Civil Engineer Derlis Palacios, who has more than two decades experience in the country’s construction sector, was tapped to head the Ministry of Public Works which oversees the country’s long neglected highway system.
Covering 107,000 square miles, Ecuador is slightly larger than Colorado, but the country has only 27,000 miles of roadway compared to the Rocky Mountain state’s more than 82,500 miles.
Vast reaches of Ecuador’s jungle and mountain regions remain disconnected from the population centers due to the lack of roadways.
The national government, through the Ministry of Public Works, has authority over about 5,300 miles of road, which includes almost a third of the 5,700 miles of paved surface. This year Ecuador has allocated approximately $350 million for the upkeep and improvement of the highway system.
Colorado – to extend the comparison – has proposed allocating $1 billion operate and maintain the state's 9,135-mile state highway system.
Recently, Minister Palacios, spoke with ENR about the country’s current strategy to balance the problem of limited funding and dramatic need for road development.
ENR: What is your Ministry’s budget like for this year?
PALACIOS: The amount the ministry has for investment in 2006 is approximately $350 million, which will be used mainly for maintenance and improvement for existing highways. We received more that $100 million over what we were given last year, which was approximately $240 million.
ENR: Is that sufficient?
PALACIOS: No. But it is what has been allocated to us and we have to work with it. It is enough to cover the necessities but not much else. It has helped that we have lowered our debt to around $50 or $55 million from where we it was year ago at about $80 million.
ENR: How are you dealing with the limitations of the budget?
PALACIOS: We have prioritized road maintenance and the completion of works already under construction; we are not starting any new projects. Sometimes projects are started due to political purposes and we want to avoid that completely. We want to concentrate those projects that are currently under way and formulate a plan of investment so they can be completed.
ENR: What should be the priority for Ecuador in terms of road production?
PALACIOS: I believe that Ecuador has a good road system with a sufficient amount of main highways. You are always going to need additional secondary highways and there is always a need to construct more of them. But I believe the long term the priority needs to be focused on the maintenance and improvement of the roads we have.
ENR: Is external investment an option?
PALACIOS: I do not see many possibilities for investment in highways, because we simply do not have the daily traffic totals here in Ecuador to pay for the investment. To justify the investment requires transit levels greater than the 3,000, 4,000, 5,000 vehicles we have each day at most. The few routes that have acceptable levels of traffic already are concessions.
ENR: How does the recent political instability in Ecuador affect the investment climate?
PALACIOS: I believe he political instability generates distrust and that is not conducive to promoting sound investment. There is also a problem of legal insecurity that increases the level of risk for investors. Right now we have to deal with a state subsidy of about 32 percent on concession contracts from 2001 since the tariffs have remained the same due to political pressures while the investment costs have continued to grow. That makes investors reluctant to consider more involvement, which permits the subsidy to grow.
ENR: What options are there to change the situation?
PALACIOS: The logical solution is reform, which we are analyzing, but I don’t think we will be able to find any solution this year. Other options are putting the real value of the tolls set by the terms of the contract but that is difficult to do given Ecuador’s current political situation. Another is to reprogram the investments on the part of the concessionaire so that they can extend them. And another is to extend the concessions by additional years and provide economic assistance from the state to balance the debt.
ENR: What is the best strategy for the country at this point in terms of infrastructure development?
PALACIOS: I believe the key for Ecuador is decentralization. The regional and municipal governments have the solutions to handle many of these problems while continuing to handle them from Quito will only create more difficulties. It is always better to have the people at the location itself handle the situation than doing it from afar. They are able to find the solutions faster, better and that are economically more advisable.
ENR: What is the main advantage of that approach for investors?
PALACIOS: While the national government has been subject to instability in recent years, it is different at the regional level. That is one of the reasons for which we have implemented a system of decentralization that delegates the functions of maintaining the roads to that level. The provincial governments never have had problem in stability.
ENR: Do the regional governments have adequate means to finance this?
PALACIOS: If we give the regional governments control of these routes after improvements are made and the ability to collect their own tolls, then they will take care of the maintenance themselves. If we only depended on he national budget by the time we would be ready for these projects there would probably be deterioration at some other place that would have to be prioritized over the cost of maintenance. At the national level there is always some emergency that makes us turn our attention from the ongoing costs of taking care of these roadways.
(Photo courtesy of Ecuador Ministry of Public Works)hen former Equadoran President Lucio Gutierrez was forced from office last year, his vice president, Alfredo Palacio, became the head of state. He became the seventh president of the country in eight years and his administration’s 20-month mandate was clear – stability.