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French controllers of Nuevo Pudahuel, operator of the Santiago airport, initiate ICSID proceedings against Chile

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Memesita | 22 January 2021

French controllers of Nuevo Pudahuel, operator of the Santiago airport, initiate ICSID proceedings against Chile

It appeared as an option, but it finally materialized. The controllers of Nuevo Pudahuel, made up of the French Aeroports de Paris, with 45% of the property; Vinci Airports, with 40%, and the Italian Astaldi, with 15%, will face off with the Chilean State before the International Center for Settlement of Investment Disputes (ICSID). The main shareholders of the consortium that in 2015 was awarded the Santiago airport concession for 20 years, Arturo Merino Benítez (AMB), communicated their intention to initiate a claim under the Agreement between the Government of the Republic of Chile and the Government of the Republic of France on the Reciprocal Promotion and Protection of Investments.

Nuevo Pudahuel had asked the Ministry of Public Works (MOP) to extend the term of the concession contract as a result of the pandemic, which in 2020 generated net losses of US $ 37 million, in a scenario where, they also say, Chile lost in December of the year After 19 routes and 630 weekly frequencies, today only 173 operate. But the MOP was closed to changes in the contract, arguing that the signed terms should be respected and the interests of the State protected. This triggered a conflict – even the French controllers reported the situation to Chancellor Andrés Allamand, as it was a foreign investment – which now escalates to international arbitration. This, despite the fact that the Ministry of Public Works, led by Alfredo Moreno, set up a working group, but according to the concessionaire, only operational issues have been discussed, but never to seek solutions to the economic imbalance.}

The CEO of Groupe Aeroports de Paris Internacional, Fernando Echegaray, tells Pulse the reasons that lead them to turn to ICSID. He says that the authority rejected his requests in terms of providing a solution to the situation, such as the risk that the concession will no longer be viable and the serious economic impact for the concession company, and to restore the economic and financial balance of the concession.

What actions do you plan to take as airport controllers?

The actions began at the beginning of 2020, when we alerted the Chilean State of the negative consequences that the pandemic would have and the sanitary measures that the authorities have had to apply for the country’s connectivity. Unfortunately, the authority rejected our requests regarding a solution to the situation raised and to restore the economic and financial balance of the concession, which has forced us to inform the President of the Republic of the intention of Groupe ADP and Vinci Airports to attend the International Center for Settlement of Investment Disputes (ICSID) in order to initiate a claim under the Agreement between the Government of the Republic of Chile and the Government of the Republic of France on the Reciprocal Promotion and Protection of Investments. In this context, Groupe ADP and Vinci Airports have begun the 6 months of amicable negotiation imposed by said Agreement prior to initiating the arbitration claim.

Why did they finally make the decision to turn to ICSID? Under what grounds?

We operate more than 70 airports in the world and their States have understood that this crisis and its consequences have no predecessors. In the case of Austria, Belgium, Japan, Brazil, Bulgaria, Cyprus, Denmark, Germany, Hungary, Ireland, Italy, the Netherlands, Norway, Poland, Romania, Russia and Spain, they have already proactively worked with their airports to restore the economic balance of the contracts and guarantee the viability of the concessions, so that, when the pandemic is overcome, its concessionaires actively work to recover connectivity and maintain the low prices that have made it possible to democratize the skies.

The effects of the pandemic and the State’s refusal to restore the economic-financial balance of the concession, however, have caused unexpected damage that not only will not allow greater investments, but also put the airport’s operation at risk. It is our opinion that Chile has not complied with its obligations to protect foreign investment under the agreement between the Government of the Republic of Chile and the Government of the Republic of France on the reciprocal promotion and protection of investments.

What chances do you see that they will do well?

We do not see this dispute as profit or loss, we hope that both partners will be strengthened and the public service provided to passengers protected. We believe that the law, an elementary sense of justice and even the true interest of Chileans are in our favor.

What is the real possibility that the concessionaire will be declared insolvent? Are you preparing for that possibility?

It is a real possibility, without a doubt, that is why we are going to all possible instances to reach a friendly agreement with the State of Chile, and that is why we have spent 10 months explaining in detail to the Ministry of Public Works the serious consequences that this will imply for air transport, economy and connectivity of the country.

The bankruptcy of a concession and, even more, of the most important airport in Chile, has never happened. The process would be regrettable and would last for years, causing profound damage to the country, users and investors.

As controllers of the concessionaire, do you plan to inject resources to save the concession and to finish the works that are still pending?

