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DE RUEHQT #0077/01 0412246
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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) 
 
¶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