A new chapter has opened in one of the worst corruption scandals in the country’s history. It is about the process of modernization of the Cartagena Refinery (Reficar)a work that, according to the determination of the Comptroller, had a detriment of around 2.9 trillion pesos.
After seven years, Reficar, which is a subsidiary of the state ecopetroljust won a $1 billion lawsuit against the CB&I construction trust (Chicago Bridge and Iron Company), originating in the United States, and its subsidiary in Colombia.
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The New York-based International Chamber of Commerce took a favor from reficar within the framework of an arbitration process initiated in 2016 against CB&I for its conduct regarding a contract called «EPC» signed between the parties for the expansion and modernization of the refinery.
The decision of this Arbitral Tribunal, issued unanimously, established the responsibility of the CB&I contractor by breaching its obligations under the contract. The court classified CB&I’s breach as gross negligence.
The amount of the ruling is equivalent to about 4.2 trillion pesos today that Reficar will recover.
WE WON REFICATION LAWSUIT AGAINST CONTRACTOR CB&I. New York Court of Arbitration ruled for more than a billion dollars. He took 7 years (we started it in 2016 when he was CEO of Ecopetrol); dismissed against CB&I lawsuit. Triumph for Reficar, Ecopetrol and Colombia!
— Juan Carlos Echeverry (@JCecheverryCol) June 8, 2023
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This arbitral tribunal is the most recognized instance in the resolution of highly complex commercial disputes worldwide. Behind this lawsuit were the firms King and Spalding (international) and Suescun Lawyers (national).
“This is a clear success. A good part of the issue of Ecopetrol’s just claim is closed and the responsibility of CB&I was demonstrated. His bad performance is clear. This is one of the largest cases in Latin America,” said Camilo Gómez, former director of the National Legal Defense Agency.
However, the investment arbitration filed on the other side is still pending. The British Chicago Bridge & Iron Company (CB&I) announced it in April this year against Colombia before the International Center for Settlement of Investment Disputes (ICSID).
Likewise, former directors of Reficar are now asking that this decision be taken into account to review the «unfair decision» that the Comptroller’s Office changed in 2021 in a fiscal responsibility ruling.
Reficar will have to strengthen its cost savings and optimization plan.
Mauricio Duenas / EFE
What does the ruling say?
Specifically, the Arbitral Tribunal ordered CB&I to pay in favor of Reficar of more than 1,000 million dollars plus the corresponding interest accrued since December 31, 2015. Likewise, it dismissed CB&I’s claims for close to 400 million dollars.
In addition, possibly the liquidation of the EPC Contract between the two parties, as requested by Reficar, and in this sense resolves the dispute over costs.
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«With this decision, Reficar and all Colombians can be certain about the resources invested in the construction of the refinery,» Reficar said in a statement.
It must be taken into account that this decision could now be subject to corrections and clarifications at the request of the parties.
The decision of the arbitral tribunal may be subject to corrections and clarifications at the request of the parties.
How the dispute started
Construction work on the expansion and modernization project of the Cartagena Refinery began in the second half of 2010. Prior to that, since 2009, land adaptation works were already carried out.
Finally, in October 2015 and in an inauguration ceremony attended by former President Juan Manuel Santo, Ecopetrol launched the refinery capable of processing 165,000 barrels per day and equipped with the most modern technology in Latin America.
Although initially the costs of the expansion and modernization were calculated at 3,777 million dollars, it was finally passed to 8,016 million dollarsthat is, it was recognized that there were cost overruns and that irregularities occurred in the process.
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Initially, reficar exhausted a first instance to directly resolve disputes with the contractor. The idea was to determine which budget variations were justified and appropriate, not to identify cost overruns within the project.
But since an agreement was not reached, Reficar went to an arbitration court to resolve the differences and recover a part of the millionaire cost overruns of this megaproject.
