Saturday, May 7, 2016


Crises in Brazil, Venezuela threaten Nicaragua projects

The political and economic crises buffeting Brazil and Venezuela are having a big impact in Nicaragua, where the future of billion-dollar projects have been thrown into uncertainty.

Venezuela was to have invested $6.5 billion in a petrochemical plant in the Central American country, while Brazil was set to spend $1.1 billion on a hydroelectric facility.

They are among four "megaworks" Nicaraguan President Daniel Ortega has championed, and they were planned to have started springing from the ground this year in time for the leader's expected announcement he would stand for re-election in November.

The most ambitious of them is a plan to build a Chinese-financed canal across the country to rival the American-built one in Panama.

The projects are meant to ensure "the continuity" of Ortega's reign, former diplomat Roger Guevara told AFP.

Those involving Brazil and Venezuela were forecast to create 6,500 jobs directly and another 18,500 indirectly -- an important fillip in a relatively poor country where unemployment affects nearly one in three economically active people.

But the plummeting economic fortunes of Venezuela and Brazil, both mired in political turmoil and corruption, has piled uncertainty on top of repeated delays. Managua's plans now seem to be up in the air.

Brazil is in the grip of its worst recession in a quarter of a century, with a massive corruption scandal and also moves underfoot to oust President Dilma Rousseff.

Venezuela, an oil-rich state mismanaged since the time of late leader Hugo Chavez and plunging deeper into ruin under his successor Nicolas Maduro, is struggling on the brink of default.

Nevertheless, according to Ortega, there is a desire to see the two projects through, especially as they represent more than half the gross domestic product of his country.

But his critics, such as Edmundo Jarquin, an economist and former presidential candidate from a dissident wing of Ortega's Sandinista movement, believe the government is playing "the lottery with hopes of pulling out the big prize though a mega project."

- Brazilian dam -

The hydroelectric project calls for a dam across the Grande river in the southwest of the country to be built by a consortium 45 percent owned by the Brazilian state company Eletrobras, 45 percent by Brazilian industrial group Queiroz Galvao and with the Nicaraguan government holding the remaining 10 percent.

It was approved by a law that gave the Brazilians the right to operate the plant for 39 years with significant tax breaks.

Its financing was to come from Brazil's BNDES development bank, the Central American Bank for Economic Integration, and partners, and last year it acquired 7,000 hectares (1,700 acres) for the plant.

Yet the start of work on the dam, which was meant to have been in 2014, has been pushed back several time because of lack of funds.

"I understand that an investor group had problems getting the capital together" and then Queiroz Galvao got caught up in the corruption scandals rocking Brazil, said former economy minister Mario Arana.

Jarquin said that "the investment amount had always been overestimated" and Brazil's corruption morass "ended up burying it."

Ortega has not thrown in the towel yet, however.

"We are speaking with the Brazilians to find a way to move forward," he said last week.

- Venezuelan refinery -

The Venezuelan petrochemical plant had its inception in 2007. Ortega, returned to the presidency after years in the political wilderness, invited over Chavez to lay the refinery's cornerstone.

The plant was to be constructed by Albanisa, a joint venture in which Petroleos de Venezuela (PDVSA) held 51 percent and Petroleos de Nicaragua Petronio had the other 49 percent.

The goal was to build a gleaming facility to handle 150,000 barrels of oil a day -- four times the demand in Nicaragua and half of the entire consumption across Central America.

Financing was to be sourced from profits Nicaragua made on cheap oil imported from Venezuela and backing from PVDSA, said Guevara, a former ambassador to Caracas.

But "that didn't work out because the fall in the price of oil came along" and Maduro found himself against the wall, he added.

The former deputy general manager of Albanisa, Rodrigo Obregon, told AFP that "at the moment the refinery is not being built." The only sign of moves that had been made are 12 new tanks meant to store fuel.

Guevara said feasibility studies had never been carried out and the plant would never have been viable because the other Central American countries had their own refineries.

"It seems to me that it was a geopolitical toy," he said.

Jarquin concurred.

"All of that frenzy resulted in a terminal just with storage tanks," he said.

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