Turbulence in Quito

No simple project, this. The effort to construct a new airport for Quito, Ecuador’s capital city, has required cooperation between an unusually large number of parties, including the Ecuadorian government, Canadian, Brazilian and US developers, as well as four prominent financing institutions—the Inter-American Development Bank, Export Development Canada, the US Export-Import Bank, and the Overseas Private Investment Corporation.

Ecuador, a nation of 15 million people located between Colombia and Peru on the western coast of South America, has a complex political and constitutional history that defies easy summary. Ecuador’s current president, Rafael Correa, was elected in 2007 and has made many controversial decisions during his tenure, clashing with the US over issues such as the presence of the US military at an air base in Ecuador, as well as with local journalists and foreign oil companies.

An agreement for the new airport was established five years ago, allowing a private concessionaire to take over operations of the existing airport and to construct a new airport at lower altitude with longer runways in Tababela, about 25 kilometres outside the city.

But the project has faced many challenges. The original Quito airport agreement stipulated a concession term of 35 years, but political and legal changes in the middle of 2009 disrupted the flow of tariffs from that agreement.

Due to a constitutional court ruling, the airport’s tariffs essentially became classified as public money, preventing the concessionaire from collecting revenue, according to various groups involved with the project.

Construction of the new airport was about two-thirds complete at this point. Operations at the existing airport – which handled 4.6 million passengers in 2008 – continued, but construction at the new airport was almost halted. A turbulent negotiation process ensued, with a new concession agreement signed more than a year-and-a-half later, closing in early February this year.

Balance of power

White & Case, the firm which advised the investor consortium on both the original contract and the restructuring, described negotiations as “the successful resolution of one of the most intractable infrastructure project restructurings in recent Latin American history”.

White & Case said the restructuring involved over 25 rounds of negotiation in Ecuador, the US and elsewhere. Allen & Overy represented the lenders on both the original financing and the restructuring.

In addition to the lenders and developers, the renegotiation process involved diverse Ecuadorian authorities including the Municipality of Quito, various ministries, the attorney general, the comptroller overseeing state contracts, and certain regulatory authorities.

The concessionaire, Coporación Quiport, is comprised of Canadian developers Aecon Group and Airport Development Corporation, Brazilian developer Andrade Gutierrez, and Houston-based HAS Development Corporation.

Aecon said that the 2009 constitutional court ruling had “raised a number of issues important to Aecon and its partners, the project lenders, and the municipality of Quito”.

Around the time of the ruling, Ecuador denounced the convention that gave investors access to the International Centre of Settlement of Investment Disputes (ICSID), according to White & Case.

The new agreement gives the municipality of Quito 11 percent of the airport’s new regulated revenues, according to Aecon, and 12 percent in the last five years of the concession. Access to the ICSID was also reaffirmed.

Agreement signed

Signings for the new agreement took place in both Ecuador and the US, with the Ecuadorian embassy releasing a statement praising the $684 million project for improvements in aviation safety and the jobs it would create.

The Ecuadorian ambassador to the US, Luis Gallegos, said: “We’re thrilled to see that investment and trust in Ecuador is growing quickly and we’re confident these projects will continue to help our nation grow and reach its full potential”.

The new airport was about 72 percent complete at the time of the signing in February, according to Aecon. Construction is expected to finish in October 2012.