Region: Latin America and Caribbean
Country: Colombia
Sectors: Transportation
Topics: Procurement
Keywords: Transport
DocumentLink(s):
Document Details:
The website offers a list of all project documents. The file name of the signed contract is “Contrato” described as “CONTRATO DE APP NO 001 DE 2014” and it can be found in the left column of the page.
All project documents, including the PPP contract, are in Spanish language only.
Main Features:
This is a public-private partnership to recover the navigability of Magdalena River under a Design, Build, Finance, Operation, Maintenance and Transfer contract (Clause 2).
There are 3 phases in the project: Preconstruction, Construction and Administration (Section 3.02.a) Navelena shall provide operation and navigation assistance services during all these phases. Construction is divided in ten tranches, measured between existing ports. (Section 1.03cccc).
The private partner owes a success fee to the investment bank in charge of the project’s financial and legal structuring and it will be paid through the
fideicomiso” (trust) (Section 4.04 and 53.02.)
There are step-in rights in favor of the lenders (Clause 49.)
The contract includes a clause for rebalancing the financial and economic equilibrium (Section 53.06.)
Parties:
The parties to the contract are:
- Corporación Autónoma Regional del Río Grande de la Magdalena – Rio Grande de la Magdalena Regional Autonomous Corporation- “Cormagdalena.” a special public entity of the national order created by the Colombian Political Constitution. It runs as a state’s commercial and industrial corporation and has financial, legal and budget autonomy, (Section 1.03.h) and
- Navelena S.A.S, a single purpose corporation created by investors to execute the project.. The investors behind Navelena are: Constructora Norberto de Odebrecht Colombia Limitada and Valores y Contratos S.A. each of them with a participation of 86.67% and 13.33%, respectively.
Term: 162 months, or 13.5 years, signed on September 13, 2014 (Section 3.01)
Value of the Contract: $1.318.824.175.651.oo Colombian pesos, $45 million dollars approximately (Section 3.03.)
Payments and Tariffs:
Navelena will receive a periodic and variable remuneration depending on the fulfillment of the established service levels. This is a results-based contract (Section 30). The remuneration is paid to the private partner as an availability and administration payment. It will begin during the Construction Phase once sections of the project become operational. (Section 9.03
The private partner is responsible for the collection of navigation tariffs once the project is operational. (Section 2.05). The tariff charged to the users can be defined and modified by Cormagdalena and other competent authorities (Section 2.05.c and d.) Tariffs are collected only for the service of navigation, no ancilliary portuary services are forseen. (Appendix 2, Section 8.4.2). However, if additional or complementary works are completed, Cormagdalena will compensate the private partner. (Section 9.03d).
Navelena must establish a Trust (contrato de fiducia) within 30 days after the contract signing to fulfill the contract’s obligations, and it has to be approved by Cormagdalena (Section. 4.03.) The Fiducia is the “accounting center” of the project and it is required to have a payment waterfall (Clause 11 and 32.)
Force Majeure:
Force Majeure events are divided between insurable and non-insurable events. The contract also distinguishes how these events are handled, depending on the Phase of the project when they occur.
The “Non-insurable Force Majeure” clause allows the private partner to be exonerated from his obligations as long as his breach is a direct result of those force majeure events. The contract includes different treatment when the obligations of the private partner have been partially or totally affected by the non-insurable FM events, and whether the events happen in preconstruction, construction or operation phases. Cormagdalena shall assume the costs of reparation or reposition of the construction works, equipment, or additional works, when there was damage due to non-insurable force majeure events (Clause 5.)
For Insurable Force Majeure Events, Section 39.09 and Clause 34.02 f, require The private partner to acquire insurance, at its own cost, that covers the project`s works and equipment. All the insurable FM events are a risk allocated on the private party and its mitigation is a cost that it has to bear.
Public Entity’s exceptional faculties: The contract includes special clauses of public procurement law, such as: caducity of the contract (contract expiration), by which Cormagdalena can declare the contract caducity and order its liquidation; unilateral termination; unilateral modification and unilateral interpretation (Clause 46 and 47.
Early Termination Causes:
The agreement stipulates that the contract shall terminate before the established term for any of the following causes: Caducity declaration by Cormagdalena; Unilateral Termination Declaration by Cormagdalena; Navelena’s imposibility to renew the guarantees; contract suspension; and mutual agreement of the parties. The procedure to follow after the contract has been early terminated is also established therein (Clause 50 and Section 48.03)
Penalties and Damages:
There are several penalties for breach of contract which are heavily regulated in the contract. They are designed to incentive performance by Navelena for the contract fulfillment, and therefore they are not an anticipated damages, thus they can accumulate with any other form of compensation according to Colombian law (Clause 40.) Likewise, there is a liquidated damages clause in case Cormagdalena orders unilaterally the contract’s liquidation (Clause 41.)
