Cablegate: Colombia's Transport Infrastructure: Is It Up To


DE RUEHBO #0540/01 0431513
R 121513Z FEB 08 ZDK

id: 141031
date: 2/12/2008 15:13
refid: 08BOGOTA540
origin: Embassy Bogota
classification: UNCLASSIFIED
destination: 07BOGOTA7265

DE RUEHBO #0540/01 0431513
R 121513Z FEB 08 ZDK

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E.O. 12958: N/A

REF: A. (A) 07 BOGOTA 7265

B. (B) 07 BOGOTA 8592

1. (U) SUMMARY: Colombia's demography and topography make
transportation infrastructure development particularly
challenging. Security problems and constitutional earmarks
for social services and local governments hobbled public
investment in transportation in the 1990s. Today the GOC is
embarking upon construction of an integrated national
transportation network combining public and private
investment. GOC plans include over USD 6.5 billion in road
projects, a rail system between Bogota and the Atlantic
coast, and USD 1 billion for improvements to Colombia's
ports. Colombia's ability to pull off a dramatic improvement
in its infrastructure -- widely regarded as the Achilles'
heel in the trade sector -- will be a key factor in deciding
whether Colombia will prosper or falter in the global
marketplace. END SUMMARY


2. (SBU) Transportation expert Ignacio de Guzman describes
the country as "effectively landlocked," despite being the
only South American country with Pacific and Atlantic ports.
Guzman notes that one-half of the country's population and
production comes from a tenth of Colombian territory -- the
"productive triangle" comprised of high Andean peaks and
tropical valleys bordered by Bogota, Cali and Medellin.
Guzman cited a recent World Bank study that found exporting
goods from Colombia was slower and more costly than from
anywhere else in the region (except Venezuela). Mauricio
Cardenas, head of the economic think-tank Fedesarrollo and a
former Minister of Economic Development and of Transportation
(MinTrans), called Colombia's roads an economic bottleneck.
Cardenas said Colombia needs a national road system to
successfully take advantage of globalization, including
implementation of the U.S.-Colombia Trade Promotion Agreement

And Constitutionally Blocked

3. (SBU) GOC spending on roads remained low during the
1990s. Cardenas said the 1991 Constitution undercut
long-term transportation development by mandating that high
percentages of federal government revenues be delivered to
local departments for health and education, instead of
transportation. Regardless, security issues made it near
impossible to build and protect critical infrastructure in
many rural areas that are key conduits to ports and major
cities. Ana Maria Pinto, Director of Transportation
Infrastructure for the National Planning Department (DNP),
said that between 1995 and 2002 public investment in
transportation remained flat. As security started improving
in 2002, road travel increased by 10-20 percent per year, and
GOC investment in transportation was forced to catch up.
Pinto added that even stepped-up investment favored local
road projects -- accounting for some 75 percent of the GOC's
transportation investment between 2002-2006 -- and
contributing little to an integrated national transport

In Hock...

4. (SBU) Private investment in roads had a rocky start in
the early 1990s. Juan Martin Caicedo, head of the Colombian
Infrastructure Association, described the private concessions
of the 1990s as failures. He noted that concessionaires
built only about 2,000 miles of roads, usually of low quality
and with high tolls. Caicedo said the GOC was essentially
"in hock" to investors who used security issues to leverage a
guaranteed income for their projects from the GOC. In the
late 1990s private transportation investment began slowly
rising and projects improved due to a stronger investment
environment, the GOC's increased experience in concessions,
and improved regulations.

But Now Ready to Rock

5. (SBU) Pinto said with increased emphasis on economic
development in President Uribe's second term, GOC agencies
coalesced around the idea of improving Colombia's transport
system. She noted that GOC efforts to improve transportation
logistics already contributed to the World Bank identifying
it as the region's top economic reformer in 2007 (ref A).

The GOC's National Development Plan (NDP) projects an
investment of USD 11.5 billion through 2010, including over
USD 1 billion for road maintenance, to develop an integrated
transport system (with another USD 15 billion through 2019).
Pinto said USD 5.1 billion of the USD 11.5 billion investment
will come from private sector concessions. She and Caicedo
agreed Colombia has a "window of opportunity" to develop
strong concession projects now because increasing domestic
and international trade will increase demand for better
transportation, and economic and security improvements allow
the GOC to negotiate far more favorable deals than in the

"Grand Corridors": Roads and Rolling Stocks

6. (SBU) The NDP makes roads, especially "Grand Corridors"
between Bogota and Atlantic and Pacific ports, the top
priority. For example, Pinto said the World Bank, DNP and
the MinTrans are collaborating on the "Ruta del Sol," a USD
2.5 billion, 580-mile concession four-lane highway linking
Bogota to the Atlantic coast, to be bid out in 2008 with a
construction period of 5-8 years. The World Bank hopes the
project will serve as a "best practices" model for other
concessions, sorely needed in a country known for
inefficient, and oft corrupt, concession practices (as
illustrated by the recent cancellation of the USD 270 million
bid on the "La Linea" tunnel project). Construction has
started on a USD 1.5 billion (two-thirds private investment)
highway to double road capacity between Bogota and the
Pacific port of Buenaventura. Buenaventura handles 40
percent of Colombia's non-coal foreign trade, but Pinto said
the road to Bogota suffers from landslides, flooding, and
frequent traffic jams of 6-12 hours. Other concession road
projects include:

-- the "Golfo de Uraba" project, a USD 625 million, 270 mile
long road between Medellin and the Pacific coast port
town of Turbo offering the potential for a new export
route for Colombia's second city;
-- the "Ruta de la Montana" project, a USD 610 million, 265
mile long road connecting Medellin with Manizales and
Puerto Olaya; and
-- the "Arterias del Llano" project, a 630 mile long road
linking Villavicencio with Arauca, Puerto Gaitan, and San
Jose de Guaviare.

