LENDERS RECEIVE ASSURANCES THAT QUITO AIRPORT PROJECT WILL

UNCLAS QUITO 000059 SENSITIVE SIPDIS DEPARTMENT PASS TO EXIM AND OPIC E.O. 12958: N/A TAGS: EFIN ECON EAIR EINV ECIN EC SUBJECT: LENDERS RECEIVE ASSURANCES THAT QUITO AIRPORT PROJECT WILL NOT BE AFFECTED BY ECUADOR'S NEW CONSTITUTION REFTEL: A 08 QUITO 942 B 07 QUITO 2571 ¶1. (SBU) SUMMARY: In December 2008, representatives of key lenders (including OPIC and Exim Bank) for the new Quito airport received assurances from the GOE's Ministry of Industries, and Quito's Mayor, that Ecuador's new constitution would not adversely affect the project. The lenders' representatives are monitoring Ecuador's deteriorating economic situation and the GOE's decision to default on part of its commercial debt. In January 2009 the Office of the Comptroller General of Ecuador issued a report criticizing certain aspects of the airport project and ordering the relevant public officials to renegotiate terms. This report is currently being analyzed by the key lenders to the project. END SUMMARY. ¶2. (SBU) In October, 2008 Ecuador approved a new constitution that decreed that the federal government would have responsibility for the country's airports (reftel A). This provision is similar to that in the previous constitution, and under the prior constitution the federal government had devolved responsibility to municipal governments. However, the provision in the new constitution prompted a GOE review of the municipal-controlled entities that have controlled Ecuador's two largest airports (in Quito and Guayaquil) and the role of federal entities. ¶3. (SBU) Representatives of the major lenders to the new Quito airport (OPIC, Exim, InterAmerican Development Bank, and Export Development Bank of Canada) met with representatives from the Ministry of Industries and Competitiveness, the Director General for Civil Aviation, Quito Mayor Paco Moncayo, and the Executive Committee of CORPAQ (the city-owned entity with responsibility for the airport) to discuss the impact of the new constitution on the legal structure for the new Quito airport. The GOE representatives, Mayor Moncayo, and the CORPAQ officials all gave verbal assurances that the new constitution would in no way create problems regarding the legal regime for the airport project. The lenders requested that all parties follow up with letters providing written assurances along the same lines. A letter was drafted by the four lending agencies and sent on December 22, 2008. No reply had been received as of mid-January. An additional disbursement is scheduled for early February, 2009, which might be affected if assurances are not provided on a timely basis. ¶4. (SBU) In January 2009 the Office of the Comptroller General of Ecuador issued a report criticizing certain aspects of the airport project and ordering the relevant public officials to renegotiate terms. The authority of the Comptroller General to insist on changing contractual terms is unclear, and Quiport has already indicated that it will not agree to any change in terms that will adversely affect its ability to perform its obligations. The Comptroller General report is currently being analyzed by the key lenders to the project. This report was not discussed with GOE officials during the lenders' December visit to Quito. ¶5. (SBU) In conversations with Embassy officials, the USG lenders stated that they were following economic developments in Ecuador closely, including Ecuador's default on part of its commercial debt, the Comptroller General report, and possible economic deterioration. They said that these were issues that they would take into consideration, but they would not necessarily preclude continued disbursements for the airport project, given the provisions that are established in the loan contracts. ¶6. (SBU) Apart from the legal developments potentially affecting the loan contracts noted above, the Quito airport project continues to move forward in the face a number of logistical and political challenges, which will be reported septel. Hodges