By Stephan Kueffner and Joshua Goodman
Sept. 24 (Bloomberg) -- Ecuadorean President Rafael Correa said the government may default on a loan of more than $200 million owed to Brazil's state development bank that's linked to Odebrecht SA, a Brazilian construction company he expelled from the country yesterday in a dispute over a power plant.
The loan by the BNDES, as the bank is known, was for the year-old, $338 million San Francisco hydroelectric plant built by Odebrecht, Correa said today. The plant had to be shut down in August due to damages to tunnels and turbines. Correa blamed Odebrecht for the problems and canceled $800 million in infrastructure contracts the Brazilian company had in Ecuador.
``It's money that went to the company but appears as if it were a loan by Brazil to Ecuador,'' Correa told state-owned Ecuador Television.
The cost of protecting bonds issued by Ecuador rose to the highest since August 2007. The country's five-year credit default swaps climbed 30 basis points to 10.50 percentage points, according to CMA Datavision. That means it costs $1,050,000 to protect $10 million of the country's debt from default.
``This news is coming at a bad time,'' said Silvia Marengo, who manages about $130 million of emerging-market bonds at Clariden Leu in London. ``These political issues never help. This is adding to the weakness in the markets.''
Odebrecht is the first foreign company expelled by Correa, who called a Sept. 28 referendum on a new constitution that extends his grip on the economy and ends the central bank's independence. Correa has also used tax increases and the threat of canceling contracts to force better terms from foreign companies including America Movil SA and Petroleo Brasileiro SA.
Troops
At the United Nations today, Brazilian Foreign Minister Celso Amorim said that he expected the dispute to be resolved in a matter of days, Agencia Estado reported. He added that two Odebrecht executives had fled to the Brazilian Embassy in Quito.
``If the two sides reach an agreement, then the issue of the BNDES loan won't matter,'' Amorim said, according to Estado.
A BNDES spokesman in Rio de Janeiro declined to comment to Bloomberg News.
Correa sent troops yesterday to seize the San Francisco plant along with an irrigation project, a hydropower plant, a highway and an airport Odebrecht was building. As part of the expulsion, he also barred its executives from leaving and is investigating whether the company bribed Ecuadorean officials.
Correa said today he rejected mediation efforts by Brazilian President Luiz Inacio Lula da Silva and advisers.
`I Love Brazil'
``I told them very clearly, I love Brazil, however what this company has done in Ecuador is terrible,'' Correa said.
The shutdown of the San Francisco plant costs the government about $200,000 daily. Ecuadorean officials said yesterday that while an agreement with Odebrecht had been reached on Sept. 18, the company had refused to sign it.
Odebrecht, in a statement from Sao Paulo today, said that it accepted Ecuador's demands to perform $25 million in repair work and to deposit $43.8 million in a trust pending an independent investigation into the problems with the plant. It was unable to sign the accord, however, because consortium partners Alstom SA and Valtech didn't agree with the changes sought by Ecuador, alleging they increased their contractual and legal risks.
The value of the other contracts suspended by Ecuador was $650 million, Odebrecht said. Ecuador owes $50 million for construction work, it added.
The expulsion of Odebrecht follows other attempts by Correa to pressure foreign investors.
Mobile Phones
Correa threatened to let expire a contract between America Movil's Conecel SA Porta unit and prohibit the country's largest wireless phone company from rebidding, saying it didn't pay enough taxes. Conecel agreed to pay $480 million for a new, 15- year contract in May.
He also clashed with oil companies such as Brazil's state- controlled Petrobras after imposing a 99 percent windfall tax on profits last year that forced the companies to re-negotiate oil contracts with more favorable terms for the state.
BNDES, Latin America's largest development bank, has $2.3 billion in loans to finance infrastructure projects by Brazilian companies in other regional countries.
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