Identifier
Created
Classification
Origin
10QUITO77
2010-02-10 22:46:00
CONFIDENTIAL
Embassy Quito
Cable title:  

New Quito Airport's Phoenix-like Rebirth; Action Request on

Tags:  EAIR EFIN ECON OPIC EXIM PREL IDB EC 
pdf how-to read a cable
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RR RUEHWEB

DE RUEHQT #0077/01 0412246
ZNY CCCCC ZZH
R 102246Z FEB 10
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 0957
INFO RHMFISS/FAA NATIONAL HQ WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGL/AMCONSUL GUAYAQUIL
RUEHQT/AMEMBASSY QUITO
C O N F I D E N T I A L QUITO 000077 

SIPDIS
TREASURY FOR ALEX CORREA

E.O. 12958: DECL: 2020/02/10
TAGS: EAIR EFIN ECON OPIC EXIM PREL IDB EC
SUBJECT: New Quito Airport's Phoenix-like Rebirth; Action Request on
IDB Strategy

REF: QUITO 21; 09 QUITO 1061; QUITO 5; 07 QUITO 2571

CLASSIFIED BY: Heather Hodges, Ambassador, State; REASON: 1.4(B),(D)

C O N F I D E N T I A L QUITO 000077

SIPDIS
TREASURY FOR ALEX CORREA

E.O. 12958: DECL: 2020/02/10
TAGS: EAIR EFIN ECON OPIC EXIM PREL IDB EC
SUBJECT: New Quito Airport's Phoenix-like Rebirth; Action Request on
IDB Strategy

REF: QUITO 21; 09 QUITO 1061; QUITO 5; 07 QUITO 2571

CLASSIFIED BY: Heather Hodges, Ambassador, State; REASON: 1.4(B),(D)


1. (C) Department assistance requested; please see paragraph

12.




2. (C) Summary: President Correa met February 4 with the
developers/financers of the new Quito International Airport (NQIA),
including OPIC and Ex-Im bank officials, and reassured them that
they had his full support for a renegotiated deal that will enable
the conclusion of the $600 million airport project. The meeting, a
highpoint of ongoing discussions since August 2009 to save the
airport deal, followed two and a half days of negotiations between
the developers, project lenders, and Quito Mayor Barrera, which
resulted in a new commercial agreement delivering immediate
economic benefits to Quito. The two sides hope to finish a new
Strategic Alliance Agreement and airport concession agreement this
week and submit them to Ecuador's constitutional court for
approval. Although the agreement is not yet at a point where the
four lenders backing the project will release additional
construction funds, President Correa's support of the new economic
deal appears to have put the project back on the path to
completion. The actions of the Inter-American Development Bank
remain inscrutable to those involved in the renegotiation, and the
Embassy requests State and Treasury assistance with determining the
IDB's position and encouraging it to play a more constructive role.
End Summary.



New Commercial Agreement Triggers GoE Assurances to Lenders




3. (C) After the Ambassador's meeting with Quito's Mayor
Barrera January 14 (ref A),representatives of the four lenders for
the new Quito airport project, the Overseas Private Investment
Corporation (OPIC),the U.S. Export-Import Bank (Ex-Im),the

Inter-American Development Bank (IDB),and Export Development
Canada (EDC),urged Quiport, the private consortium that has the
concessions on the current and new Quito international airports, to
propose a new commercial arrangement to the mayor. (Quiport is
comprised of Aecon and Airport Development Corporation, both of
Canada, Andrade Gutierrez of Brazil, and Houston Airport Systems
Development Corporation of the U.S.).




4. (C) Quiport's latest offer, which the Mayor accepted,
provides the municipality with 26% of the airport's estimated
profits. This was the amount Mayor Barrera believed had been
agreed in meetings in November 2009 (ref B),and which he later
complained was not accommodated when the verbal agreement was
translated to paper. The new offer, which approximates 11% of the
airport's regulated revenues (12% in the last five years of the
concession),will provide the municipality with approximately $9.2
million dollars in the first year of airport operations, with the
amount climbing during subsequent years. (The prior offer, from
November 2009, paid the Municipality out of profits, meaning the
city would have received the majority of its payments between years
11 and 35 of the concession - likely well after Mayor Barrera would
have departed office.) According to Quiport's CFO Barry Morocho,
in nominal terms the money earned by Quito is little changed from
the deal reached in November, but the net present value of the new
deal is much higher for the municipality (because payments are more
front-loaded). Morocho noted that under the old deal, Quito would
have received roughly $65 million over the first ten years of the
contract, whereas the new deal will likely pay out over $120
million during that period.




5. (C) Quiport and the lenders behind the NQIA met February 2
with Mayor Barrera and his team to discuss the new commercial
offer. During this meeting the Mayor, pleased by the new
commercial agreement, offered a road map to the lenders and Quiport
that explained which conditions precedent (CP) could be met by the


municipality and which the central government would need to do.
(The CPs are requirements of Quiport and the lenders that must be
met prior to the signing of a new Strategic Alliance Agreement and
the release of construction funds; among other protections, they
provide protections in case of default or expropriation.)
Previously the Mayor had appeared to show little interest in
satisfying the lenders and Quiport's demands for the CPs.




