VZCZCXYZ0032
RR RUEHWEB

DE RUEHQT #0070/01 0291928
ZNR UUUUU ZZH
R 291928Z JAN 09
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 9971
INFO RUEHBO/AMEMBASSY BOGOTA 7942
RUEHCV/AMEMBASSY CARACAS 3365
RUEHLP/AMEMBASSY LA PAZ JAN LIMA 3008
RUEHGL/AMCONSUL GUAYAQUIL 4065
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/USDA FAS WASHDC 0622
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS QUITO 000070 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAIR EAID EINV ECIN EC MARR MCAP
SUBJECT: QUITO'S NEW AIRPORT MAKES PROGRESS BUT FACES BIG 
CHALLENGES 
 
REFTEL A: 07 Quito 2571 
   B: 07 Quito 181725Z 
   C: 08 Quito 986 
   D: 09 Quito 59 
 
¶1. (SBU) Summary:  The construction of Quito's new airport has made 
significant progress.  The project is large and complex, however, 
dealing with an unpredictable political environment, sensitive 
community relations, and environmental challenges.  The builders 
have made several recent missteps that attracted negative press 
coverage and scrutiny from GOE officials.  In addition, outstanding 
elements like a municipal access road and a new public security 
facility threaten to delay or otherwise disrupt the new airport's 
opening in October 2010.  End summary. 
 
Construction Status 
------------------- 
 
¶2.  (U) Quito's new airport is a massive project that covers 351 
hectares and has a projected cost of roughly $600 million.  The GOE 
has been holding the land for this project since the 1980s but only 
began construction in 2006.  Since that date significant progress 
has been made, and the project is now 42% complete.  The builders 
say that over 90% of the required materials have been purchased and 
the initial earth works, which consisted of leveling the site 
plateau for runways and buildings, are 91% complete.  In addition, 
the builders say that they have nearly finished pouring concrete for 
the 38,000 square meter passenger terminals and the control tower. 
They expect to complete the structured steel frames for the 
terminals in February 2009.  They point to progress installing 
necessary infrastructure for telecommunications, electricity, water, 
sewage, and rainwater drainage.  The consortium has also nearly 
completed the access road into the site.  The builders say the 
project is now mostly on schedule, with only slight delays in the 
infrastructure elements, which they expect to correct in the next 
few months. 
 
¶3.  (U) The Quito airport project has been controlled since 1999 by 
the Quito municipality-controlled entity Corpaq, which signed a 
concession with the Canadian Government entity Canadian Commercial 
Corporation (CCC) to develop the airport.  CCC in turn hired the 
Quiport consortium to manage the current airport and build the new 
one.  Quiport is made up of Aecon (a Canadian company), Andrade 
Gutierrez (Brazilian) and Houston Airport Systems (U.S.).  The 
project has financial backing from the U.S., Canadian, and 
multilateral lenders OPIC, ExIm Bank, Inter-American Development 
Bank, and Export Development Canada (Reftel A).  The builders stress 
that the project is following U.S. and Canadian labor and 
environmental specifications, which has proved challenging in 
Ecuador.  Quiport acknowledges that there has been some friction 
over meeting the lenders' expectations, but company representatives 
say that they are committed to satisfying these requirements and say 
that they have so far been able to sort out any disagreements. 
 
Construction Progress and Dust Problems 
----------------------------------- 
 
¶4.  (U) The project's most visible problem has been controlling the 
large amounts of dust that the construction creates.  On most days 
the site throws up large clouds of brown dust that can be seen for 
miles.  This has sparked complaints from local farming communities 
and has led to negative press coverage and criticism from 
politicians as well as environmental and health experts.  Quiport 
says that much of the dust stems from the necessary earthworks.  It 
notes as well that the site's sandy, volcanic soil is difficult to 
work with, and that construction delays have dragged out the 
problem.  Quiport initially budgeted $400,000 for dust control 
measures, but the company has already spent over $2 million. 
Quiport says that when asphalt is laid for the runways, grass is 
planted, and water systems are installed, it should significantly 
reduce the dust levels.  Quiport is currently taking construction 
bids and expects to begin laying down asphalt in June 2009.  Company 
officials say that most construction will be completed around the 
end of 2009, and they plan to spend the first half of 2010 on 
testing and certification of the new airport. 
 
