Chinese Government provides $53.6 million grant -- via ETCA -- for 2,932 houses in Pedernales, Muisne, and Canoa (Linked to Project ID#59712, #72705, and #59063)

On September 28, 2020, the Chinese Ambassador to Ecuador, Chen Guoyou, and the Ecuadorian Foreign Minister jointly signed letters of exchange, which committed the equivalent of $53,651,964.52 of grant funding for the construction of 2,932 houses in Pedernales, Muisne and Canoa. The houses are intended to help areas severely affected by the April 2016 earthquake, providing housing for an estimated 15,000 people. Ecuador's Ministry of Urban Development and Housing (MIDUVI) was responsible for project implementation. According to one of the speeches at the signing of the letters of exchange on September 28, 2020, Universidad Católica and other universities were commissioned by the MIDUVI to help with pre-construction studies and planning. The subcontractors involved in project construction were unknown as of December 2022. This housing reconstruction project in Pedernales, Muisne and Canoa was originally pledged via a Memorandum of Understanding (MOU) signed on October 20, 2016 following the earthquake. The MOU was signed by China's Ministry of Commerce and Ecuador's Secretariat for Reconstruction and Reactivation of Production (STRRP) and Ministry of Urban Development and Housing (MIDUVI). Two additional MOUs were signed for the Napoleon Dávila Hospital Construction Project (captured via Project ID#59270) and the Miguel Hilario Alcívar Hospital Reconstruction Project (captured via Project ID#91494) for a total of about RMB 1 billion in projects pledged. The project was financed via one or more Economic and Technical Cooperation Agreements (ETCA), signed on the following dates: November 17, 2016 (worth RMB 500 million, RMB 154 million of which were available, captured via Project ID#72705); October 11, 2017 (worth RMB 300 million, unknown amount available, captured via Project ID#59712); and December 12, 2018 (worth RMB 200 million, unknown amount available, captured via Project ID#59063). These three ETCAs also financed the construction of the Napoleon Dávila Hospital and Quinindé Hospital, the latter of which potentially received the funding originally pledged to the Miguel Hilario Alcívar Hospital and is captured via Project ID#95261. In 2018 and 2019, pre-project responsibilities of Ecuador's Ministry of Urban Development and Housing (MIDUVI) and Ministry of Foreign Affairs (MREMH) were ongoing. On April 25, 2018, the Ecuadorian agencies sent an Evaluation Report to the Chinese Embassy, and were awaiting approval before Letters of Exchange could be signed. An updated construction proposal was sent to the Chinese Embassy on July 25, 2018. Letters of Exchange that continued renegotiating and revising the project proposal were being sent and signed May 31, 2019; August 23, 2019; and September 2019. The content of these revisions is unknown. Finally, on September 28, 2020, the Letters of Exchange that committed funds for the project were signed. According to speeches at the signing ceremony, teams from MIDUVI focused on topographic, platforming, and design studies, along with other pre-construction steps, had already started working as of September 28, 2020. From October 2020 to the end of 2021, Ecuador's MIDUVI continued to finance and execute identification of land plots for the project, design studies, and other pre-construction steps. This included the approval of the property necessary for the 100 units to be built in Canoa in 2021. As of December 2021, however, still none of the funds committed by the Chinese government had been disbursed, according to the April 4, 2022 update document from MIDUVI. Then, on April 11, 2022, the Construction Agreement (also reported on as the Execution Agreement) for the project was signed by Ecuadorian President Guillermo Lasso, Ecuador's MIDUVI, and Chinese Ambassador Chen Guoyou. Reporting around this construction agreement indicated the donation was worth USD 60 million. A technical feasibility study was published June 8, 2022. However, as of December 2022, no implementation updates or groundbreaking have been reported beyond continued land expropriation. Evidence of disbursements of the donated funds have not been identified either. The project itself will include 1,732 homes in Pedernales, 1,100 in Muisne, and 100 in Canoa. Pedernales and Canoa are located in the Perdernales and San Vicente cantons of the Manabí province respectively, while Muisne is in the Muisne Canton of the Esmereldas province. According to the budget described after the Letters of Exchange were signed in September 2020, the funds from the Chinese donation would go towards costs associated with urbanization and the construction of the houses. This included USD 30,043,627.75 total for Pedernales; USD 22,072,729.97 total for Muisne; and USD 1,535,606.80 for Canoa. The 2016 MOU indicated that up to RMB 11 million of the grant could be spent on administrative costs. However, it appears all administrative costs were covered via counterpart funding from Ecuador. Counterpart funding also covered pre-construction and design studies, land expropriation, auditing, complementary infrastructure works (including roads), and VAT taxes. This housing project will be part of Ecuador’s plan to increase overall home ownership in Esmereldas and Manabí, as well as overall reconstruction efforts related to the April 2016 earthquake in these same provinces.

