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Uruguay's state oil company ANCAP is embroiled in a corruption scandal. (Photo: Author Andrés Franchi Ugart)
Wednesday, June 6, 2018
Perspectives

Uruguay: The ANCAP Corruption


Is corruption a major problem at Uruguay’s ANCAP?

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

An Uruguayan prosecutor in March asked for formal charges against former Vice President Raúl Sendic, who resigned last year amid corruption accusations stemming from his tenure as head of state oil company ANCAP. Sendic denies wrongdoing. Prosecutors are also seeking charges against eight other senior officials at ANCAP and its subsidiaries. Does ANCAP have a corruption problem? What measures are being taken to safeguard against future corruption allegations at the energy company? What is the outlook for Uruguay’s energy sector, and what factors are most shaping its future?

Sergio Abreu, president of the Uruguayan Council for Foreign Affairs and former senator and minister of foreign affairs of Uruguay: Vice President Sendic lied about his academic degree. While he headed the National Administration of Fuels, Alcohol, and Portland (ANCAP), he created dozens of corporations that are not supervised by the Court of Auditors. During his administration, ANCAP’s losses amounted to around $1 billion. Sendic spent thousands of dollars using an ANCAP corporate credit card and was forced to resign. The attorney general requested his prosecution and that of other directors and managers as well, on several charges. The former economy minister and the former president of Banco de la República during the Mujica administration were prosecuted in connection with a scandal at an airline, which also involved ANCAP. President Vázquez declared that Sendic has suffered from bullying and that his party, Frente Amplio, supports him. Mujica claims that political decisions are above the law. This is a populist government that appears capitalist in the way it collects taxes and socialist in its out-of-control spending. This has resulted in a fiscal deficit of almost 4 percent, a tax burden above 30 percent of GDP, an unemployment rate of 8 percent and the highest foreign debt in Uruguay’s history. The lack of transparency and the inefficiencies in public administration are worrisome. There is no legal certainty, and transparency and macroeconomic stability are at risk.

David D. Nelson, CEO of Global Business Policy-DC, LLC and former U.S. ambassador to Uruguay:  Political leaders throughout Latin America are being rocked by scandals, from Lava Jato in Brazil to the extensive tentacles of Odebrecht, which brought down presidents in Brazil and Peru and numerous senior officials including the former CEO of Pemex in Mexico—not to mention the wholesale looting of PDVSA in Venezuela. Even relatively transparent Costa Rica has been rocked by the ‘cementazo’ scandal. The central theme of this year’s Summit of the Americas was anti-corruption—a response to the demands of the growing and increasingly empowered middle classes in Latin America. In that context, the case against Raúl Sendic can be viewed as a demonstration of the need for constant vigilance even in a country rated by Transparency International as the least corrupt in Latin America. The allegations against Sendic and other present and former ANCAP officials are ‘small potatoes’­—a few thousand dollars of alleged misuse of corporate credit cards to cover personal expenses. Perhaps the most interesting case involves allegations against one of the other officials related to transactions involving PDVSA debt—demonstrating that when you play with matches you are likely to get burned. The ‘zero tolerance’ for official corruption, even of a relatively minor nature, is a positive symbol for the country and the region. Energy investors in Uruguay, including those in the promising shale opportunities in the ‘Norte’ basin and the offshore blocks available for exploration, can focus on the geology, the ‘below ground’ risks, rather than the ‘above ground’ risk of corrupt demands by government officials.

Enrique Puricelli, independent Buenos Aires-based management consultant:  To understand why the general public perceives ANCAP’s senior management to be corrupt, one must take into account that the company is a state-owned monopoly; the prices charged for the products it delivers are the highest in the region and have little to do with market realities, the price of crude oil or allowing the Uruguayan economy to be competitive. In 2016, the government was forced to re-capitalize ANCAP with $850 million, an exceedingly large sum for a small economy and a large burden on its already overtaxed population. Mr. Sendic’s image and credibility, seriously tarnished by this inexplicable affair, received another blow when it was discovered that a university degree in human genetics, which he always maintained to have obtained at the University of Havana, did not exist. Whether anything will come of this is doubtful, since historically the ruling Frente Amplio party has very ably covered its tracks in previous scandals, and a popular perception in the region is that the left can do no wrong. However, Uruguay’s energy situation is looking positive due to heavy investments in renewable resources, mainly wind farms, which, combined with hydraulic generation, make the country less vulnerable to international oil prices. This trend is expected to continue in the future.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor

 

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