Conflict Resolution: direct negotiation, amicable composition, national arbitration and international arbitration. Amicable composition includes a permanent dispute resolution board on subjects expressly indicated in the contract (Clause 42, 43 and 44.)
Insurance provisions: The contract requires Navelena to acquire insurance policies before the contract signing and once it has been signed. They are meant to cover every aspect of the project, from contract fulfillment to labor payments to subcontractors, personal liability, and construction risk insurance (Section 4.02.)
Applicable Law: Colombian and Navelena waives any claim of sovereign immunity (Section 53.08.)
Risk Identification and Allocation:
The project documents at the link above also offer a Risk Matrix entitled Matriz de Riesgos (Spanish language only).
The Risk Matrix explains: the risk area; type of risk; Public/Private (referring who is responsible for it); Probability -low, medium, high-; Impact -low, medium/low, medium, medium/high, high-; Observations and Contractual Provisions.
The risk areas include: Real Estate; Social-Environmental; Design; Construction; Operation & Maintenance; Demand; Financial; Regulatory; and Force Majeure. (Risk Matrix)
The risks were allocated as follows –This tab is intended to give a general idea of the contract’s risk identification and allocation-:
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Risks allocated on Navelena (private partner) (Section 34.02) |
Risks allocated on Cormagdalena (public partner) (Section 34.03) |
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Regulatory Risk Currency Exchange Rates Risk Inflation Risk* Variation on financing conditions Risk Insurable Force Majeure Risk Design and Construction Risk Tariff Collection Resources Liquidity Risk Environmental-Social Risk Environmental Regulation or Special Regulation variation Risk* Real Estate Risk* Technical Specification Impact Risk |
Demand Risk Environmental Regulation or Special Regulation variation Risk* Tariff Risk Real State Risk* Constructive Risk Inflation Risk* Environmental-Social Risk* Counterparty Risk
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*These risks although shared they are assumed by the parties in different aspects. For further details go to the Risk Matrix and the particular provision of the contract (Section 34.01 and 02).
One risk of special importance for this project is the one related with acts of terrorism, war, or other events that may alter the public order. In the risk matrix, it is catalogued as a medium – low risk due to these acts are not foreseen to happen in the zone project, and it is allocated on the public partner. (Clause 5, Section 5.02 & Risk Matrix, Pag. 19.)
The contract covers an extensive array of situations that could happen during the contract execution, giving particular solutions for how to proceed in them. (Chapter 5, 6 and 7.)
The project foresees the use of the river for the transport of oil, however, and given past history of attacks to oil infrastructure, the high likelihood and high environmental impact merit more careful risk mitigation.
Indemnity:
Navelena provides full indemnification to Cormagdalena for damages caused to third persons’ properties, lives, integrity, or to Cormagdalena’s or its employees’, agents’ or subcontractors’, that arise as a direct or indirect consequence of Navelena’s acts or omissions, or its employees’, agents’ or subcontractors’. (Section 53.03.)
Navigability and Operation Services:
The specifications for the navigability services are contained in the Appendix No. 2 of the Project’s documents that also may be consulted in the link above. It includes the technical specifications of the operation, such as: service levels, coverage, security, activities, construction works, technology, signalization, tariffs, and penalties. Navelena is completely in charge of the operative services and navigability assistance of the Project.
Other interesting features:
The agreement contemplates compensation measures to give back to the communities, regions, localities and the natural environment by impacts or negative effects generated by the project, which cannot be avoided, corrected, mitigated or replaced by the private partner (Chapter 1, Clause 1, cc and Decree 2820 of 2010). The private partner shall be responsible for their application and maintenance from their inception and for the time it is in charge of the project. (Appendix No. 4 “Environmental Specifications” 11.a.) The environmental compensations estimated value is equal to almost $30.000 million pesos (pesos by Dec. 2012) (Appendix No. 4 11.c.), and they correspond to (Appendix No. 4 11.b.):
- Compensations for the use and exploitation of natural resources, as established on Decree 2811 of 1974
- Compensations for loss of biodiversity established on the Resolution 1517 of 2012 of the Ministry of Environment and Sustainable Development.
Reviewed by: Angelica Toro; Sara Sigrist
Updated: March 28, 2021