Megaprojects and the Restructuring of Urban Governance

Megaprojects, Public Entrepreneurship, and the Restructuring of Urban Governance

Urban areas are spaces for the circulation of capital. Harvey (2005: 75) argues that physical investments embedded in the land are the preconditions for exchange, production, and consumption. Investment in public works promotes urban development, regional competitiveness, and flexible accumulation in a global system. Megaprojects are used to position cities competing with each other to attract economic activity and improve the living conditions of the local population.

Urban megaprojects are large operations aimed at making urban patterns modern, efficient, and functional (Altshuler and Luberoff, 2003; Lungo, 2007). In Latin America, these projects are often related to the renewal of historic centers, the conversion of abandoned industrial parks, military zones, airports, and railway stations, the development of innovative public transport systems, and the construction of expressways and airports. Governments at different administrative levels enable, support, and pursue large-scale urban interventions to provide public services and foster economic development.

Altshuler and Luberoff (2003) argue that public officials acting as entrepreneurs frequently originate the project ideas, encourage the formation of supportive coalitions, foster particular regulatory frameworks, lobby for external aid, and deal with criticism. Local politicians campaign aggressively to gain the confidence of potential partners, lenders, and voters while identifying other sources of revenue and external aid from the national government and public investors, including increased fees, lease payments, and ticket surcharges. Analysis of this process must take into account the transformation of the state under capitalism (Brenner, 2004) and the shift from managerialism to entrepreneurialism in urban governance (Harvey, 1989).

Brenner (2004: 2) argues that nation-states are transformed in and through the regulation of capitalist urbanization. The reconfiguration of socio-spatial relations involves a qualitative transformation of the state. The restructuring of governance under neoliberalism meant the decentralization of decision-making and the privatization, liberalization, or corporatization of urban governance (Brenner and Theodore, 2002). In this context, national regulatory procedures have been adapted to localized forms of negotiation, leading to the development of a highly formalized and institutionalized apparatus for the circulation and accumulation of capital (Peck and Tickell, 2002; Swyngedouw, 2000).

Urban governance has shifted toward entrepreneurialism in the pursuit of efficiency and competitiveness, and decentralization has meant more responsibility for local governments. Harvey (1989: 7) argues that entrepreneurialism has impacts on both the institutional and the built environment. The hallmark of urban entrepreneurialism is the public-private partnership, with capitalist interests displacing the risks of the project onto the public sector and the private sector reaping the benefits. Entrepreneurialism also focuses on places capable of attracting, retaining, or mobilizing investment. Thus, public interventions shift toward project-oriented strategies that can engage multiple partners and attract investment to particular locations.

Transport infrastructure is a key component of urban entrepreneurialism and strategic planning aimed at positioning cities in a global system (Borja and Castells, 1997). There is competition among cities to attract transport hubs, tourism, services, and commerce. Latin America and the Caribbean have been pioneers of private-sector participation in the airport sector (Serebrisky, 2012: 5). In the past decade, air transport facilities have been rehabilitated, constructed, leased, and privately operated in Mexico City, Panamá, Bogotá, Guayaquil, Quito, Lima, and Santiago de Chile. Airport concessions and increased air traffic have promoted the development of commercial centers, hotels, conference facilities, and free-trade zones, leading to urban sprawl and regional development (Sager, 2011).

The sine qua non for a “successful” megaproject under a neoliberal regime is that it appear costless for the local population (Altshuler and Luberoff, 2003). However, major public works require significant funding and show a consistent pattern of substantial cost increases between authorization and completion. Underestimation of costs may be explained in terms of the incentive to estimate optimistically as the promoters seek political commitments of support, and mitigation complexity that cannot be foreseen in the early stages. The financial needs of megaprojects demand ongoing institutional arrangements and popular support. Therefore, urban entrepreneurialism relies on funding from higher levels of government, foreign investment, and other revenues to avoid direct taxation of local voters.

The construction and operation of megaprojects requires the discursive representation of particular places and economic performances achieved through public-private partnerships. Discourses, wherein language becomes practice, help to modify power relations and condition experiences that reframe the capacities of different actors to appropriate spaces and revenues (Lefebvre, 1991).

Beyond their political economy, urban megaprojects have socio-spatial implications. The location of new airport facilities has effects on urban and regional development through the transportation infrastructure built to connect the airport to adjacent urban areas and their pressure on property markets (Sager, 2011: 166). Analyses of the differential impact of megaprojects on the livelihoods of residents of the city and its margins must take into account the juxtaposition of actors and interests that influence the transformation of such places (Massey, 1995).

