OHL Mexico battles accusations of wrongdoing

Alleged plans by Obrascon Huarte Lain Mexico, the Mexican subsidiary of Spanish developer Obrascón Huarte Lain (OHL), to raise tolls on the Viaducto Bicentenario project hit a pothole earlier this month when audio recordings surfaced indicating possible wrongdoing.

Two separate series of calls were posted on YouTube in videos by the channels Yo Cancun and Extra Noticias on May 7. In the former, OHL Mexico executive Paul Wallentin appears to be arranging to pay for the vacation stay of the State of Mexico's Minister of Communications Apolinar Mena Vargas at a Playa del Carmen hotel, while in the latter, company executives allegedly discuss “trickery” and “fraud” related to schemes to recover their investment in the Viaducto Bicentenario project that began in 2008.

There was no indication as to how the audio recordings were gathered, whether or not they were authorised, or whether they contained all related conversations on the matter or were rather a part of a larger series of conversations. 

In related media statements, OHL Mexico denounced the recordings as illegal. In one Mexican media report, the company also said that the recordings had been altered in such a way as to maximise damage to the company and did not include the full extent of the related conversations that took place. 

Around the time the videos were posted to YouTube, the Mexican Stock Exchange agreed to a temporary suspension of trading of OHL Mexico stock after it took a double-digit plunge from which it has yet to recover. 

Cost overruns

According to the Yo Cancun audio transcripts, the viaduct project was suffering severe construction cost overruns in the first construction phase. Tolls were going to have to be raised in consequence. The challenge, according to the conversations, was figuring out a way to make that happen.  

In one alleged conversation between Wallentin and Jose Luiz Munoz, the company's director of financial planning, Munoz admitted that OHL Mexico was “very inefficient on the question of expenses” as compared to its competitors. 

Munoz also allegedly told Wallentin that traffic projections on the roadway were severely under estimated targets, and that as a result, the plan to use tolls collected from the phase one roadway to pay for the second phase of construction would not suffice. As a result, “trickery” would need to be employed in order to cover costs of the second phase of construction, along with the early opening of a portion of the stage two roadway to tolled trips. 

While several possible avenues were discussed during the series of calls, including the possible addition of a fourth stage to the project that would give rise to the need for increased revenues, it was decided that the company would have to charge tolls related to construction that would never actually take place. 

In one call, Jose Andres de Oteyza, president of administrative advisors at OHL Mexico, allegedly told Wallentin, “This is a fraud. We're going to put in expenses for a [construction] phase that we're never going to construct!” Wallentin replied, “Mhm, we're going to charge tolls as if we're going to construct it,” and Oteyza again repeated, “Pablo, it's a fraud,” to which Wallentin said, “Yes.”

After another brief exchange, Oteyza told Wallentin that he did not want to be involved.

Last year, according to OHL Mexico's website, tolls were raised 26.6 percent by the concessionaire, and according to a recent column by Mexican journalist Mauricio Flores, tolls this year have been raised by 30 percent – seven times greater than the rate of inflation – which he says is irregular because the company is charging tollway users for the second phase of construction before it has even begun. 

Las vacaciones 

In the Extra Noticias video, a series of audio-recorded conversations allegedly takes place between Wallentin and Vargas, between Wallentin and the Hotel Fairmont Mayakoba in Playa del Carmen, and between Vargas and the hotel.

In the final call, which reportedly occurred on December 23, 2014, a man who identifies himself as Alan from the housekeeping department at Hotel Fairmont Mayakoba allegedly told Vargas, “I've checked the information and effectively OHL will pay for the stay and all of your basic costs”.  

While some media outlets have reported that OHL Mexico may have used this complimentary hotel stay as a means of thanking Vargas for his part in ensuring the company was able to raise tolls on the Viaduct, there is nothing that takes place in the recorded calls that indicates as much.

Further, the recorded conversations on the Extra Noticias video allegedly took place in November and December 2014, while the recordings on the Yo Cancun video are said to have happened in January this year, after the hotel stay had already taken place.  

Investigations commence 

On May 20, OHL Mexico issued a news release stating that a full investigation pursuant to Article 82 of the Securities Market Act initiated by the Commission on Corporate Responsibility Audit and the Compliance Council Directors of OHL, and conducted by consultants Ernst & Young (EY), completed a report confirming that OHL Mexico “well and faithfully fulfilled the terms and conditions of the concession of the elevated Viaducto Bicentenario”. 

In the report, EY details that due to the contractual guarantee OHL would be entitled to “recover its total investment, including returns on risk capital contributed for the construction of 'The Viaduct,' with a fixed annual internal rate of real return of 7 percent”.  

The report said that in 2011, OHL discovered that the cost of construction on phase one of the project was more than MEX$2.75 billion (€165 million; $180 million) over budget, and as a result there was justifiable need to raise tolls to pay for these added costs in order to ensure contractual return obligations are met. 

On the same day that the EY report was released, OHL Mexico reported that the company's board of directors and audit committee had begun auditing in order to verify that its operations have complied with applicable legislation. To assist in the audit, OHL Mexico hired independent consultants KPMG Cardenas Dosal, SC Jones Day Mexico, and FTI Consulting. 

Resignations 

In the wake of the alleged scandal, Vargas resigned from his post, and was fined MEX$189,000 for his participation in the conversations, according to Milenio.com. Wallentin, the individual who allegedly arranged for the complimentary vacation package, also tendered his resignation after the videos were made public, with the company proclaiming that he chose to resign so as “not to get in the way of the investigation and/or do further damage to the image of the corporation”, according to a statement delivered to Fox New Latino.

Two Mexican senators, Laura Angelica Rojas and Alejandro Encinas, earlier this week called for a probe into possible government corruption related to the OHL Mexico concession. Mexico state Governor Eruviel Avila has also announced that the state comptroller's office plans to conduct a full audit of the Viaducto Bicentenario contract awarded to OHL Mexico.

After acknowledging receipt of inquiry into these matters, the company did not submit comment in time for publication of this article. However, Enrique Weickart, chief financial officer of OHL, on Wednesday said that investigations into the irregularities in Mexico would show the allegations are false, according to Fox News Latino.