing from the contract, following increased scrutiny over Navelena’s majority stakeholder Odebrecht. Since the bank gave up in financing the project, Navelena’s ability to assume the project was questioned by Cormagdalena.