New Cusco Airport Gets Underway at Last. Can it Succeed as a Public Works Tender Where Private Sector Contract Failed?

In mid-January 2019 Peru’s Ministry of Transport and Communications commenced ground works for the construction of the greenfield Chinchero Cusco International Airport. The land had been handed over on 21st December 2018. Ground levelling is expected to be completed in September of this year in a close to 500,000 sq m area and with an investment cost requirement in the order of PEN34.6 million (USD10.4 million).

The term ‘chequered history’ is an over-used one but this project certainly merits it.

Chinchero Cusco International Airport is an airport project located near Cusco (aka Cuzco), Peru, the historic capital of the Inca Empire from the 13th to 16th centuries, and a World Heritage Site. The airport was to be constructed because demand at the nearby Alejandro Velasco Astete Airport had steadily increased beyond its capabilities. Not only that, the runway operates at limited capacity owing to its precarious location close to the city centre. Despite these limitations, the airport has consistently ranked as Peru’s second most important air terminal, handling over 2.5 million domestic and international passengers.

Work began in early 2017.

In April 2014 Kuntur Wasi (“Condor’s Nest), a consortium which included the AA2000/Corporación América and local company Andino Investment Holding was awarded the concession rights to design, build, finance, operate and maintain the airport in the town of Chinchero , home to a community of about 12,000 people,  with a bid of USD264.7 million The airport was to have a 4000m x 45m runway. Its location is at an altitude of 12,205 feet above sea level, the highest in the world. Construction had been scheduled to commence on 1st April 2017. All Fool’s Day.

Kuntur Wasi secured the development contract for the project. However, the Peruvian Ministry of Transport and Communications then suspended and cancelled the tender, with the government issuing a public tender for the development instead.

Location of Cusco in relation to Lima, Colombia and Brazil

Source: Google Maps

It was in February 2017 that the Ministry of Transportation and Communication suspended all obligations under its agreement with Kuntur Wasi, that were related to the construction and operation of that airport

The project was estimated at around USD600 million. Kuntur Wasi was responsible for 53% of the investment, with the rest being invested by the State.

Three months later the Peruvian President, Pedro Pablo Kuczynski, announced the airport construction would go ahead, with changes made to the form the construction would take. Kuntur Wasi stated it had fulfilled all obligations under the contract, since 2014, when it was awarded the concession, and would evaluate all legal avenues available once it had been formally notified, including an international arbitration process.

That situation occurred in June 2017 when an agreement was reached with Kuntur Wasi for the cancellation of the contract. The agreement included a condition that Kuntur Wasi would not participate in the construction and operation of the airport. Commencement of ground works (what is happening now) would occur as soon as possible, under a public works tender.

In February 2018 Andino Investment Holding announced that Kuntur Wasi would seek international arbitration against Peru, for breach of contract. Both parties had entered into negotiations for the cancellation of the contract; however the Government suspended negotiations in January. An alternative (public) construction contract was set to commence on 15th August 2018.

Peru allocated PEN118 million (USD36.3 million) for land acquisition. The project would commence with the construction of a 16km perimeter fence, following by ground levelling works, drainage and paving.

Tender processes were scheduled to commence in March 2018 for the fencing, levelling and runway preparation project and that was confirmed by the Transport Minister with a USD200 million state investment.

Construction is now scheduled to complete by 2021.

While Brazil’s privatisation process has been labelled a soap opera, Peru’s attempt to build this airport attracted the sobriquet of ‘fandango’ in the local media, with the location written off as no more than “freezing llama pasture” and “dangerous”, with the government’s price negotiations for the new public tender being described as “negotiated in a haze of altitude sickness” and Kuntur Wasi as “underfunded hopefuls”, which sounds a little exaggerated as Corporación América was involved . It was estimated that Kuntur Wasi’s legal process would take up to four years to conclude.

It has never been revealed exactly what brought about this state of affairs. The new airport will have an initial capacity to serve five million passengers annually but that total will rise to eight million in the coming years. The Peruvian President, Pedro Paulo Kuczynsi, has said that the concession bid had included an offer stating that “from three million passengers per annum onwards, all the revenue raised from passengers would go to the State and most probably in five years this airport would have seven or eight million passengers”, which seems reasonable.

The public-private concession process for airports in Peru is popular for a reason. In mid-2017 Lima Airport Partners (LAP) confirmed payouts totalling USD1.9 billion to the state of Peru during the first 16 years of the Lima Jorge Chavez International Airport concession.

Hopefully, the government will now be able to crack with the project and that it will not take the same direction as other private sector projects which transferred to the public sector, such as Berlin Brandenburg Airport, currently running eight years late, unlikely to open before October 2020 at the earliest, and three times over its initial budget.

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