Manta Port Failure Confirms View On Ecuador's Business Environment Risks
BMI View : The failure of Ecuador's Manta Port concession to attract any bids confirms our pessimistic outlook for the country's business environment. We had long held the view that the concession would be a tough sell, given the controversial and premature end of the previous concession. With President Rafael Correa set to run for a third term, we see it unlikely that any significant improvements will be made to the business environment; this will result in the country continuing to fail to attract the private investment necessary to see tangible improvements in its infrastructure.
Ecuador ' s state-owned Manta Port authority (APM), announced in November 2012 that the delayed tender for the 25-year concession of Manta Port failed to attract any bids. The tender was due to take place in Q212 ; however, interested companies had asked for more time to assess the proposal. Despite nine international companies and consortia registering interest, not one submitted an official bid. T he process has now offici ally been declared void , according to BNamericas .
The port concession in itself is attractive , with nine companies having acquired the bidding rules for the project. T he port is well placed to capitalise on increase trade through the Panama Canal , following the completion of the expansion project there and the growing Asia-Latin America shipping route.
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However, we had previously raised concerns over the risks associated with the concession and the impact this could have on potential bidders (see our online service, April 24 2012, 'Bidders Gather Round, But Policy Risks Pertinent'). Our wariness was guided by two factors, the first being the generally unattractive business environment present in Ecuador and the second being the way the previous concession for the port ended.
Ecuador has had a difficult history with private investors since President Correa came to power in 2007. Correa's policies have undercut the private sector and increased regulation of foreign investment, and we have seen numerous concessions either renegotiated or cancelled. This has made Ecuador's business environment increasingly inhospitable for private investors and offers little hope of legal resolution for contract disputes. Consequently, investors would have little protection, meaning a 25-year commitment would be risky. The concerns over contract security are highlighted in BMI's Project Finance Ratings (PFR). In the operation phase of a project, Ecuador poses notable operational risk, mainly stemming from concerns over policy continuity.
The Manta Port itself has been the subject of controversy and has influenced our PFR for Ecuador. The agreement with the previous concession holder, Hutchinson Port Holdings (HPH), collapsed in 2009, following an altercation with Correa, who complained that HPH had failed to meet deadlines in upgrading the port. For its part, HPH accused the government of changing the terms of the contract. Thus, investors are likely to be wary of this project.
The unattractive business environment is unlikely to improve over the near term, with Correa announcing he will seek re-election in 2013 and BMI's country risk team anticipating he will be successful in securing a third term. If he is successful, he will continue to undermine potential within the infrastructure sector.