Urban megaprojects have to face localized forms of negotiation and the restructuring of power relations. In Ecuador, entrepreneurial urban governance has been supported by the state since the 1990s, and new discourses of “post-neoliberal” governments continue to employ an entrepreneurial approach. This article provides a detailed description of the case of the Quito airport to illustrate the tensions in the rescaling and restructuring of urban governance under different political regimes.

The New Quito International Airport

The new Quito international airport was conceived in the 1970s under military, developmentalist, and well-financed nationalist governments. After successive technical studies, the Dirección General de Aviación Civil (Civil Aviation National Authority—DGAC) acquired the land in Tababela through expropriation and displaced the people who lived on the hacienda to a nearby area. ¹ In 1990s the modernization of the state under neoliberal policies established an airport committee to promote the concession, construction, operation, and management of the new airports in Quito and Guayaquil. However, their construction was delayed because of political instability at the national level and lack of the means to finance two international airports.

By the end of the century the Quito airport was handling in excess of 2.5 million passengers a year and suffered from a number of constraints that could not easily be rectified (IDB, 2004). The three main problems were that the terminal building was operating close to capacity at peak times and no land was available for expansion, the runway was too short to permit large airplanes to take off fully loaded, therefore restricting the range of direct flights to many destinations in North America and Europe, and the clearances, the approach, and the adjacent land uses did not comply with current safety standards. The altitude of Quito (2,800 meters above sea level) and the surrounding mountains restricted the usable airspace. The combination of these factors impaired the operational record of the airport, and serious accidents and numerous incidents were reported. As a result, the U.S. Federal Aviation Administration classified the Mariscal Sucre airport as Category 2, with a regulatory requirement to carry out a risk assessment (IDB, 2004).

The proposed airport was identified as a milestone for positioning the city in the regional and international context. The municipal government highlighted the importance of Quito as a strategic location that concentrated infrastructure, communications, human resources, and administrative capacity. ² The competitiveness of the country depended upon its ability to expand and modernize transport infrastructure to promote tourism, agricultural exports, trade, and other activities. The airport initiative included the construction of a runway and the related facilities, the closure of the old airport, and the operation of a free-trade zone. The project was a landmark of the administration of Mayor Paco Moncayo (2000–2008) and would become the subject of intense political dispute under the “post-neoliberal” regime of Rafael Correa (2007–2017).

At the turn of the century, the construction of the new airport was made a national priority, but now it was seen not as a national task but as an initiative to be pursued by the local government. In November 2000 Gustavo Noboa, president of Ecuador, delegated the responsibility for constructing, administering, and maintaining the new Quito airport and the former Mariscal Sucre airport to the municipality of Quito. ³ The municipality set up a public corporation that operated under private law, the Corporación Aeropuerto y Zona Franca del Distrito Metropolitano de Quito (Airport and Free Zone Corporation of the Metropolitan District of Quito—CORPAQ). The CORPAQ conducted the preliminary studies and established the public bases for an international bidding process under a turnkey contract at a fixed price through a Swiss challenge approach.

The bidding process occurred in the midst of a deep national crisis and a transformation of the air transport system on a global scale. The structural reforms implemented by neoliberal regimes had resulted in inflation, increased poverty, and migration (Larrea, 2006; Vos and León, 2006). The political and economic crisis led to successive changes at the presidential level, an increase in inequality, dollarization of the national economy, and institutional weakening of the state apparatus. This was also a time of change in the aviation sector after the terrorist attacks of September 2001 in the United States. The enforcement of security measures, air traffic controls, airport access controls, screening procedures, and changes in risk insurance premiums resulted in increased regulations for the operation of airport facilities (Abeyratne, 2004; Seidensat, 2004). The sole bidder and winner was the Canadian Commercial Corporation (CCC), a federal Crown corporation mandated to facilitate international trade on behalf of Canadian industry through government-to-government contracting.

In 2002 the CORPAQ and the CCC undertook negotiations to work out the financial and technical details of the proposal. The concession contract included management conditions for the operation of the Mariscal Sucre airport until the opening of the new airport, the building of the new facilities, the construction of the Allpachaca connector to the existing Pan-American Highway (4.3 km), and the operation of the airport for 35 years. The project included closing the existing facilities and ensuring the continuous operation of aeronautical activities.

From Concession to Strategic Alliance

Quiport Corporation was established to manage the concession contract. The construction agreement stated that Quiport assumed all the economic risks of the project. According to the initial contract, the national and the municipal government were not making any investment or providing any financial guarantees, while the CCC and the government of Canada guaranteed the time frame and the budget (Ferreira de Mello and Ashford, 2003). The project was designed to appear costless to the local population, but it actually required resources from both international loans and domestic funds.

