After 4 years, tomorrow the fate of the Majes Siguas II project will be defined, whose reactivation depends on the approval of Addendum 13. The project has been paralyzed for four years and seeks to irrigate 38,500 hectares for agro-export. The Regional Council of Arequipa (CRA) will decide whether to authorize the regional governor Kimmerlee Gutiérrez to sign this change, in the concession contract that implies increasing the investment by an additional $104 million. There are two opinions, one in favor and one against.
The minority opinion was prepared by counselor Herbert Zúñiga. Touch various points. That the Majes II project is still viable with the signing of the addendum, despite the fact that the investment has increased by 19%. Calling for a new tender would trap him more. Take the arguments of the Majes Autonomous Authority (Autodema): including the addendum as a new component is unfeasible and that terminating the Cobra contract would lead to arbitration. “(The project) would be postponed between 4 to 5 years (…) The term could be longer if the termination is taken to arbitration,” he is quoted.
It also reports that by majority, the CRA approved regional agreement No. 047-2020 to finance the addendum. This allowed the sovereign guarantees to be negotiated in Congress to finance the necessary US$104 million. Then he states that the “change of the irrigation system” passed the evaluations of the Ministry of Economy and Finance (MEF), ProInversión and Comptroller. The MEF concludes that the economic-financial model is not altered by the addendum. ProInversión maintains that the contract is not altered nor is additional benefit generated for Cobra. On the 4 risks detected by the Comptroller, the opinion indicates that action plans were taken to mitigate it. Here it is omitted that Cobra did not agree to comply with the recommendations due to the risks. “The risks indicated lack a legal basis,” he clarifies, citing Autodema.
Two of the “new circumstances” justifying the addendum are also discussed. Comptroller ruled out that they are such. She points out that there was a decrease in the water quota of the Apurimac River for the project and that could not be foreseen. Regarding water losses through open channels, it is indicated that in studies subsequent to the updated contract there are losses of 5% that put the value of the land at risk. He points out that with open channels, citing Autodema, 31.8 cubic hectometers per year (Hm3) would be lost and 2,355 hectares would be damaged. “The project could not become a reality because the current technical conditions would not make it viable”, he concludes.
Counselors Elmer Pinto and Edy Medina first analyze the financing of addendum 13. They explain that the US$104 million will be paid in two installments of US$54 million to Cobra. They question that there is a surplus of US$ 4 million. This amount must be covered with the sale of land or the institutional budget of the grantor (GRA) in case the resources are insufficient. This is what the draft addendum establishes. “The State is assuming the risk of financing,” they warn.
About the income from the sale of land, between US$ 204 million and US$ 304 million, which would largely cover the cost of the addendum, they specify that it is not a surplus. The GRA needs that same money to pay off loans it took on from the State and CAF to execute the project.
They argue that the updated contract considers technological changes but without recognizing additional payments. They present the Agreement of Understanding signed in September 2016 between the GRA and the concessionaire. On behalf of the regional entity, it is signed by Arturo Arroyo on behalf of the then governor Yamila Osorio. The second clause establishes that the project may be improved but at the grantor’s risk.
When touching on the “new circumstances”, they are based on the Comptroller’s arguments, that both the decrease in the water quota for the project, as well as the loss of water resources in the conduction, were already contemplated in the contract. “The technological change has no technical support and, therefore, there is no reason to raise the cost of the project,” they conclude. It should be noted that climate change was qualified by the Comptroller as a new circumstance.
This opinion highlights that with an addendum the contract is contravened. They also mention clause 4 of the TUO: “The amount of the co-financing may not be modified for any reason.” After mentioning the risks warned by the Comptroller, they indicate that “regardless of the acceptance of this proposal, the concessionaire maintains the obligation to execute the project.”
Approach: Addendum 13 must be signed
Jesús Díaz Salas- president of SADA
Our opposition to addendum 13 is not new, this is a line that the Agricultural Society of Arequipa (SADA) has observed for years. In 2020 we spoke out and said that it was not good, but that the terms of negotiation had to be improved and we asked the competent authorities, at that time the governor Elmer Cáceres Llica and who presided over the Regional Council of Arequipa, that once and for all the subject of Majes II was defined, considering that it is the most important project that the region had.
But no, they waited for the deadlines to expire, December 31, 2021, and only on that day did they remember that there was a project.
We want to be very clear, this is total irresponsibility, both by Governor Llica, who is no longer here, and by the Regional Council, which was never able to make decisions. If it is not signed, despite the fact that we consider that this addendum is not one of the best, the project collapses and would be postponed indefinitely, if it takes 3 years to sign the addendum, to suddenly restructure the project again it takes 20 or 30 years or never . And the other point is that, if the addendum is not signed, the Cobra company would go to arbitration where the penalties would be very large and more harmful to the Arequipa region.
When the project cost close to 400 million dollars it was profitable from the point of view as an agro-export project, today it is likely that we will have to add the hydro-energy component to make it profitable.
Source: Larepublica
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