"Uruguay's hasty airport privatisation"

Monday, September 8, 2003

Uruguay's hasty airport privatisation
United Kingdom - The Economist


At a public auction held on August 27th the consortium Cerealsur won a
20-year concession, renewable for an additional ten years, to remodel,
maintain and operate Montevideo's international airport. The consortium is
made up of American International Airports (US), SEA (Italy) and Aeropuertos
Argentina 2000 (Argentina). The winner bid US$34m -- 126% over the set
minimum price -- besting three other groups for the contract in Uruguay's
first successful privatisation since last year's deep economic crisis. Yet
the contract arrives with some worrisome baggage.

Of the US$34m total, 20% has been paid in cash. Another 10% will be paid
when the concessionaire takes possession of the Aeropuerto de Carrasco
premises, the remaining 70% one year after that. The consortium will also
pay the Uruguayan government a US$2.5m annual fee, adjustable to reflect
changes in the passenger and freight volume passing through the airport.

Cerealsur is committed to enlarging the airport's main landing strip and
building a whole set of new facilities: aircraft-parking aprons, a passenger
terminal, a freight terminal and a new car-parking lot. The concessionaire
is entitled to charge airport fees for such activities as landings,
take-offs, parking and shipping and to manage or rent out space for
duty-free shops and restaurants. However, Cerealsur's president, Ernesto
Gutierrez, who is also president of Aeropuertos Argentina 2000 (AA2000),
says that the operation of duty-free shops, car parking and airport freight
services will be outsourced to third parties. The concession does not
include the provision of ground transport and the sale of fuels.

Mr Gutierrez says he and his partners expect to gain a 15% return on their
investment by the end of the 20-year concession period. Cerealsur's top
priority is to grow air traffic through Montevideo, primarily by convincing
the 1m or so travellers who now originate their international trips in the
Argentinian provinces to make their connections through Uruguay's capital
rather than through Santiago, Chile, as they do currently.

Government officials, including President Jorge Batlle, are pleased with the
higher-than-hoped-for bid. However, both of the opposition parties -- the
centre-right Partido Nacional and the leftist Encuentro Progresista/Frente
Amplio -- have voiced disapproval concerning AA2000 and its controversial
record in managing several Argentinian airports.

The president of the Aeronautics Chamber of Commerce, which comprises
airlines operating in Uruguay, has expressed his concern as well. His
constituency also lacks faith in Aeropuertos Argentina 2000 and will, he
says, be monitoring the consortium's every move.

AA2000's Argentinian record is worrying.The company has concessions to
operate 32 air terminals in the country. It owes US$120m in fees to the
government, having paid only the pertinent fee in the concessions' first
year (1998). AA2000 has made just half of the more than US$560m in
agreed-upon investments while making changes to its corporate composition
that were not allowed under the contract. Indeed, Argentina's president,
Nestor Kirchner, aims to review AA2000's contract (and most other
privatisation deals granted by the Argentinian government since the
mid-1990s).

Despite its reputation in Argentina, Cerealsur prevailed over three other
international consortiums for the Montevideo airport contract: Advent-Asa,
representing the Advent International (US) investment group and Aeroplaza
(Mexico), which operates airports in Mexico City, Guadalajara and Puerto
Vallarta; Infraero, a Brazilian airport operator backed by Uruguayan,
Chilean and US investors; and Vancouver, local and outside investors
associated with the company that operates the Vancouver, Canada, airport.

Uruguayan officials may have felt pressured to land a deal, no matter who
won the bidding. An initial attempt to license out the airport's management
in 1997 was annulled. Attempts to auction the contract since had been met
with postponements as late as June 26th. Meanwhile, the government needs the
sales revenues to fund its infrastructure programme, megaconcesion de obras,
which is behind schedule. The first stage, scheduled for 2002-07 at a cost
of US$165m, foresees the construction of 1,272 km of highways and 2,904
metres of bridges.


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