VZCZCXYZ0006
OO RUEHWEB

DE RUEHQT #0899/01 2962240
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O 232239Z OCT 09
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0237

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