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UPDATE - Brazil's Odebrecht accepts Ecuador's terms

Brazilian construction company Odebrecht said October 1 that it accepted terms set by the Ecuadoran government to resolve a dispute over construction of Ecuador's 230-MW San Francisco hydroelectric project.

President Rafael Correa expelled the firm from Ecuador the week before and sent troops to seize US$800 million worth of projects being carried out by Odebrecht, including an airport, two hydroelectric plants, and a rural irrigation project.

Correa accused the company of having built the dam poorly. San Francisco was completed last year, but is not functioning because of damaged machinery.

Odebrecht said it agreed to pay for repairs to San Francisco and to extend a guarantee on the project by one year and on the repairs by five years. The contractor said it also would make a deposit of US$43.8 million until an independent international audit decided whether it owed further penalties.

Correa eyes Odebrecht overture

In Manaus for a meeting with Brazilian officials, Correa said he would decide in coming days on Odebrecht's response, but that the company was still banned from the Andean country.

"Our decision remains. Odebrecht is out of the country," Correa said, after a meeting with his counterparts from Brazil, Bolivia and Venezuela. "We are not negotiating; we are demanding justice and the country's rights to be respected."

The previous week, Correa threatened to not pay back a US$200 million loan from Brazil linked to Odebrecht.

Since that time, on September 28, Correa won a referendum on a new constitution, clearing the way for him to extend the state's grip over the economy, install leftist reforms, and seek re-election. (HNN 9/30/08) Correa, a U.S.-trained economist, also has ambitious plans to create jobs rebuilding crumbling infrastructure. He needs financing to do that, which makes it unlikely he will follow through with threats to stop some debt payments.

San Francisco was taken off line in June for inspections of the effects of sediments contaminated by eruptions of the Tungurahua volcano. At that time, electricity regulator Consejo Nacional de Electricidad (Conelec) said project operator Hidropastaza called Odebrecht to examine the plant due to loose material in the water tunnel and wear of turbine blades due to sediment carrying discharges from the volcano.

Conelec said Odebrecht had an obligation to repair any damage under terms of its construction contract. San Francisco was inaugurated in June 2007 on the Pastaza River in Ecuador's central Andean highlands.

Odebrecht involved in 45-MW Baba, 228-MW Toachi-Pilaton

Odebrecht built the US$302 million project, while Brazilian units of Alstom and VA Tech Hydro supplied turbine-generators. San Francisco uses flow releases from the 156-MW Agoyan hydro plant through a series of tunnels and caverns.

In 2007, a government-owned utility terminated a development contract for 45-MW Baba Dam held by an Odebrecht-led consortium and informed Ecuador's Congress it planned to develop the project itself. (HNN 6/10/08) Odebrecht was allowed to continue as construction contractor, but not as developer.

In March, Odebrecht received a contract from Hidrotoapi S.A. to build the 228-MW Toachi-Pilaton hydroelectric project in Ecuador. (HNN 3/7/08) Toachi-Pilaton involves construction of two hydropower plants, 50-MW Sarapullo on the Pilaton River and 178-MW Alluriquin on the Pilaton and Toachi rivers. As often is the case in such projects, Toachi-Pilaton had a line of credit from Brazilian development bank Banco Nacional de Desenvolvimento Economico e Social (BNDES).

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