latin american infrastructure forum ecuador’s infrastructure...

Walter Spurrier Melbourne

May 23

Latin American Infrastructure Forum

Ecuador’s Infrastructure Drive

Usuario: alabcClave: infrastructure2017

Some of you may not be aware, but Ecuadorswears in a new government tomorrow.

President Correa steps down after 10½ years inpower. Thus, there are no Transportation,Electricity or Hydrocarbons authorities. Insteadyou got me, an independent analyst.

However, the new president was handpicked byPresident Correa, who also drew the newgovernment’s plan. Correa is expected to be backin four years’ time. It is safe bet to say there willbe continuity.

A chief trait of the Correa decade was massivegovernment investment in infrastructure. Theratio of capital formation to GDP soared, all dueto infrastructure, as his policies discouragedprivate investment in light industry, agribusinessand fisheries which dominate Ecuadoranbusiness.

Correa raised taxes: current governmentexpenses were covered with tax revenues. Allrevenues from oil exports, plus newindebtedness, were destined to capitalformation, which features infrastructureincluding that for health and education.

Since mid-2014, with the fall in the price of oilEcuador lost significant oil revenues.Infrastructure programs have been exclusivelydependent on foreign loans, mostly fromeximbanks financing their own goods andservices. China stands out, followed by Brazil.

In this revenue-starved phase of the Correaadministration, a law was passed of Public-Private Partnership. The incoming government isexpected to make extensive use of that forinfrastructure projects.

Let us first go over major investments by sector from 2007 to the present and perspectives from mid-2017 on:

Hydropower:

Ecuador is crossed north to south by the Andesrange, with peaks around 6,000 mt. They featuresteep slopes, ideal for hydrostations. Correa builteight. Ecuador has now excess hydropowergeneration capacity, or will have, when thestations are fully operative.

Ecuador is building a new 500 MW transmissionnetwork, which will complement the present oneof 220 MW.

In spite of excess installed capacity, thegovernment plan calls for new hydrostations tobe built.

The civil works and the generation equipmentare contracted separately. In all cases contractorswere from countries which financed the goodsand service. This means mostly Chinese, plussome Brazilian.

Downstream oil.:

Ecuador’s most important refinery (100 k bpd)was overhauled, by the Korean SK E&C. TheAustralian Worley Parsons audited the works.

An import terminal, storage and transportationfacilities for LPG were built.

The government is intent on building a new 300k bpd refinery at a cost of roughly $13 bn. It istrying to convince China to provide financing.

Transportation:

Since 2013, Ecuador has a very ambitioustransportation plan, prepared by a subsidiary ofSpain’s Renfe. There is a December 2016 updateof the plan.

Transportation Plan

http://www.obraspublicas.gob.ec/wp-content/uploads/downloads/2017/04/Plan_Estrategico-de-Movilidad.pdf

Urban:

The most ambitious project currently in theworks is the Quito metro. Phase II wascontracted with the Spanish Acciona in jointventure with Brazil’s Odebrecht. Cost isestimated at $1.5 bn. There is partial financingfrom multilaterals, the Central government picksup the rest of the tab.

Airports:

There are two cities with 1 million or moreinhabitants, Guayaquil the largest and businesshub, and Quito the capital. Both haveinternational airports and private businessesoperate them in concession.

Guayaquil has plans for a new airport for 10-16million passengers/year to be in operation in2024. Part of the funds have already been raisedthrough airport fees. The new airport will beconcessioned.

The government has built with its own fundsseveral airports in smaller towns: Latacunga,Tena, Santa Rosa, Salinas. However, they handlevery few flights, sometimes not even one a day.

The government is keen in building moreairports. Most importantly that of Manta, whichhas the best runway in Ecuador (built by the U.S.Air Force as a U.S. Forward Operation Location tocombat drug traffic operated there). The Correaadministration was intent in developing Mantaas a second business hub in the Coast.

Seaports:

The most important seaport, by far is that ofGuayaquil, concessioned to the Philippine Ictsi.However, in 2016 three new concessions weresigned:

- The existing Puerto Bolivar, specialized inbananas, to the South of Guayaquil, to theTurkish Yilport;

- A new port, north of Guayaquil to DP World;

- The existing Manta port to Chile’s Agunsa.

Roads:

There has been a marked improvement in thequality of Ecuadoran roads in the last decade.Ecuador caught up with its neighbors Colombiaand Peru. The plan now is to continue buildingroads, but more importantly to upgrade majorroads significantly.

For 2017-2020, the authorities estimate aninvestment of USD9 bn in roads (Ecuador’s GDPis USD100 bn)

It features almost doubling to 1,536 km the highcapacity interurban roads, essentially upgradingroads of lower specifications.

Comparación escenarios 2016 y 2020 – Redvial estatal

Escenario 2020 - Troncal E25

Issues

Corruption has been a major issue.

Cardno:

- You may be aware of the problem Cardnofaced. It bought an Ecuadoran companyspecializing in hydrostation infrastructureprojects. It retained the former owners asmanagers.

- When Cardno became suspicious regardingsome payments made by its subsidiary, it hiredKroll, which unveiled a bribery paymentscheme and even deciphered the names ofthose receiving the bribes. Cardno chosearbitration procedures against the formermanagers, and the tribunal decided in favor ofCardno.

Panama Papers:

- The Panama papers, leaked papers from thePanamanian law firm Mossack Fonseca, foundoffshore companies belonging to contractorsfor the refinery project making payments tooffshore companies belonging to Petroecuadorofficials.

Odebrecht:

- The huge corruption scandal in Brazil, LavaJato, that brought down the Braziliangovernment, centers on Odebrecht, and its topbrass starting with CEO Marcelo Odebrecht areplea bargaining, both in Brasilia and inWashington D.C.

- At least USD30 million were paid in bribes inEcuador, Odebrecht officials say. Names of thegovernment officials are to be revealed in June.

Corruption became an issue of the Ecuadoranpresidential campaign, and incoming presidentMoreno has vowed a complete investigation toweed out corrupt officials.

Presumably, with the new government, for once,contractors may not need to worry regardingbeing blackmailed by government officials.