Argentina to Let Companies Named in Graft Probe to Bid on Works

(Bloomberg) -- Argentina’s government will allow companies whose officials are named in a corruption probe to continue work on existing projects and to bid for new ones.

Contracts will be honored and companies won’t be punished for what employees may have done, Transport Minister Guillermo Dietrich said in an interview in his office in Buenos Aires.

"We won’t limit companies, unless a judge says otherwise," Dietrich said. "What is happening is unprecedented, and the justice system needs to investigate, prove, and issue a final ruling."

Faced with the threat of a recession in the second half of the year, the government plans to push forward with President Mauricio Macri’s $35 billion infrastructure agenda, including public private partnership projects. Dietrich delivered the message to nine banks, including HSBC and ICBC, in a meeting earlier Friday. The corruption scandal that has enveloped the country won’t halt that process, he said.

Argentina’s borrowing costs have spiked as a federal judge investigates claims that construction companies, energy suppliers and electricity generators paid hundreds of bribes to members of the former government of presidents Cristina Fernandez de Kirchner and Nestor Kirchner. On Aug. 1, La Nacion published the notebooks of a former driver of a government official that is said to detail cash bribes paid from 2005 to 2015.

Slowing Down

While the corruption probe won’t halt future private-public partnerships, other issues may delay some of them, Dietrich said.

A project to extend three train lines and build a connecting station in the City of Buenos Aires will be postponed, he said. The government would have had to auction additional work that won’t be possible under the budget conditions set by the International Monetary Fund for a $50 billion credit line.

Officials will meet with investors in the U.S., Europe and Asia as soon as the end of August to discuss other projects, Dietrich said. The next tenders will be for additional highways, power transmission lines and a railway to connect shale deposits in Vaca Muerta to the Atlantic port of Bahia Blanca.

Argentina to Let Companies Named in Graft Probe to Bid on Works

Borrowing Costs

The six groups that won the first set of highway PPPs awarded in July and worth $12.5 billion, have until Aug. 2019 to secure funding, Dietrich said. Some of the companies may be able to secure funding in four to five months, he said.

None of them have been named in the corruption probe to date.

"We have complete certainty that there were no cash bags, or handbags, or wallets, involved in our tenders," Dietrich said. "Beyond the short-term uncertainty raised by the notebooks, this also helps consolidate that Argentina has changed, there’s no more impunity.”

Companies that were named in the probe include power generators Albanesi SA and MSU Energy SA, the construction companies IECSA SA and Grupo Roggio, and Grupo Techint, which owns the oil exploration company Tecpetrol SA. Albanesi was forced to cancel a bond sale. Techint, a unit of MSU and Roggio were among companies that bid for the first series of highway projects, but whose consortiums did not win projects.

Dietrich also told banks Friday that the government will accelerate administrative processes to make sure payments to companies are done in time or earlier than usual to give the construction sector "a cash injection."

"There’s a lot of time between August 2018 to 2019, and any turbulence that may be impacting at any particular moment will start disappearing," Dietrich said.

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