6. (C) In mid-January, after consultations with Canada and
OPIC, the Embassy requested a meeting with President Correa for the
four lenders, Quiport, and the U.S. and Canadian Ambassadors.
Although granted for January 28, the Embassy requested a one-week
delay to accommodate continuing negotiations over the commercial
deal. Following the February 2 meeting and the more lucrative
airport deal, Mayor Barrera, who had previously opposed a meeting
with President Correa, volunteered to lead the group, absent the
Ambassadors, to meet Correa.



President Blesses Airport Deal, Promises Support




7. (C) The half-hour meeting took place February 4, featuring
President Correa, the Mayor and Vice Mayor of Quito, Minister of
Foreign Affairs PatiC1o, Coordinating Minister of Production
Nathalie Cely, Minister of Industry Abad, the head of Ecuador's
Civil Aviation department, and Alexis Mera, the President's
confidant and legal secretary. According to Quiport General
Manager Philippe Baril, the President stated that the project would
have "all his support for a rapid conclusion," while Alexis Mera
said that whatever document the lenders needed to be signed or
reaffirmed-referring for example to the investment protection
agreement (IPA) that guarantees access to international arbitration
-- would be signed.




8. (C) The President also told the visitors - one
representative from each of the lenders, a representative from the
Canadian and Brazilian firms building the project, and two
representatives from Quiport - that although he was originally
opposed to the deal, which he once called "highway robbery" (ref
D),he was assured by the Mayor that the new deal was satisfactory
and he was behind it. The lenders told the President that they
might need his help to deal with some of the remaining outstanding
issues, and OPIC's representative explicitly enumerated the most
critical of the guarantees the lenders would need to resume
disbursements for construction (i.e., the IPA). The President
stated that Industries Minister Abad would be the GoE's lead on
completing all necessary guarantees and agreements.




9. (C) President Correa, in his Saturday address February 6,
and the Mayor, in a press conference February 8, praised the new
airport deal, with the President calling it "extraordinary news,"
calling the original arrangement "terrible," and stating that "when
investors see that Ecuador has clear ideas, when they see a strong
position, they respect us." Headlines in the press focused on the
Mayor's assertion that Quito would receive an additional $582
million over the life of the 35-year concession, with the
municipality's total take rising to $877 million from $295 million
in the original contract.




10. (C) Econoffs met February 8 with Philippe Baril, Barry
Morocho, and Sandra Reed (Quiport's local counsel),to discuss the
current status of the airport deal. According to Reed, the new
economic deal received its final signature February 8 and is
considered agreed. The lawyers from all sides are currently
working to finalize drafts of the Strategic Alliance Agreement
(SAA),revised airport concession, and the brief to the
constitutional court requesting the court bless the new
arrangements. The goal is to submit the paperwork this week to the
court. Presuming the court rules positively on the package,
Quiport expects to sign the SAA with the Mayor, and the lenders
will then begin to release construction funding. The lenders have
set a March 15 deadline for the GoE to complete all of the


requirements in the SAA.




11. (C) Comment: We have reached the end of the beginning of the
renegotiation. With a new economic deal offering Quito, and its
Mayor, a sweetened pot, efforts to overcome the remaining CPs of
the lenders have begun in earnest. We believe that the President's
blessing of the project, surrounded by heads of ministries whose
support will be needed, was a crucial step forward. The selection
of Minister Abad as the GoE's point person for the airport project
is also good news, as he has traditionally been an ally of the
project, and actually negotiated the original IPA earlier in this
decade. The President and his legal advisor's acceptance of
international arbitration for the project, albeit under UNCITRAL
rules and not ICSID, bodes well for resolving other difficult
issues, such as a prosecutor's charge that the awarding of the
municipal guarantee by Quito was a form of fraud. Having publicly
put their stamp of approval on the airport project, we are
cautiously optimistic that the President and the Mayor will now use
their influence to ensure its success.




12. (C) Assistance Request: Although the IDB is one of the four
lenders to the NQIA project, its current stance towards the project
is unclear, and according to OPIC, Ex-Im, EDC, and Mayor Barrera,
the IDB's current Washington-based negotiating team has taken
increasingly obstructionist positions in recent months, supporting
neither negotiations with the Ecuadorans to save the deal nor
lenders' efforts to protect their interests by filing (and staying)
arbitration cases. In contrast with its Washington-based team, the
local IDB country representative has consistently backed the
project, has striven to provide information and play a helpful role
where possible, and told Econoffs this week that the Correa meeting
had injected "a new enthusiasm" to the negotiations. Embassy Quito
requests State and Treasury assistance in cautiously engaging the
IDB in Washington to determine its position on the NQIA project,
and also to inquire if the bank is aware that - according to the
other three lenders - the current team is refusing to cooperate
fully with its co-lenders in the project. We have an opportunity
now to resolve this long-standing dispute, which has complicated
Ecuador's relationships with both the IDB and the U.S. and Canadian
governments, but a more proactive and constructive attitude from
the IDB could be important to making this happen.
HODGES