Additional details

1. While the actual grant provided for the construction of this project was originally in RMB, insofar as it was financed via an ETCA, the transaction amount has been recorded in USD. This is because the Letters of Exchange signed September 28, 2020 cannot be found, and therefore the amount in RMB is unknown. The USD estimate for the transaction amount has been taken from the budget found out in the December 2020 Management Report from Housing Subsecretary. This is because it is the most precise value from an official recipient source available. It is also the transaction amount given closest to when the Letters of Exchange were signed, and therefore likely best reflects the value of the donation at the time the funds were committed (September 2020). The 2016 MOU does have some guidelines for the project cost in RMB. However, the 2020 USD budget has been used, given (1) the amount of time/number of developments between the MOU and actual commitment of funds and (2) the 2020 USD budget includes no Chinese-donated funds for administrative costs, while the MOU does factor administrative costs into its project cost estimate, indicating the two diverge at least to some extent. 2. This project is assumed to be funded via an ETCA considering first, the Letters of Exchange. While not exclusive to ETCA's, is a common mechanism to commit funds from ETCA's to specific sub-projects. Further, the three ETCAs signed November 2016, October 2017, and December 2018 together add up to 1 billion RMB. Press releases regarding the September 28, 2020 Letters of Exchange describe the housing project as part of a 1 billion RMB project package, which also included constructing and equipping the Chone and Quinindé hospitals. It is known (see projects #59270 and #95261) that these two hospital projects were financed by these three ETCAs. Lastly, the text of the November 2016 ETCA (see project #72705) explicitly lists housing projects in areas in reconstruction post-natural disaster as one of the potential uses. However, insofar as the amount remaining in the November 2016 ETCA is less than would be needed for this project, and the funding breakdown for the Quinindé hospital is unknown between the October 2017 and December 2018 ETCAs, it is also unknown what combination of these three agreements actually funded the housing construction in Pedernales, Muisne, and Canoa. More specifically, 500 million RMB (the value of the November 2016 ETCA) was worth about 77.12 million in 2017 USD, while the hospital in Chrone, which was explicitly financed by the November 2016 ETCA, required about 51.20 million 2017 USD. This would leave about 25.92 million 2017 USD, which, even when adjusting for inflation, would be insufficient to cover the housing project worth over 53 million 2020 USD. 3. This project is referred to as "Proyecto de viviendas en Pedernales, Muisne y Canoa"; "Cooperación no Reembolsable para el Financiamiento y Construcción de los Reasentamientos de Pedernales, Muisne y Canoa"; "Proyecto de cooperación financiera no reembolsable para la construcción 2.932 de Viviendas en Pedernales, Muisne y Canoa"; and "Reasentamientos de Pedernales, Muisne y Canoa". 4. At the same time the MOU for this project was signed (October 20, 2016), MOUs were also signed pledging the Napoleon Dávila Hospital Construction Project (captured via project #59270) and the Miguel Hilario Alcívar Hospital Reconstruction Project (captured via project #91494) for a total of about 1 billion RMB in projects pledged. The funds for the Miguel Hilario Alcívar Hospital Reconstruction Project may have been subsequently transferred to the Quinindé Hospital project (captured via project #95261). 5. The explanation for the length of time between the signing of the MOU and project implementation may be for a number of reasons. In an April 11, 2022 official release from Ecuadorian President Guillermo Lasso's administration indicated the this project had been "abandoned" by previous governments. Another media article from April 2022 referenced "various reasons," but listed only the COVID-19 pandemic. However, the source of the renegotiations in 2018 and 2019 is unknown. 5. It is unknown if the project construction will be carried out by local contractors in Ecuador or a Chinese contractor. One MIDUVI report from December 2020 included snippets of September 2020 internal communications between MIDUVI, the Chinese Embassy, and the Ecuadorian Ministry of Foreign Affairs, which suggested the project would be carried out by a Chinese contractor. The Chinese Embassy was to send a list of Chinese companies recommended for the construction. A quote from the April 11, 2022 construction agreement, on the other hand, indicated that the project would have a "local execution modality". However, it is unclear if this means the construction contractor would be based in Ecuador.

Number of official sources

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