AMBASSADOR AND MAYOR BARRERA DISCUSS AIRPORT IN FIRST

C O N F I D E N T I A L QUITO 000901

NOFORN
SIPDIS
DEPARTMENT OF STATE PLEASE PASS TO OPIC AND EX-IM BANK

E.O. 12958: DECL: 2019/10/26
TAGS: EAIR EFIN PREL ECON BR IDB OPIC EXIM
SUBJECT: AMBASSADOR AND MAYOR BARRERA DISCUSS AIRPORT IN FIRST
MEETING

REF: 09 QUITO 871; 09 QUITO 817; 09 QUITO 857

CLASSIFIED BY: Chritton, DCM, DOS, Exec; REASON: 1.4(D)

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Summary

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1. (SBU) Summary: The new Mayor of Quito, Augusto Barrera, was
eager to discuss the airport renegotiation process in his first
meeting with the Ambassador on October 16. After a friendly
discussion about potential cultural and education exchange
programs, Barrera launched into a detailed and structured review of
the state of airport renegotiations. He appeared content with the
outcome of the October 14-15 meetings between his office and
Quiport (the consortium building the airport),Corpaq (the
quasi-public municipal entity that manages the concession) and
project lenders OPIC, Ex-Im Bank, the Inter-American Development
Bank (IDB),and Export Development Canada (EDC). Barrera said
that, as long as the renegotiation process continued, he would be
protected from the Constitutional Court's July 23 ruling. (This
stems from the Constitutional Court's September 29 ruling, which
clarified its earlier ruling and basically allowed the status quo
to continue during the renegotiation process.) He expected the
lenders to ratify the protocol soon and was focused on bringing the
renegotiations to an end in a way that would be successful for all
parties. End Summary



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Top Priority: Continuing Airport Construction

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2. (SBU) Barrer's priority was that the lenders continue to fund
the construction of the new airport throughout the renegotiation
process. He commented that since the municipality had not taken
control of airport fees from Quiport, the lenders should have the
confidence to continue funding new airport construction. Barrera
has consistently stated in the media that maintaining construction
activities at the new airport, which employs approximately 2,000
people, is a precondition for continuing negotiations. During the
meeting with the Ambassador, he clearly linked the ability of
Quiport (and the lenders by extension) to collect airport fees with
the lenders' obligation to continue paying for construction.



NOTE: In reality, there is no link between the two in the project
contract. End note.



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ADDITIONAL ISSUES

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3. (SBU) Airport Tariffs: Barrera stated that he realized that per
the airport concession contract airport tariffs were the property
of the consortium (Quiport) and the lenders. However, this
obviously conflicted with the Constitutional Court's (CC) July 23
ruling that such fees were public property. Therefore, Barrera said
that during the October 15 meeting his office proposed the use of a
trust for airport fees. Barrera noted that this issue remains the
most problematic in the negotiations. He also pointed out that


many airlines had stopped paying airport fees because they were
unsure whether to pay Quiport or the government.



NOTE: Barrera's statement about a trust points to a likely sticking
point for any renegotiated contract, which is who will control the
airport fees. The CC September 29 proclamation gives the Mayor's
office the flexibility to keep fees in Quiport's possession during
the renegotiation process, but a more permanent arrangement must be
found. End note.




4. (SBU) Guarantees: Barrera stated that he realized that changing
or renegotiating the concession contract would mean changing the
protections afforded the lenders by the initial agreement. He
acknowledged that the lenders required that their original
protections be maintained in any future agreement, and said he
would have to look for a way to maintain the lenders' protections
in any renegotiated concessions contract.




5. (SBU) A Bigger Cut for the City: Barrera said the city needed a
bigger share of the airport profits. He explained that under the
current concession contract the municipality receives only US$1.5
million a year from Quiport. Barrera noted that when the
negotiations started a few months ago the lenders were surprised to
learn how little the Municipality received from the concession.




6. (C) The New Airport is Not Licensed: Barrera claimed that
licensing of the new airport with the Director General of Civil
Aviation (DGAC) remained incomplete. He also expressed concern that
technical reviews necessary to meet European and North American
regulations for flight safety for Boeing and Airbus aircraft still
needed to be conducted. The Ambassador offered Embassy assistance
in making contact with the appropriate USG agencies, if the various
involved parties agreed to pursue this idea further.



