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Airport Expansion Project Still Up in the Air

The long, bumpy road of Costa Rica’s four-year contract dispute with a private consortium over the management of the country’s main airport has been getting longer and bumpier, and Tuesday it made a U-turn.

That was when representatives of the Public Works and Transport Ministry (MOPT) announced that the government would return to the process started last December to rescind the $120 million contract it granted to Alterra Partners in 2001 to manage and upgrade the Juan Santamaría International Airport northwest of San José (TT, Dec. 22, 2006).

“The contract hasn’t borne the fruit that all Costa Ricans wanted,” said Public Works  and Transport Minister Karla González asshe announced the decision.

What this effectively means is another ultimatum: Alterra has 60 days to suggest a solution, and MOPT will review it and provide a response within 30 days. That solution, González said, could include pulling out and leaving the government to find someone else to administer the airport.

Failed Negotiations

For the past six months, the Technical Council of the Civil Aviation Authority (CETAC), whose parent entity is MOPT, and Alterra, whose parent entity is Bechtel, a British conglomerate, had been trying to hammer out an agreement that would satisfy both sides.

At stake is the financing of the long-suffering airport expansion project, one of the obligations in Alterra’s 20-year contract.

Without certain financial guarantees, the International Finance Group (IFC), a private arm of the World Bank, is leery of lending the $48 million necessary to complete the airport upgrade.

At the end of last month, MOPT laid down five conditions that any agreement between the two sides would have to meet (TT, June 1).

One of them is that no cap be allowed on the amount of fines Alterra must pay as a result of delays in the airport expansion.

That condition, said Viviana Martín, Vice-Minister of Transport and president of CETAC, was the sticking point in the recent negotiations with financiers.

“The reason is legal,” González said Tuesday, noting that Costa Rican law does not allow a limit to how much a business can be fined for non-compliance with a contract. Martín said the government is still adding up the fines Alterra will have to pay, and González added that the contract is for future work as well, so it “makes no sense” to limit fines on a job that has yet to be delivered.

Financing Uncertain

Since it announced that it would not accept the contract conditions MOPT laid out in May, the IFC has been in negotiations with the government to try and salvage the situation.

But now that MOPT has again begun the process to rescind the Alterra contract – and says it will not bend on the five conditions it laid out for the contract restructuring – it is unclear where the financing of the airport improvements stands, with or without Alterra as the company holding the contract.

Adriana Gómez, IFC spokeswoman for Latin America, said in an e-mail that, “We continue our conversations with the Costa Rican authorities regarding our restructuring proposal … to reach a solution.”

Alterra issued a guarded statement as well.

“It is our firm wish that during the remediation period established by CETAC, an agreement is reached with the banks and the government,” the statement said.

González and Martín made clear that a new company could take over the same contract should Alterra decide to withdraw.

The Juan Santamaría contract dispute began in 2003 when the Comptroller General’s Office issued a report that called into question fee hikes Alterra had arranged with CETAC and MOPT in 2001 (TT,March 28, 2003).

Construction on the airport expansion stalled as proposals for how to both satisfy contract concerns and keep Alterra in the black went back and forth, with no result.

Construction restarted in 2006 after a government ultimatum (TT, Dec. 16, 2005) and Alterra scrambled to finish some of the terminals in time for the tourist high season (TT, Nov. 10, 2006).

Yet by the end of that year, government officials had started the process to rescind Alterra’s contract. Construction is now stalled once more, and MOPT officials say Alterra will have to pay fines for all the construction delays.



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