We have begun the injection of US $ 61 million, in addition to the investment of US $ 1,000 million for the work, to fulfill our financial agreement, deliver a new international terminal to Chile, and avoid bankruptcy. However, without external intervention, by 2022 Nuevo Pudahuel will not be able to meet its financial commitments.
Escala conflict between MOP and Santiago Airport due to possible bankruptcy: Allamand meets today in Paris with French owners of the terminal
Nuevo Pudahuel: “We are perplexed by the MOP’s position that we absorb 100% of the consequences of the pandemic”
Nuevo Pudahuel: “We are concerned about the economic situation of the concession”

How much economic damage has the pandemic left them so far?

Only in 2020 we have lost US $ 37 million, which will increase exponentially in the future, but the serious thing is that, if we do not reach a resolution of the dispute with the State of Chile, according to our current estimates, the country will stop receiving 220 million passengers. This is why we are amazed at the position of the MOP, which prefers to prosecute this crisis, with all the consequences that this entails: a long trial, postponement of investments, and great costs for both parties.

The offer that Nueva Pudahuel presented in the tender has been described as reckless, do you regret it?

It is essential to demystify this. Those who define it as reckless are wrong. The income and profits of the first 5 years show that we were not wrong in our model. However, the risk of the pandemic is not a dealer risk. If so, no airport in the world would have been concessioned, because considering that risk, no model would have withstood the crisis that is taking place, regardless of the offer or share that had been offered.

What do you think about the position that the Minister of Public Works, Alfredo Moreno, has taken and the response he has given you regarding the fact that the signed contract must be respected and the interests of the State protected?

Minister Moreno’s response suggests that for the MOP the most important thing is not the purpose of the contract itself, which is the care and development of an essential infrastructure for the country, protecting connectivity, foreign investment, maintaining and increasing the democratization of the heavens and the diversity of operators, but the technicality. The concession contract requires as a principle the maintenance of balance and emphasize that the contract does not assign the risk of the pandemic to the concessionaire as the State intends. In reality, the position of the MOP does not protect, which in our opinion is the real interest of the country; on the contrary, it freezes and rolls back all the progress we have made.

To what do they attribute the response that Minister Alfredo Moreno has given them, regarding their going to court if this is the case?

We prefer not to assume intentions, that question would have to be answered by the MOP, but it should consider that we are talking about the main airport in the country, cargo, tourists and people who invest in Chile. The costs of a lawsuit, the energy it requires and resources should be used to advance as strategic partners. To think that this is solved by re-bidding is not to take into account the country cost that this scenario entails, including regarding the message that is sent to foreign investors who want to invest in the country. For the rest, the investors in the negotiations are not asking for money, but time to rebuild what the pandemic destroyed, with evident economic benefit also for the State, but the Ministry of Public Works is not only not giving us that possibility, but that tells us, “Thank you for investing, you did a bad deal because of the pandemic and it will be unfortunate that you will not get a return on your investment.”

How has the reception been in other countries where you operate?

It has been proactive by the very states we work with. In Japan, Orlando (USA), Dublin (Ireland) and Salvador de Bahia (Brazil) solutions have already been found to restore the balance of concessions, ranging from direct or indirect capital injection, while others have they have extended the times of concession or other agreements.

How many years of contract extension do you estimate are necessary?

We have not even had the opportunity to discuss it with the Public Works authority, because it has rejected any possibility of rebalancing the economy of the concession. We are being ignored by the State of Chile, after having invested US $ 1,000 million and being good allies, when in the first 5 years we contributed more than US $ 1,050 million to the fiscal coffers. We have been good partners and we have built according to what we promised, and we continue to do so even during the pandemic, with costs higher than the original ones to safeguard the 3,800 jobs created by the work.

The MOP has said that the continuity of the terminal is not threatened, because if the concessionaire cannot continue, it will have to be replaced by another. Do you share that statement? Will the new terminal be ready this year?

We disagre. As shareholders of Nuevo Pudahuel we are strategic partners of the State of Chile. It is wrong and unfair to say that the concessionaire only builds, it is ignoring an essential part of the work we have done in Chile and in the world. Replacing the concessionaire with another operator will take time, it is not a process that happens from one day to the next, it will take years and it does not remove the State from its obligations to Groupe ADP and Vinci Airports. And that time, instead of working it together to promote Chile and recover what was lost, we will use it in litigation that will have high costs, both for the country and for investors. If that’s the way to go, we’ll do it, but we believe there are better ways to resolve a dispute that all users will pay for.

 source: Memesita