Mixed Signals from GOE Complicate New Airport Negotiations

C O N F I D E N T I A L QUITO 000899 NOFORN SIPDIS STATE PASS OPIC AND EX-IM E.O. 12958: DECL: 2019/10/23 TAGS: EAIR ECON EFIN PREL BR CA IDB OPIC EXIM SUBJECT: Mixed Signals from GOE Complicate New Airport Negotiations CLASSIFIED BY: Heather Hodges, Ambassador, State; REASON: 1.4(B),(D) ¶1. (C) Summary: Meetings on October 14 and 15 between project lenders, Quiport, and the Quito Mayor's office resulted in a one-page protocol that, if ratified by all parties, would allow the Mayor's office to comply with a recent Constitutional Court proclamation and avoid pushing the new Quito international airport project into arbitration. OPIC and Ex-Im were quietly optimistic that the protocol would lay a path for a renegotiated concession contract, a notion seconded by Mayor Augusto Barrera in an October 16 meeting with Ambassador Hodges (septel). However, ratification of the protocol hit a snag on Oct 19 when Ecuador's Comptroller General, Carlos Polit, published a full-page letter in the Quito daily "El Comercio" proclaiming the original airport concession unconstitutional and certain guarantees issued by the municipality criminal. The lenders in writing to Mayor Barrera on October 22 requested clarification of the Comptroller's statements and also assurances that all Ecuadoran state institutions will respect the lenders' rights under the original contract. End Summary. -------------- Two Steps Forward -------------- ¶2. (U) On July 23, Ecuador's Constitutional Court, prompted by Controller General Carlos Polit, ruled that under the new constitution all airports and their fees are property of the central government (ref B). The ruling, if implemented, threatened to throw the new Quito international airport project into default. Quiport, per the concession contract, uses the collection of airport fees to service project debt held by four lenders: the Overseas Private Investment Corporation (OPIC),the Inter-American Development Bank (IDB),the Export-Import Bank (Ex-Im),and Export Development Canada (EDC). A ray of hope came when the Constitutional Court issued a follow-up "proclamation" on September 29 designed to clarify its July 23rd ruling. The September 29 proclamation defined a "period of transition" during which Quito Mayor Barrera would have discretion over the airport fees while the concession contract was renegotiated to bring it into compliance with the new constitution. This allowed Barrera the legal maneuvering room to keep airport fees in the hands of the lenders so long as a process of renegotiation continued. In return, the lenders and the project's guarantor, the Canadian Commercial Corporation (CCC),agreed to continue funding construction on the new airport. ¶3. (SBU) A second positive step occurred on October 14 and 15 when the lenders met with Quiport and the Mayor's office to develop a plan of action for renegotiating the concession contract. (Note: For U.S. lenders, December may impose another deadline for any potential arbitration filing, as Ecuador withdrew from the World Bank's Convention on the Settlement of Investment Disputes (ICSID) on June 6, and a six-month grace filing period expires in January ¶2010. End Note.) The meetings were organized around four working groups focusing on the legal, financial, regulatory, and construction aspects of the new airport. The result was a one-page protocol that would provide structure and a time line, including a mid-December deadline, for renegotiating the concession contract. Representatives of the lenders returned home with the intention of reviewing and ratifying the protocol by October 23. Members of OPIC and Ex-Im expressed guarded optimism that the meetings had laid a path to a workable solution to the airport debacle, noting that a ratified protocol would uphold existing protections for lenders during the designated renegotiation period. ¶4. (C) In an October 16 meeting with the Ambassador (septel), Barrera echoed the positive sentiment of the lenders regarding the October 14 and 15 meetings and the protocol. Barrera noted that a signed protocol would "protect" him from the Constitutional Court's July 23 ruling requiring public ownership of airport fees, and said that he expected the lenders would ratify the protocol by Wednesday, October 21. Barrera indicated his strong commitment to seeing the airport project to completion and told the Ambassador that he was investing all of his "political capital" in the renegotiation process. He emphasized that since the municipal government had kept airport fees in the hands of Quiport and the lenders, he expected the lenders to maintain funding for new airport construction. At the end of the meeting Barrera admitted that the airport access roads were likely "two and a half" years from completion (although he estimated two years during a subsequent radio interview) but added that the new airport was now 8 months behind schedule. He blamed Quiport rather than the renegotiation process for the delay. -------------- ....And Two Steps Back -------------- ¶5. (C) Hopes for a ratified protocol suffered a setback on October 19 when Quito daily "El Comercio" ran a full page declaration from Comptroller General Carlos Polit. Polit, in the name of "transparency," published findings from his office's investigation of the airport project in 2007 that claimed the concession contract and project guarantees were unconstitutional and criminal. Although the finding had been subsequently refuted by the Attorney General, Polit's newspaper stunt was enough to stop the lenders from ratifying the protocol. The lenders reportedly are concerned that Polit's declaration calls into question whether Barrera is the point person on the airport project and has full authority to renegotiate the contract, as he has claimed. According to the Canadian Embassy, Polit is a supporter of former president Gutierrez who might be seeking to embarrass the Correa government with the failure of the airport. ¶6. (SBU) On October 22, the lenders, through their offshore collateral agent Bank of America, N.A., requested in writing clarification from the Mayor's office on the Comptroller General's statement, and also asked for assurances that Ecuadoran authorities will ensure that "all relevant State Institutions respect the rights and remedies of the Secured Parties during both the transitional period and afterwards." The lenders' letter informs the Mayor's office that they will not be able to sign the proposed protocol until this issue is resolved. ¶7. (C) Comment: Mayor Barrera has repeatedly stated that the continuation of construction activities is a precondition for renegotiating the concession. Given that shutting down construction would start a cycle of layoffs, negative press, public accusations, and political recrimination, we believe that failure to disburse the construction funds and sign the new protocol would reverse recent gains and place the project on a path to arbitration. HODGES