NOTE: DGAC licensing has received much press in recent months, with
various representatives of the GOE stating that the DGAC has not
signed off on the new airport. Barrera admitted to the Ambassador
that inspections had been done by the DGAC, but that communications
between the DGAC and the municipality had been "bad." The Mayor
added that regardless of the history, the new airport must be DGAC
compliant and meet regulations of other relevant authorities like
the FAA. Barrera did not indicate who would be responsible for
obtaining the required licensing. Quiport President Philippe Baril
told Econoff that the new airport building and runway were the
property of the municipality and therefore the Mayor would be
responsible for the DGAC licensing, but that Quiport would work
with the relevant national and international authorities (such as
the FAA and ICAO) to meet flight safety and other regulations. End
note.




7. (C) No Customs nor Air Force Facilities: Barrera complained
that the new airport project does not include necessary space for
the Ecuadorian Air Force and customs. Construction of these
facilities would cost US$18 million. Barrera alleged that Quiport
refuses to build these facilities, but the airport cannot function
without them and the municipality does not have the money to pay
for them.



NOTE: Quiport President Baril told emboffs that the new airport
building includes customs counters and some office space, as does
the cargo building. According to Baril, GoE Customs is asking for
shower rooms and other additional space not included in the
contract. Baril also commented that, during the October 14-15


meetings, Barrera had said that construction of the air force
facilities would be the responsibility of the central government.
End note.




8. (SBU) Access Roads Will Take 2.5 Years: Barrera told the
Ambassador that the existing airport road takes 40 minutes, without
traffic, to reach the airport. He said that the two options for the
necessary access road, both of which he would support, are: a 13 km
direct airport access road originating from northern Quito (and
funded by the Andean Development Corporation (CAF)) , or an
alternative 16 km road. Both are in the tender stages. Barrera
said either option would take about 2.5 years to build. Challenges
include the lack of access roads from Quito suburbs Tumbaco and
Cumbaya, and technically difficult bridges.



NOTE: In a subsequent radio interview Barrera said the new roads
would be finished in two years. Contacts at the Canadian Embassy
have estimated 30 to 32 months to complete the CAF-funded access
road. End note.




9. (SBU) The Airport is eight months Behind Schedule: Barrera told
the Ambassador that the new airport construction was now eight
months behind schedule, inferring that the delay in finishing the
airport would decrease the gap between a finished airport and roads
to reach it. Barrera explained that the lenders had not disbursed
on the May/June or June/July invoices for construction costs
(totaling about US$30 million). He argued that this failure to
disburse was unfair and not a result of the CC's July 23 ruling,
since this happened after the fact.



NOTE: Per the lenders' Investment Protection Agreement with the
GOE, the July 23 CC ruling constituted a "political act" allowing
the lenders to stop the disbursement of construction funds for the
new airport. Econoffs understand that the lenders have not released
funds for July, August and September construction invoices.
However, the project's guarantor, the Canadian Commercial
Corporation (CCC) and Quiport construction companies remained
responsible for continuing construction activities for 60 days plus
a 30 day closing down period after the last disbursement of
construction funds by the lenders. After the July 23 CC ruling, the
lenders exercised control over all funds and made payments as
necessary to continue current airport operations. End note.



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Comment

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10. (SBU) Barrera came across as very well-informed and
clear-thinking on the airport issue. He did not make any
incendiary comments or play the blame-game, and seemed intent on
sending the message that he was in control of his side of the
negotiations, was eager to find a mutually acceptable solution that
is a win-win for both sides, understood the lenders' concerns and
priorities, and was investing all his "political capital" and
reputation in reaching an agreement that gets the airport built
under the current (albeit modified) contractual arrangement. He
has equally moderated his public comments, so as not to antagonize
his negotiating partners. He seemed fully open to collaborating
with the USG and Embassy. Whether Barrera can deliver on the key
issue of ensuring the appropriate guarantees for the lenders is
still an open question, but he seems committed to the successful
conclusion of this process, and he has a lot to lose politically if
it falls apart.
HODGES