Beginning in January 2006, the airport was built under an engineering, procurement, and construction contract and subcontracted to a joint venture involving Aecon, the Hudson Airport System Development Corporation, and Andrade Gutierrez Constructors. The direct investment for the airport was estimated at US$347.2 million in 2002, increased to US$413.7 million in 2005, and was renegotiated at US$581.5 million in 2010 (CGE, 2008; 2010). ⁴ The contract allowed the use of public assets and the possibility of increasing airport charges. It also included tax exemptions for industrial, commercial, and transport services within the free zone for 30 years. Additionally, the local government committed itself to supplying services related to the operation of the new terminal such as a water pipeline, highways connecting the airport to the city, and pedestrian bridges in nearby communities. The operation and fee captures of the Mariscal Sucre airport were included as revenue in Quiport’s financial plan.

The concession agreement and the financial plan for the project were publicly criticized for alleged overpricing, a gradual increase in airport fees, and excessive benefits and return guarantees for the concessionaire and the lenders. Several actors, including opposition municipal councilmembers, the DGAC, and the Guayaquil airport concessionaire, questioned this model. The comptroller general conducted a study to determine the cost of the airport and arrived at an estimate of US$312.8 million, US$100.8 million less than the 2005 contract (CGE, 2008). Immediately, Mayor Moncayo requested international audits. ⁵ The budgetary increases were justified as additional costs related to inflation and supplementary equipment not included in the original contract (such as the air navigation aids and instrument landing system requested by international safety procedures established after the bidding process).

In 2007 Rafael Correa became president and proved to be the first to finish his term of office since Abdalá Bucaram was toppled in 1997. Correa’s political platform had emphasized bringing the country out of the “long neoliberal night,” promoting a citizens’ revolution, and reclaiming the state (Conaghan, 2008; SENPLADES, 2007). The airport had been part of his electoral disputes with Mayor Moncayo. In 2008 the president requested a review of the concession, the government’s participation in the profits linked to the operation of the international airport, and the distribution of benefits to other airports as a cross-subsidy within the country. ⁶ There were political motivations for questioning Moncayo’s leadership. The construction of the new airport began in a time frame characterized by political and economic instability and neoliberal policies enabling the privatization of public assets. The ruling party’s candidate for mayor, Augusto Barrera, questioned the international bidding and the concession. Correa supported him by reinforcing the idea that recovering public participation in such investment was a means of moving beyond neoliberalism. The construction of the airport subsequently experienced a period of uncertainty. Quiport presented arbitration proceedings to the International Center for the Settlement of Investment Disputes (ICSID). The government of Canada reacted with caution through an active diplomatic lobby and visits of senior public officials to Ecuador. ⁷ Ultimately, Moncayo stepped aside from the municipal reelection and was nominated for the National Assembly.

After more than a year of negotiations, the representative of municipality, the concessionaire, and the international lenders agreed on a path toward a “mutually agreeable and timely solution to ensure that the new Quito international airport is completed to the highest standards while also safeguarding the long-term investment and business relationships between Canada and Ecuador” (CCC, 2009). Such agreement unblocked pending paperwork: the CCC submitted full information on the final plans and designs, the DGAC issued the required construction permits and the approach and landing procedures, Quiport submitted the environmental impact assessment and mitigation plan, and the government issued the environmental license.

In the meantime, a new constitution had been approved, a new decentralization law had been passed, and the Constitutional Court had identified airport charges as public resources. ⁸ This meant that the collection of public fees at the Mariscal Sucre airport represented 26 percent of the direct investment in the project and contributed US$168.5 million toward the construction budget (CGE, 2010: 18). In January 2011 Mayor Barrera, the chairman of Quiport, and representatives of the lenders approved, in Washington, DC, the arrangements for the final phase of construction and the operation of the airport. The main point of the agreement was changing the idea of a “concession” to a “strategic alliance” in anticipation of return revenue of over US$877 million to the local government over 30 years (MDMQ, 2010). ⁹ The new contract allowed resuming the construction, the release of US$130 million by the lenders, and the withdrawal of the lawsuit against the Ecuadorean state at the ICSID. The airport continued to have an entrepreneurial approach, but the government had successfully restructured the conditions of economic participation in project revenues.

The political discourse changed: from being the worst of neoliberal deals the project had become a model to follow in reclaiming the role of the state. However, the renegotiation process had some trade-offs. There was a two-year delay in construction, and the cost increased significantly, by US$141 million, including direct investment, ¹⁰ financing costs, debt service, and contingent capital (CGE, 2010).

