KEY FACTS
The following information details the facts behind the acquisition of Rutas de Lima (“Rutas”) by Brookfield and the subsequent significant investment made during Brookfield’s majority ownership to upgrade and maintain key road arteries in Lima.
Brookfield acquired the concession in Rutas in good faith and in reliance on commitments made by the Peruvian State to foreign investors. Brookfield followed through on its end of the deal, but the Peruvian Government and Lima have failed to deliver on their commitments, as shown in two independent international-arbitration awards and a U.S. court judgment.
The current harassment by the Municipality of Lima (“the Municipality” or “Lima”) and other State entities against Brookfield is driven by political considerations, causing real harm to Brookfield and its investments. The assertions made by the Municipality have been rejected by tribunals.
Brookfield is highly concerned about the actions of the Peruvian State and its lack of respect for international investors and the rule of law. We have been a longstanding supporter of investment in Peru, so we cannot quietly watch as the State, including the Municipality, unlawfully engages in effectively what is a theft of our investment while conducting a harassment campaign against us in the country.
Brookfield is an owner and operator around the world and is not in the business of litigating to recover its investments. The current conditions are unprecedented and leave no choice but to present an arbitration claim against Peru for expropriation and failure to provide a certain standard of treatment.
Background on Rutas de Lima
In January 2013, the Municipality granted Rutas de Lima a 30-year concession contract to design, build, operate, and maintain the “Vías Nuevas de Lima” road network, a portfolio of urban toll roads in Lima, Peru comprised of three road segments totaling 115 km. These roads are key arteries within Lima and serve as the main access to the city from the north, south, and east.
In exchange for taking on the cost of construction, improvement, operation and maintenance of the road network Rutas had the right to collect tolls to recover its investment.
Over the last 12 years, Rutas has invested +2,200 million soles (+US$600M) and +1,500 million soles (+US$400M) in maintenance and operations. The company has never distributed dividends, reinvesting all the generated proceeds.
Brookfield Acquisition
In 2016, Brookfield participated in a competitive, Scotiabank-led sale process to acquire the Rutas concession from Odebrecht, its initial sponsor. Several international and reputable bidders participated, a fact that was covered by the local press as a normal corporate transaction.
At the time, Odebrecht was in the process of selling several of its assets internationally to obtain liquidity while it dealt with an investigation against it for corruption in a contract with Petrobras in Brazil. There was no investigation of Odebrecht assets ongoing in Peru and certainly none of Rutas. Odebrecht’s plea agreement with the United States Department of Justice (DOJ) was only disclosed 6 months after Brookfield’s transaction.
During the acquisition process, Brookfield undertook extensive due diligence over several months and with the support of expert third-party advisors to analyze several aspects of the business such as Technical, Tax, Accounting, Insurance Legal, Regulatory, and Compliance matters. The consultants engaged included Hatch, KPMG, AON, Cahill (a US law firm specialized in compliance matters), among others. As a publicly listed company on the NYSE, Brookfield complied with FCPA rules in all aspects of its due diligence and has never been questioned by any US authority on its practices in this or any other transaction.
The process was competitive and several international toll road operators participated. Brookfield paid the market price, after offering the highest price in this auction led by international investment banks.
The sale to Brookfield was not only covered and reported by the local press but Brookfield also reached out to the Municipality of Lima before closing the transaction.
In parallel with Brookfield´s acquisition, Sigma a local infrastructure fund, increased its participation in the project from 10% to 18%. Sigma initially invested in Rutas in 2014 with a 10% interest and increased it to 18% concurrently with Brookfield’s transaction in 2016. Sigma manages capital from COFIDE, a Peruvian government owned development bank, and the National Pension System of Peru (ONP) as well as several local private pension plans (AFPs). In other words, along and parallel with Brookfield, Peruvian government money was invested in Rutas through Sigma.
Following the completion of the transaction, the ownership of Rutas was as follows: Brookfield 57%, Sigma 18%, and Odebrecht 25%. Under the terms of the concession contract, Odebrecht was obliged to maintain a 25% ownership until the achievement of project completion. To this date, due to the breaches by the Municipality, Rutas has not been able to achieve project completion. On the other hand, the Peruvian State has not allowed Odebrecht to sell its 25%.
Brookfield’s Responsible Ownership of Rutas
Brookfield has been a responsible steward of the Rutas toll roads, investing over $1,000 million in the road network and creating over 1,200 jobs in the local community, including around 600 jobs currently supporting the day-to-day management of the toll-road network. Moreover, Rutas is a key part of the economy in Lima, supporting over 40 million trips each year.
Importantly, Brookfield has reinvested all toll-road collections back into the business to support the ongoing improvement and maintenance of the toll roads. After almost 9 years, Brookfield has not taken any dividends or capital out of the business, underscoring its commitment to the community and improving the local infrastructure.
The Peruvian State has progressively expropriated Rutas of its right to collect tolls. As of today, Rutas has been prohibited from collecting on 3 toll booth stations thus, in theory, limiting free transit. It is relevant to mention that such toll booths were installed and operated by the government decades before the concession was even granted proving that the argument of limiting free transit is simply a scheme to limit Rutas rights.
Despite only being able to partially collect tolls due to the State’s harassment and other measures, Brookfield has upheld its commitment to the people of Lima by continuing to support Rutas in maintaining the roads in line with global standards and proper compensation to its staff.
International Tribunals, U.S. Court Sides with Brookfield
In addition to the recently announced US$2.7 billion request for arbitration by Brookfield against the Peruvian State, its toll road business, Rutas, is pursuing legal action against the Municipality for failing to uphold its contractual obligations.
Two independent international arbitration tribunals have reviewed extensive evidence and rejected allegations of corruption or wrongdoing by Rutas.
The tribunals ordered Lima to pay over US$200 million in damages, a figure that continues to increase each day due to the blocked concessions, interest being accrued and the Municipality’s refusal to pay. The arbitral tribunals also rejected the accusations made by Lima relating to Brookfield’s acquisition and subsequent ownership of the asset. These arbitral awards were affirmed by a U.S. federal court in Washington, D.C.
The tribunals declared the following:
Brookfield had acquired Rutas in good faith.
The concession contract was valid.
Lima breached the concession contract in several instances.
Lima’s request to nullify the concession contract was denied as its arguments that the concession contract was corrupt were rejected.
Both tribunals ordered Lima to pay compensation to Rutas adding up to US$200 million.