ANOTHER ONE BITES THE DUST: HUTCHISON PORT

C O N F I D E N T I A L GUAYAQUIL 000052


E.O. 12958: DECL: 12/10/2018
TAGS: EINV ETRD PGOV ECON EC
SUBJECT: ANOTHER ONE BITES THE DUST: HUTCHISON PORT
HOLDINGS ABANDONS MANTA CONCESSION

REFTEL: a) Guayaquil 0008 b) 2006 Quito 2226...



id: 195745
date: 3/6/2009 17:35
refid: 09GUAYAQUIL52
origin: Consulate Guayaquil
classification: CONFIDENTIAL
destination: 06QUITO2226|09GUAYAQUIL8
header:
R 061735Z MAR 09
FM AMCONSUL GUAYAQUIL
TO SECSTATE WASHDC 9743
INFO AMEMBASSY QUITO
AMEMBASSY BOGOTA
AMEMBASSY LIMA
AMEMBASSY CARACAS
AMEMBASSY LA PAZ
AMEMBASSY BEIJING
AMCONSUL HONG KONG


-------------- header ends --------------

C O N F I D E N T I A L GUAYAQUIL 000052


E.O. 12958: DECL: 12/10/2018
TAGS: EINV ETRD PGOV ECON EC
SUBJECT: ANOTHER ONE BITES THE DUST: HUTCHISON PORT
HOLDINGS ABANDONS MANTA CONCESSION

REFTEL: a) Guayaquil 0008 b) 2006 Quito 2226

Classified by Doug Griffiths, Consul General. For Reason
1.4 (b and d)



1. (C) Summary. Hong Kong-based Hutchison Port Holdings,
which won the concession to operate the Port of Manta in
February 2007, terminated its presence in Ecuador on
February 27. The departure capped six weeks of turmoil
over the concession?s future, after President Rafael
Correa threatened during one of his January 9 weekly
radio addresses to expel the company from Ecuador.
Allegedly, in response to the unilateral changes to the
concession terms imposed by Correa, Hutchison announced
that it would abandon the country. The Government of
Ecuador and Manta Port Authority officials then insisted
that the concession remained valid and scrambled to find
a way keep Hutchison in Manta. Hutchison?s managing
director told us that the change in the global economic
environment, and the mercurial, anti-market behavior of
the Ecuadorian Government made the concession no longer
viable. The Port of Manta is now being administered by
the Port Authority of Manta until new investors can be
found. A prominent Manta lawyer summed it up best when
he told us, "Correa over-reached" End summary.


2. (U) The Port of Manta is the only deep-water port in
Ecuador. At other ports, larger vessels have to navigate
estuaries leading from the ocean into the port. Manta
also hosts the most important seafood and fishing fleet
in Ecuador, with a fleet of 600 to 1000 fishing boats.
Known as the tuna capital of the Eastern Pacific, 450
metric tons of tuna are processed and packed every day in
Manta. In 2006 the government launched a tender for a
30-year concession to operate the Port of Manta, and
transform it into a multi-modal transportation hub,
serving the Andean region, and even Brazil via an
ambitious road and river development scheme. Hong Kong
based Hutchison Port Holdings (HPH),the world?s largest
port operator, was the only company to bid on the
concession (ref b).


3. (SBU) HPH planned to position Manta as the primary
port for Ecuador and a redistribution center for other
destinations. However, with the dramatic reduction in
Pacific Ocean trade, HPH was unable to court shipping
lines to the Port of Manta. In addition, HPH was
frustrated that the Government of Ecuador failed to make
good on its promised $55 million investment to improve
the poor road network linking Manta to the rest of
Ecuador. Indeed, HPH told us in late September 2008 that
it was only processing an average of two container ships
a week, down from seven per week when it took over the
concession. Faced with the weak demand, HPH limited its
infrastructure investments in the concession.


4. (C) During his January 9 weekly radio address,
President Correa threatened to expel HPH from Manta due
to delays in modernizing the port (Reftel). The
President announced changes to the concession agreement
that would limit the Government of Ecuador?s
contribution. In response, HPH announced that it would
abandon the concession due to the unilateral
modifications to the concession. A flurry of
negotiations followed, where representatives of the
Government of Ecuador and the Manta Port Authority tried
to convince HPH to remain in Ecuador. The President of
the Manta Port Authority, Lucia de Genna, told the Consul
General last week that the President?s threats were a
negotiating tactic to get the concession to speed up
investment at the port. However, HPH saw it as a way
out of what was looking to be an expensive and
unprofitable endeavor. While HPH representatives
negotiated with the GOE throughout February, General
Manager Paul Gallie spent much of the month in hiding
outside of Ecuador. He insisted to ConGen poloff that
HPH was calling Correa?s bluff because Correa thought he
could control the company?s operation of the concession.
While Gallie spent much of last year telling us that HPH
could work with the Correa government, his analysis has
now changed dramatically. He said that the President?s
mercurial behavior threatened the business climate, and
he called Correa a "dictator" who wanted all
international companies to leave Ecuador.


5. (SBU) On February 27, Gallie formally announced that
HPH was withdrawing from Manta, and made severance
payments to all employees. On the same day, on his
Saturday radio broadcast Correa bid farewell to HPH with
a sarcastic ?have a nice trip? (in Spanish, "que se vaya
bonita," which could also mean "good riddance"). Correa
called Gallie "an irresponsible drunk who will never be
allowed to enter Ecuadorian port authorities again."
Correa mocked Gallie as "the typical gringo who thinks
that we are a colony." (Gallie is a British citizen.)
The Ecuadorian press reported that the 270 former HPH
employees have been paid the legal severance packages.
The new administrators have reportedly kept on about 100
of the employees. Helive Angulo, manager of the Port
Authority stated, "We are operating and we are freeing
ourselves of the suffocating bureaucracy (of HPH) that
used to consume a large part of the earnings."


6. (C) Comment. Hutchison is the second major foreign
company to leave Ecuador in the past year, following
Odebrecht SA, a Brazilian engineering firm. President
Correa may have overstepped his game when he threatened
to expel HPH in January, not really believing that the
company would abandon the concession. Indeed, the
President has used similar public bullying techniques to
negotiate better terms with multinational firms such as
cell-phone operator Porta, and several European oil
companies. In the case of Odebrecht, Correa expelled the
company even though Odebrecht was prepared to make a
number of concessions to stay. However, Hutchison is not
the first company to pull out because of changed
commercial opportunity, bullying and the unpredictable
investment regime: three U.S. oil companies with
relatively small investments in Ecuador have departed or
are trying to sell their holdings (City Oriente, Murphy
Petroleum, and Burlington/ConocoPhillips). Manta
business contacts are distraught that with the upcoming
closure of the U.S. Forward Operating Location, another
major source of well-paying jobs is drying up. End
comment.

Griffiths

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