Sites in the Restructuring of Local Politics

The construction of megaprojects entails discursive representations and social confrontations around the new built environments. In this case, such conflicts are directly linked to concrete places: the urban land of the former Mariscal Sucre airport, the new terminal building, and the highways that connect the city with the airport. The construction of the airport freed the central urban area of one of its major constraints: the landing strip and approach area. The closure of the historic airport allowed land use changes including building height increases, the availability of a large plot of urban public land, and the possibility of better connecting the road networks. The real estate sector pressed for developing residential and commercial uses, and urbanizing the land of the former airport was proposed as a way of financing the construction of the new one.

In 2004 the municipal council determined that the area of the Mariscal Sucre airport was to become a public park and a convention center. The municipality held an international design competition for 126 hectares of urban land to include the development of recreational spaces, the reuse of runway material, the upgrading of urban connectivity, adaptation of current infrastructure, and the enhancement of environmental services, mainly water systems (MDMQ, CAE, and Vida para Quito, n.d.). Later, Mayor Barrera emphasized the idea of a public park to be called the Parque Bicentenario, named after independence ideals and commemorations. The municipal administration moved away from the original proposal and promoted a master plan to foresee urban growth, foster redevelopment, address real estate interests, and include land value capture mechanisms. The new plan promoted densification, ecofriendly buildings, landscape design, a metro station, and new avenues (Vela, 2011).

Another site of discursive representations was the new terminal building. ¹¹ The airport is prized as one of the most modern in Latin America and has received awards for corporate social responsibility and environmental protection during its construction. ¹² The terminal was portrayed not only as an artifact of modernity (Mattos, 2006) but as reflecting imaginaries and narratives of historical and local identity. The facilities were to include an on-site museum with archaeological pieces found during the construction stage as well as a mural that evokes the French Geodesic Mission. In this regard, the retrieval of nationalist symbols was a key component of reclaiming the state. Naming the airport was a matter of dissent between local and national authorities. The municipality proposed several alternatives, among which “Mitad del Mundo” had wide popular support after an Internet contest. ¹³ President Correa publicly asked the mayor to retain the name of Antonio José de Sucre, a marshal and independence leader. The municipal council delayed its decision and finally tipped in favor of “Mariscal Sucre.” The resolution generated popular concern regarding the capacity of the municipal administration to uphold decisions in the face of the national authorities—a feature that influenced electoral turnout in 2014, when Mayor Barrera lost the reelection.

Finally, the access highways generated tension between the engineering needs of a high-speed route and the social and transit implications of urban sprawl. ¹⁴ Since 2002, landowners affected by expropriations and the communes located on the northern edge of Mount Ilaló, Gualo, Cocotog, and Zámbiza led the opposition to the southern corridor. The arguments of neighbors and professional associations included technical difficulties imposed by the geography and urban congestion. The transit problems promoted a redefinition of the preferred layout. In February 2011 the municipality announced the construction of the Collas-Tababela northern corridor and its financing by the national government. Reliance on central government resources and the delay in the construction of highway meant that the new airport began operations in February 2013 without an express and direct connecting route. Moreover, the new route, inaugurated in July 2014, was the most expensive highway per kilometer ever built in the country, with a total investment of US$198 million for 11.7 km and a serious environmental impact.

Building the airport went beyond the materiality of infrastructure, financial flows, or international agreements. Urban governance requires continuous interaction and a proactive stance of local officials in engaging with multiple partners, mobilizing sympathetic coalitions, and minimizing disruptive side effects (Altshuler and Luberoff, 2003). Lobbying for business support, changes in the regulatory framework, or access to national resources means adapting local governance to the demands of diverse interest groups.

Externalities of Urban Megaprojects

A more subtle process of regional development has accompanied the visible and public disputes related to the new airport. The airport has a direct hinterland estimated at 12,000 hectares in the northeastern region of the metropolitan district of Quito. This area is characterized by export-oriented agroindustry and urban sprawl. Land fragmentation and real estate markets stress urban-rural relations amidst municipal planning and land-use regulations (Bayón, 2014; A. Carrión, 2007).

The city has a discontinuous urban pattern throughout the surrounding valleys. During the 1980s the real estate sector promoted the expansion of the urban area and changes in residential typologies through investments in condominiums, gated communities, and intelligent buildings (Jaramillo and Rosero, 1996). Facilities such as shopping centers, hospitals, and schools were developed in nearby towns. Recreational amenities accessed only by paying members, including private social clubs, tennis courts, golf courses, and pools, were built for the high-income population The periurban area received investment aimed at improving housing conditions by broadening the coverage of basic services, improving secondary roads, and refurbishing public spaces in rural centers (MDMQ, 2006; 2010).

