The oil company Ecopetrol, the largest company in Colombia, has won a historic international arbitration award through its subsidiary Reficar in a dispute over delays in the expansion and modernization of the refinery in Cartagena de Indias, an imposing complex that extends over a an area comparable to 170 soccer fields on the Caribbean Sea. The complaint was filed in March 2016 by the Colombian company against the Chicago Bridge & Iron Company conglomerate and its Colombian subsidiary, which will have to pay more than 1,000 million dollars, plus interest since 2015, for having breached the construction contract that it set the costs at 3,777 million dollars at that time and stipulated a delivery period of three years. Both the term of the works and the costs doubled due to the responsibility of the contractor, as explained by the decision of the International Chamber of Commerce, which is a historic ruling: the highest fine imposed in a dispute of these characteristics in the country.
The setback for the Anglo-American company comes after seven years of arbitration, in which the defense of CB&I asked to reduce the compensation to 400 million dollars. The allegation was dismissed by the court, based in New York, and the ruling even stipulates the liquidation of the contract between Reficar and CB&I, as requested by the Ecopetrol subsidiary. Juan Carlos Echeverry, former Minister of Finance and manager of the state oil company at the time the lawsuit was filed, explains that the contract was poorly designed because the costs of the work were calculated “without concluding the detailed engineering, which was completed two years after completion of construction.
With this background, Echeverry points out that the initial projection was basically “fictitious”. Since then, other troubles and unforeseen events have piled up. Echeverry points out that all the figures related to Reficar are huge. A strike during the construction process, for example, came to cost the company 500 million dollars a month: “At some point there were 18,000 people working to build the refinery. The monthly payroll cost 80 million dollars”. Those responsible for the project managed to activate the refinery in October 2015 and today it is a giant that refines 200,000 barrels of oil per day and generates clean fuels for the Colombian Caribbean coast.
It is also a central asset for the country’s energy self-sufficiency and, according to Ecopetrol, thanks to its operation it has saved the country some 15.5 billion dollars in fuels that it has not been necessary to import. To submit the request for arbitration before the US court, the company presented an evidentiary body of three million documents that the lawyers collected since 2012 to prepare the claim in detail. For this reason, the decision clears up multiple questions regarding the actions of a series of officials, politicians or lawyers who were part of the Reficar board in those tumultuous years, and who were later accused of corruption due to the project’s cost overruns: “I compare the role of many of them with those professionals who enter the nuclear plants to turn off the reactors, even knowing that they are risking their lives. They came to fix the problem and were held accountable. Now it has been shown that it was a problem for those who structured the original contracts in 2009”, says Echeverry.
Carlos Gustavo Arrieta, former attorney and member of the Reficar board of directors between May 2014 and March 2015, assures that the news is very positive for Ecopetrol and reveals that decisions criticized at the time were correct: “The decision to end the work of the refinery and to litigate once it was finished was wise. What the Comptroller held, in the sense that we should have stopped the project, is irrational. We couldn’t just dump it halfway.” The investigations of the control bodies against Arrieta were archived in 2020 and today he recalls in a telephone conversation that when “CB&I presented their offer, they did not show much experience, they did not finish their engineering studies, they were not very expeditious in the execution. For all the experts, the firm had underestimated the challenges of the job.”
This is news that comes at a good time for the majority-state company. Awaiting payment, Ecopetrol is today in the midst of political turbulence due to the business approach to hydrocarbons of the Government of President Petro, committed since his campaign proposal to advance a diffuse energy transition. A proposal with an evident impact on the expectations of international markets, very attentive to the movements of a sector that manages to gather half of the country’s exports. As if that were not enough, the recently appointed president of the company, Ricardo Roa Barragán, is in the middle of the maelstrom of political tensions generated by the recent accusations by the former ambassador to Venezuela, Armando Benedetti, about alleged irregular financing of Petro’s presidential campaign, in which Roa served as manager.
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