January 25, 2017 / 10:09 PM / a year ago

UPDATE 2-Peru sees much weaker growth in 2017 on 'Odebrecht effect'

(Adds quotes from finance minister on growth and corruption, details on pipeline auction and Odebrecht’s Chavimochic project)

LIMA, Jan 25 (Reuters) - A massive graft inquiry in Peru has put a damper on robust growth projections for this year as the “Odebrecht effect” chills investments and stalls public works projects, the government said on Wednesday.

Before Brazilian builder Odebrecht acknowledged bribing Peruvian officials over a decade-long period last month , the government had forecast a 4.8 percent economic expansion for 2017, up from an expected 4 percent last year.

But President Pedro Pablo Kuczynski’s plans to jumpstart flagging domestic demand with infrastructure projects could face delays as the government seeks to uproot corruption, said Finance Minister Alfredo Thorne.

“Due to the Odebrecht effect ... I think it’s hard to think that we’re going to grow 4.8 percent, I think we could grow one percentage point below that,” Thorne said at a press conference with other cabinet members.

The government has barred Odebrecht and other companies known to have been involved in corruption from bidding on public work projects, and took back its $5 billion natural gas pipeline project this week after its financing got snagged on concerns about liability for graft.

A new auction for the pipeline project will be held within a year, said Energy and Mines Minister Gonzalo Tamayo.

The government now wants Odebrecht to sell its stake in the $500 million irrigation project Chavimochic III that it was building with Peruvian construction conglomerate Grana y Montero , Thorne said.

Odebrecht told Reuters on Tuesday that work on the project stalled in December when the government withheld a permit.

“We’re not going to tolerate corruption,” Thorne said. “If that means we have to pay for it with a bit of growth, well, I think we’re ready to do that.”

But the government is preparing an investment “shock” to offset the impacts of the graft scandal, including 5 billion soles ($1.51 billion) for public projects to be disbursed by March 31, and an injection of 3.89 billion soles to help local governments develop infrastructure this year, Thorne said.

State bidding agency Proinversion will aim to award projects in 2017 worth between $3.3 billion and $5.5 billion that would be financed mostly by the private sector, Thorne added.

Kuczynski said on Tuesday that Odebrecht must sell off all its remaining projects and leave Peru. (Reporting By Mitra Taj and Marco Aquino; Editing by Meredith Mazzilli and Tom Brown)

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