7. (SBU) Colombia is not a country of trains. Guzman said
high construction costs, up to twice that in the U.S. due to
mountainous terrain and tropical conditions, slowed the
historic growth of railroads. In the second half of the 19th
century, the boom era for railways in the rest of the world,
Colombia laid down little more than 10 miles of tracks per
year. Between 1900 and 1930 rail construction picked up
slightly, mainly under the impetus of increased coffee
exports. But in the 193s the GOC shifted its transportation
priorities from rail to road. Still, privately run freight
trains have played a significant role in moving coal from
mines in Colombia's interior to the Atlantic coast for
export. The most significant GOC rail project is the
"Magdalena Medio" rail system which parallels the Magdalena
river between Bogota and the Pacific coast. Approximately
USD 225 million will be invested in private concessions for
new construction (in part to build new tracks parallel to
those used exclusively by coal companies) and rehabilitation
over 3-5 years.

"Points of Access": Airports and Docks

8. (SBU) Domestic and international air passengers
increased between 2003-2007 by 5 percent and 15 percent per
year respectively. One quarter of all international visitors
came from the U.S., and a new aviation agreement should
increase flights between the two countries by at least 50
percent (ref B). Janeth Benitez, spokesperson for Colombia's
flag airline Avianca, said her company plans to invest over
USD 4 billion in expanding its fleet over the next two years
with the expectation that Bogota's El Dorado airport will
become a regional hub for Latin America. The GOC has, or is
in the process of, privatizing all of Colombia's major
airports. Concessionaires are spending hundreds of millions
of dollars on airport improvements. Bogota's El Dorado
international airport began a USD 650 million upgrade under a
new concessionaire in September 2007, and private investors
plan to spend USD 135 million to upgrade Medellin's
international and domestic airports (together with four other
smaller nearby airports), and a yet-to-be determined sum to
expand and improve four major airports in Northeast Colombia.

9. (SBU) Colombia's four major ports, Buenaventura,
Cartagena, Barranquilla, and Santa Marta, have operated under
private 20-year concessions since 1993. The port of
Cartagena, currently in the process of a USD 300 million
expansion, owes much of its success to having negotiated an
additional 20-year concession in the late 1990s that allowed
it to make long-term investments. Cartagena also hosts 75
percent of Colombia's increasingly lucrative cruise business;
in 2008 each of the expected 125 ships will generate about
USD 200,000 for the economy. Guzman said the other three
ports are getting new 20-year concessions, which has sparked
new investments. Barranquilla plans to spend USD 178 million
to improve facilities and dredge its access canal, and Santa
Marta will invest USD 125 million to develop as a general
container port as it eliminates coal exports in the next two
years (coal exports from Santa Marta are expected to move to
Barranquilla and to Cienaga to reduce pollution and protect
Santa Marta's tourist industry). Buenaventura has had
inefficiencies resulting from multiple companies
independently operating different sections of the port.
Still, Buenaventura plans to invest USD 450 million plan to
improve container handling, strengthen infrastructure, and
maximize space usage.

The Magdalena River: Building Levees and Locks
--------------------------------------------- --

10. (SBU) The Magdalena river, which runs from the center
of the country to Barranquilla, served as the main link to
the outside world for most Colombians until the twentieth
century. Although its relative importance has declined, it
still moves about two million tons of goods from Northern
Colombia to the Atlantic at 70 percent the cost of road
transport. Cormagdalena (a public company charged with
development of the river) wants to see the river's
navigability increased and extended. The MinTrans estimates
that an investment of USD 1.2 billion in river improvements
(dredging, canal construction, sedimentation control, levees,
and locks) would cost USD 1.2 billion dollars, but could
increase the river's capacity to ten million tons, extend
navigability South to the heart of Colombia's productive
triangle, and reduce transportation costs almost ten-fold.

11. (SBU) Still, developing the Magdalena will not be easy.
Pinto said logistic and environmental problems could easily
outweigh financial issues. Pinto thinks the Magdalena can
ultimately evolve into a major transport route between Bogota
and the Atlantic, but said such a development is at least a
decade away. The USG, through the Army Corps of Engineers,
will soon provide Cormagdalena with technical assistance in
identifying issues related to development of the Magdalena.
Once such issues have been identified, the USG could assist
in the design phase of developing the river through
environmental studies, construction plans and bid package
preparation. Finally, the USG could provide assistance in
the construction phase through OPIC loan guarantees and other
financial instruments.

COMMENT: Key to Success in Globalized Marketplace
--------------------------------------------- -----

12. (SBU) Colombia, blessed with a superb resource base and
geographical location, has been historically hampered as a
trading nation by an inward-looking business class, leaden
bureaucracy and inadequate infrastructure. Globalization
realities have taken care of the first factor, and a series
of reforms have set the nation on the path to a greatly
improved (though still lacking) business regulatory
environment. The Achilles' heel of infrastructure remains,
and the Uribe government is focusing heavily on this weakness
for the remaining 2 years of the administration. This
process -- expensive and lengthy -- holds the key to
Colombia's ability to emerge as more than another bit player
in the global marketplace.

=======================CABLE ENDS============================

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