MTC launches public consultation on Azteca contract

18 Mar 2021

Peru’s Ministry of Transport and Communications (Ministerio de Transportes y Comunicaciones, MTC) has initiated a resolution procedure to determine a course of action regarding the concession to manage the National Fibre Optic Backbone (Red Dorsal Nacional de Fibra Optica or RDNFO) project. In a statement, the MTC noted that it had been involved in detailed negotiations with the current licence holder, Azteca Comunicaciones, since 2018 over potential ways to reform the project to better capitalise on the infrastructure. As noted by TeleGeography’s GlobalComms Database, Azteca was awarded the contract to install and operate the 13,500km fibre backbone network in 2014 but shortly after its completion in mid-2016 it became apparent that the network was severely underutilised. According to the MTC’s most recent statement only 3.2% of the installed capacity on the network was being used, and generated income to cover just 7.7% of its costs. The ministry went on to note that the government had spend USD265 million on the project in initial investment and maintenance and operating fees, equivalent to roughly USD166 million more than had initially been estimated during the planning phase of the project. The problem was blamed on pricing issues, with rates charged for bandwidth being maintained at historic rates rather than adapting to reflect market changes. Due to the structure of the management licence and its related legislation, however, an amendment to the law was required (and eventually passed in January 2020) to enable the management company to charge more flexible rates.

Rather than continue under the amended structure though, Azteca instead requested that it be released from the contract, which is currently set to expire in 2034. The MTC claims that, over the course of two years of negotiations with the company, discussions shifted from a potential amendment of the contract to optimise utilisation of the network, to the alteration of the licence to end the contract and finally a termination of the contract without altering the licence. With the two parties seemingly unable to find an acceptable solution, the MTC has launched a unilateral resolution process, via public consultation. A public hearing is set to take place in May this year, with the MTC to reach a decision on the matter in July.

In a related development, meanwhile, the ministry also announced that it had won an arbitration case against Azteca regarding elements of the RDNFO project. The arbitrating tribunal accepted the MTC’s position that Azteca is contractually obliged to acquire the land on which the nodes of the RDNFO are built. Azteca was also required to cover 100% of the arbitration expenses.