Public Stumbles 
--------------- 
 
¶5.  (SBU) Along with its handling of the dust clouds, Quiport has 
been criticized by politicians and airlines for significantly 
raising airport fees at the existing Mariscal Sucre airport to pay 
for the new airport.  Since 2006, airport departure fees have risen 
 
from $25 to $40.80 on international flights, an increase of 63%.  In 
addition, it has raised the landing, parking and other fees that it 
charges the airlines.  Quiport recently attempted to improve its 
public image with a series of glossy newspaper inserts touting the 
benefits of the new airport.  This effort was derailed, however, by 
an announcement in November that Quiport planned once again to raise 
departure fees to $44.30.  The decision was announced without 
consulting Quito Mayor Paco Moncayo, a prominent supporter of the 
project.  Moncayo sharply criticized the fee hike, and Ecuador's 
Prosecutor General opened an investigation, leading Quiport to delay 
indefinitely the increase. 
 
¶6.  (U) On January 6th, 2009, the Contraloria of Ecuador (similar to 
the U.S. GAO) issued a report criticizing the project for cost 
overruns.  According to the Contraloria, the contracted cost for 
constructing the terminals is $100 million more than appropriate, 
and called for contracts to be renegotiated.  It also criticized the 
use of $15.7 million of GOE funds for an airport access road, 
consulting, and reforestation, which it said should have been paid 
by Quiport.  Quiport declined to comment on the report, saying it 
was directed at the government airport authority Corpaq. 
Politicians seized on the report, however, saying that the cost 
overruns were actually much higher and arguing that it justified 
renegotiating the construction contract (Reftel D). 
 
Access Road Could Hinder Airport Opening 
---------------------------------------- 
 
¶7.  (U) The new municipal road to the airport has the greatest 
potential to cause major delays in the project.  This road will be a 
direct route from downtown Quito and should result in a travel time 
of only 15 minutes.  The road is the responsibility of the 
municipality, however, and as of yet, no significant progress has 
been made.  Quiport officials say there is still sufficient time for 
the road to be completed by October 2010, but this appears unlikely. 
 The land for the road is still not secured, and the city is still 
reviewing construction bids for what most people expect to be a 
complicated project involving the construction of three bridges 
(Reftel B).  There are also doubts about the municipality's ability 
to pay for the project, although it does have support from the 
Andean Development Fund (CAF).  The existing route to the new 
airport is a narrow and winding road that takes at least 45 minutes, 
and much more during rush hour.  Quiport officials say they would 
consider delaying the airport's opening if the road is not completed 
on time, since using the existing road would create significant 
traffic and image problems. 
 
Public Security Facility Could Also Cause Complications 
--------------------------------------------- --- 
 
¶8.  (SBU) The public security facility (Armed Forces and Police) at 
the new airport could also cause complications.  The Ecuadorian 
military needs to build the new facility.  No work has been 
completed so far, and additional delays will increase costs, since 
it will require working around completed civilian structures.  We 
believe that the Ecuadorian military does not currently have the 
funds to complete this project.  Some have speculated that the 
military could remain at the current airport, but for technical 
flight reasons this is impossible (Reftel B).  The military might be 
able to relocate some of its assets to the airport in Latacunga, 
which is roughly 90 minutes south of Quito.  It is unclear if the 
GOE, or international regulators would certify the airport if the 
public security facility is not built, however, since it will house 
the airport police. 
 
U.S. Airlines Critical of the Project 
------------------------------------- 
 
¶9.  (SBU) U.S. airlines complain that Quiport and the GOE have not 
provided them with sufficient information about navigation aids and 
flight patterns for operations at the new airport.  Quiport and GOE 
officials stress the benefits of the project, saying that it will be 
a modern facility and will eliminate the hazards of landing planes 
in a crowded urban center (Reftel A).  Airline officials dispute 
these claims, however, saying that the new airport's location is the 
equivalent of taking of and landing "in a hole."  They argue that 
the new location will be far more challenging for their pilots and 
will require expensive use of additional fuel. In addition, some 
U.S. and international airlines have resisted paying the increased 
airport fees, but lost their legal challenge to the fee increase 
(Reftel C).  American and Continental had been making their payments 
to an escrow fund, but now are obliged to pay directly to Quiport, 
although they characterize their payments as made "under protest." 
 
 
 
Comment 
------- 
¶10.  (SBU) The new Quito airport is one of the largest ongoing 
foreign investments in Ecuador at this time.  Under the best of 
circumstances, large foreign investments face a number of 
challenges, particularly in the regulated sectors.  The Quito 
airport project is an exception only in that it seems to face 
criticisms and challenges from more quarters than most other 
investments.  That said, the project continues to move forward and 
is less than two years from its scheduled opening. 
 
 
Hodges