The housing and land markets were also modified and distorted after President Jamil Mahuad intervened, closed or bailed out financial institutions, and adopted the U.S. dollar as the national currency in 2000. Lack of confidence in the financial system boosted private investment in fungible goods and real estate, increasing the demand for cheap land in the Quito valley (A. Carrión, 2007). This process was fueled by a massive international emigration as more 267,000 Ecuadoreans traveled overseas mainly to the United States and Europe and remittances doubled in five years between 1997 and 2002 (Jokisch and Pribilsky, 2002). In addition, modernizing policies favored layoffs of formerly public employees, increasing financial liquidity of the urban sectors. The low- and middle-income sectors purchased property as a means to secure savings. Diverse agents worked to guide and track investments, matching supply and demand by determining the locations of the different socioeconomic sectors. The housing market crisis was subdued because of immigrants’ remittances in local housing programs. After a decade of economic and political turmoil, the dollarization process also created a sense of relative stability conducive to the revival of the construction industry (Ospina, 2010).

The transformation of traditional agriculture to highly profitable agro-industrial production destined for national and international markets changed social relations in the surrounding countryside. The intensification of export-oriented agriculture challenged peasants’ livelihoods by increasing the demand for fertile soil, irrigation, and labor (A. Carrión, 2007; Gasselin, 1996). The demand for land was fueled by institutional purchases, land reserves, and residential markets linked to the new developmental infrastructures. These processes resulted in an increase in land prices in the areas directly affected by the new international airport. Santacruz (2010) demonstrates the increase in constant value of a square meter of land in the rural commune of Oyambarillo, 4 km southeast of the airport, going from less than US$1 in 2000 to US$12 in 2009. This increase in land prices was accompanied by changes in land use zoning from rural housing to residential agriculture in 2003. Plots have been subdivided in the form of shares of property rights or condominiums. Mercantile exchanges linked to land speculation and the increased presence of private agents offering jobs and compensation associated with the airport have reinforced patron-client relations (Santacruz, 2010). The result is the transformation of ancestral forms of organization and internal confrontations.

The fragmentation of space into parcels of private property bought and traded through the market is a means of reorganization of social, economic, and political power (Harvey, 2005; Lefebvre, 1991). The arrival of a large group of middle- and upper-middle-income residents in the area has caused the occupation of productive agricultural properties, the acquisition of lands from old communal co-owners, and the consolidation of an urbanization process that has displaced the lower-income population living in rural communes (A. Carrión, 2007; Santacruz, 2010). ¹⁵

Public urban entrepreneurship and strategic planning failed to foresee this process of accumulation through dispossession in periurban areas (Harvey, 2003). ¹⁶ The result has been the gentrification of rural settlements and the growth of urban sprawl, real estate speculation, and project-oriented local development. Nevertheless, everyday practices continue to shape the urban and regional landscape, and municipal planning continues to be subordinated to post-factum situations. More important, the municipal authorities have to envisage new strategies of local governance that do not reinforce the urban-rural divide but work toward improving living standards for the population as a whole.

Conclusions

Urban megaprojects are not just a product of localized globalization, neoliberal regulations, or entrepreneurial initiative. The production of space through urban megaprojects requires the support of multiple actors in a continuous restructuring of local governance. As political regimes and regulatory frameworks change, so do the ways in which large public works materialize. The airport concession was made possible by a neoliberal legal framework in the context of political and economic instability. Its renegotiation proved “successful” in reclaiming the state and achieving an agreement with private actors in a context of nationalist and developmental policy.

Throughout this process, local governments with different political affiliations and legal and political powers have taken broadly similar approaches to urban entrepreneurship (Harvey, 1989: 5). Municipal entrepreneurship was an adaptation for survival and served to strengthen the local authorities for a reconstruction of domestic and international linkages under neoliberal policies. Urban entrepreneurship meant not the absence of the state but a qualitative transformation and rescaling of power relations to incorporate different actors into a complex and diverse bureaucracy. The restructuring of power relations in the “post-neoliberal” regimes of President Correa and Mayor Barrera did not mean moving beyond entrepreneurship. In fact, the current authorities foster large-scale interventions to stimulate economic growth, improve international competitiveness, achieve profitability, and garner higher revenues for the public sector.

Therefore, building urban megaprojects does not mean building inclusive territories. These projects have impacts on urban and regional development that are not always within the purview of public authorities. Moreover, the focus on megaprojects supports sprawl and puts pressure on property markets. In Quito, land-use management continues to have few instruments for the capture of land value and limited control over the dynamics of the periurban fringe. In fact, large investments divert attention from everyday practices to politically motivated disputes and reinforce uneven spatial development.