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Ecuador Signals Openness to P3 Deals with 50-Year Port Concession

Turkish port development and management firm Yilport and the government of Ecuador have reached agreement on the expansion of port facilities at Puerto Bolivar, near the city of Machala, Ecuador. Yilport has agreed to invest a minimum of $750 million up to a total of $2.5 billion to widen and deepen the shipping channel and build port facilities in exchange for a 50-year concession.

Puerto Bolivar already serves as a container port, but the vision of both the Ecuadorian government and Yilport is to make the facility the largest of its kind in South America. “The modernization of Puerto Bolivar will cost the government zero dollars,” said Ecuador’s President Rafael Correa. “The port is of fundamental importance to the economy of Ecuador. It will serve the interests of Yilport as well as expand our ability to export bananas, shrimp and other national products.”

The government also hopes the Puerto Bolivar deal may provide the necessary infrastructure for a future cruise line terminal to further expand Ecuador’s burgeoning tourism industry.

Although this agreement does not immediately impact intermodal transportation opportunities in southern Ecuador, it is notable for another reason. The self-proclaimed socialist government, led by Correa since 2007, had in past years been reluctant to engage private investors, preferring self-financed works and state-run enterprises. This model was successful until 2014, leading to significant improvements in transportation infrastructure, public health and education.

However, the double blows of falling oil prices (Ecuador’s leading export) and the devastating April 16, 2016 earthquake in northern Ecuador have grievously wounded the country’s social budget. Ecuador, having renounced or renegotiated its national debt in 2008, found capital markets initially wary of investing significant capital in the Latin American country. Correa, a trained economist, has pragmatically relented and actively sought new investment dollars.

In the wake of the earthquake and the strain on national resources, Correa surprised many observers by signaling his willingness to sell state-owned assets and concessions. He has also heavily courted China and come away with billions in loans and investment from state-owned enterprises in that Asian country, guaranteeing long-term agreements to extract oil and hydroelectric power.

Critics have noted that despite considerable risks, China was able to negotiate very favorable concession terms and investment returns. But market observers inside Ecuador believe the Chinese have probably reached the limits of exposure. With signals from the Chinese that future deals must be a bit more plush, Correa undoubtedly knows he needs to generate some competition for funding the nation’s bold development plans.

Correa has tagged his realistic approach, “21st century socialism”, acknowledging the mistakes and, in cases like Venezuela, the complete failure of old-school, popular socialism. “The mistake of the old socialism, is that governments wanted to control the entire economy,” Correa said in his weekly radio broadcast. “This did not work and socialism failed. To be successful, private partners must be included in the economic mix. The project to expand Puerto Bolivar is an example of this,” he added.

Transportation infrastructure investors are already cautiously trolling for deals in Ecuador and other LatAm countries where economic realities are driving change in regulatory and legal environments.

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