Already in March 2016, Reficar submitted a request to the International Chamber of Commerce aimed at initiating arbitration proceedings against CB&I. The initial claims in the lawsuit were for at least $2 billion.
The biggest cost overruns have always been blamed on «defaults» by contractor CB&I, worker protests, and winter, among others.
In parallel, in a ruling from April 2021, the Comptroller found fiscal responsibility in the Reficar case for 2.9 trillion pesos,
Archive / WEATHER
Comptroller’s ruling
In parallel, in a judgment of April 2021, the comptrollership found fiscal responsibility in the Reficar case for 2.9 trillion pesos, against 5 former employees of the company (including 2 presidents), 7 members of its board of directors and four contractors, for the greater amounts invested in the construction of this megaproject that did not they will recover.
According to the control entity, This patrimonial damage occurred due to the actions and omissions of Reficar’s board of directors and its administration, contractor and supervisor of the project.
«In the exercise of their direct or indirect fiscal management, in an uneconomical, inefficient and untimely manner, they contributed to this trillion-dollar loss of public resources, which has become the greatest patrimonial detriment of the Colombian State in its entire history,» the statement said at the time. Comptroller.
The former officials of the Reficar company declared responsible prosecutors were: presidents Reyes Reinoso Yanes and Orlando Cabrales Martínez and vice presidents Carlos Eduardo Bustillo, Andrés Virgilio Riera and Magda Nancy Manosalva.
For their part, the contractors declared tax responsible were Chicago Bridge & Iron Company, CBI Colombiana, Foster Wheeler USA Corporation and Process Consultants.
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Does this ruling undermine that of the Comptroller’s Office?
Upon hearing the news of the arbitration ruling against CB&I, several former officials of reficar They issued a statement in which they ask that the Comptroller’s ruling be distorted since they corroborate that they made the best decision to ensure the completion of the project.
«The ruling verifies that the decisions of the board of directors and the administration of Reficar that were taken throughout the construction of the project, including the budget additions Adopted within the framework of rigorous exchange controls, they were supported and had as their sole objective that the largest industrial initiative in the history of Colombia come to an end”, they affirm.
Said document is signed by Javier Gutiérrez, Orlando Cabrales, Carlos Bustillo, Pedro Rosales, Andrés Riera, Uriel Salazar, Magda Manosalva and Diana Calixto Reyes Reinoso.
«After the constant and repetitive breaches of CB&I, the board of directors and the administration of Reficar always made it clear that the project had to be finished so as not to be left with a white elephant, and that the corresponding claims would then be made, as was done before the International Tribunal», they remember.
In addition, they say that the amount of the ruling is equivalent to 4.2 trillion pesos today, which is what Reficar is going to recover and which «widely» exceeds the «supposed» fiscal damage of 2.9 trillion pesos determined by the Comptroller General of the Nation
Two former presidents sentenced to prison
In August of last year, the General Prosecutor of the Nation It also reported that the former presidents of Reficar Orlando José Cabrales and Felipe Castilla Canales were sentenced to five years and four months in prison for acts of corruption committed between 2009 and 2012, when they were in charge of the company.
The sentence was imposed by a judge of the Bogotá circuit after the Prosecutor’s Office emerged that the executives delivered the contract for the expansion of the refinery without taking into account the current regulations for public contracting.
The investigation allowed us to know that Canales, president of Reficar between April 29 and October 1, 2009and Cabrales, who was in charge of this company between October 2, 2009 and November 21, 2012, «directed the contract to a foreign entity for which they incurred irregularities in the previous phase and in the contractual stage of the project «.
In addition to this, in 2017 there was another process for embezzlement by appropriation and illicit enrichment in favor of individuals. The Prosecutor’s Office found that the fraud in Reficar amounted to more than 610,000 million pesos. The attorney general of that time Nestor Humberto Martinez He said that the evidence showed that «the administrators gave the Reficar checkbook to CB&I so that it could dispose of the Colombians’ money as it wanted.»