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Cablegate: Costa Rican Roads Suffer Neglect, Now a Focus

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PP RUEHWEB

DE RUEHSJ #0900/01 3232125
ZNR UUUUU ZZH
P 182125Z NOV 08
FM AMEMBASSY SAN JOSE
TO SECSTATE WASHDC PRIORITY 0277

UNCLAS SAN JOSE 000900

SIPDIS

DEPT FOR WHA/CEN RBEAL AND EEB/IFD/ODF MSIEMER;
PLEASE PASS TO DOT AND TREASURY SSENICH

E.O. 12958: N/A
TAGS: PREL ELTN EFIN PGOV ETRD ECON CS
SUBJECT: COSTA RICAN ROADS SUFFER NEGLECT, NOW A FOCUS
OF THE GOCR AND THE IDB

1. SUMMARY: After nearly two decades of neglect, Costa
Rica's roads and transportation infrastructure in general
are about to receive significant investment courtesy of
the Inter-American Development Bank (IDB). The IDB
approved a USD 850 million line of credit to rehabilitate
roads, railways, and ports in desperate need of repair.
This amount will be matched by a USD 200 million
investment by the GOCR for a total infrastructure
investment of USD 1.05 billion. Meanwhile, construction
finally restarted on the 30 year-delayed connector
highway between the Central Valley (where San Jose is
located) to the Pacific port of Caldera, and is projected
to finish in mid-2010. Improvements to the highway
system are desperately needed to support increased intra-
city, interregional, and cargo traffic likely to result
from implementation of CAFTA-DR and potential trade
agreements with the European Union and China. Highway
improvements should also help make Costa Rica's highways
safer. Auto accidents are the leading cause of violent
death in the country. END SUMMARY

MANY ROADS, BUT NOT SO GOOD
---------------------------

2. Costa Rica has one of the densest road networks in
Latin American with 0.70 kilometers of road for kilometer
squared of land and roads are the principal means of
transporting goods and people in the country. The
national road system includes 4,905 km of paved roads and
an additional 2,734 km of gravel and dirt roads that are
classified as in good, medium, or bad condition. Roads
classified as in "good" condition, 24 percent, are in the
minority:

Condition: -- Good -- -- Medium -- -- Bad --
KM Percent KM Percent KM Percent
Paved 1197 24% 2282 47% 1436 29%
Gravel/Dirt 50 2% 1795 66% 890 32%

Source: MOPT

Costa Rica's road system also includes 29,014 km of roads
maintained by municipalities, including 4,454 km of paved
roads. Thirty percent of these paved roads are
considered to be in "good" condition.

3. Whether part of the national or municipal system,
many kilometers of roadway are riddled with potholes,
regularly washed out in the rainy season, equipped with
old and poorly-maintained bridges, or constructed with
too few lanes to accommodate heavy, slow-moving truck
traffic as well as private vehicles ascending and
descending mountainous terrain. The poor condition of
many roads and highways impacts tourism, logistics, and
safety: the average speed of advance (even between major
cities with normal traffic) can be as low as 30 miles per
hour which surprises tourists, increases business
transportation costs due to time, and increases accident
rates as drivers attempt to overtake slower-moving
traffic on winding, mountainous, two-lane roads.

4. In the last twenty years, the population of Costa
Rica grew from 2.7 million in 1987 to approximately 4.4
million in 2007. This 59 percent population growth was
accompanied by a large increase in the number of drivers
in Costa Rica. The Ministry of Public Works and
Transportation (MOPT) estimates that there are twice as
many cars on the road in Costa Rica today compared to ten
years ago. In 1984 there was one car for every 12
residents, now there is one car for every four.

TOO MANY CARS, NOT ENOUGH CAPACITY
----------------------------------

5. With a steady increase in vehicular traffic, neither
highway capacity nor road system maintenance has kept
pace with the expanding country. Throughout Costa Rica,
and particularly in metropolitan San Jose, serious
traffic congestion bogs down the transport of goods and
people. Increased trucking, as a result of overall
economic growth and the termination of the train link
from San Jose to the major ports on both coasts (due to
the 1991 earthquake), added an additional strain to the
road system.

6. One example of national frustration with the growing
gap between road capacity and the increase in vehicles is
the long-awaited San Jose-Caldera road. Underway for 30
years and repeatedly blocked by land acquisition and
financing and political obstacles, construction has

finally resumed. The 77 kilometer right-of-way stretches
from the west side of San Jose to the Pacific port city
of Caldera. MOPT estimates a savings of 45 minutes in
travel time (currently a two-hour trip under ideal
conditions) plus a reduction in transit accidents and
fuel consumption.

7. Critics point to the rising construction costs (from
USD 150 million to USD 265 million with a concomitant
rise in projected one-way tolls from USD 2.70 to USD
3.50) and usage biased toward heavy transport when
highway sections outside of San Jose are only one lane
each way. MOPT predicts a best case scenario completion
date of mid-2010. Autopistas del Sol, an Argentine-led
consortium (financed by Banco Centroamericano de
Integracion Economica and Caja de Madrid), will develop
and manage the concession and will recoup its investment
through tolls. Autopistas del Sol will be responsible
for operating the highway for 25 and a one half years.

HOW TO FINANCE ROADS
--------------------

8. In the 1960s and 1970s, Costa Rica was a regional
leader in investment related to infrastructure
improvements, including the construction of its segment
of the Inter-American Highway. In fact, in the 1970s,
government investment in the road system climbed to six
percent of Costa Rica's Gross National Income (GNI).
However, the financial crisis in the early 1980s led to a
significant decrease in funding for road maintenance and
construction. During the previous administration (2002-
2006), the rate of investment fell to just 1 percent of
GNI. To emphasize the state of neglect, MOPT Minister
Karla Gonzalez remarked to a visiting Congressional
delegation in March that highway revenues had not been
allocated to the Ministry for more than ten years.

9. The National Roads Council (CONAVI), a MOPT agency,
wields budget authority and the responsibility for
administering the Roads Fund. The Roads Fund receives
financing from several sources: fuel and vehicle taxes,
national and international loans, gains from investments,
tolls, and vehicle fines.

10. The primary source of funding for national and
municipal roads is a single fuel tax, currently set at
165 colones per liter (approximately USD 1.21 per
gallon). Thirty percent of the annual revenue yield of
this tax is allocated to CONAVI. Seventy-five percent of
this allocation is earmarked for the National Road
Network while the remaining 25 percent goes to municipal
roads. MOPT anticipates receiving USD 140 million from
the fuel tax in 2008.

11. Since 2006, CONAVI has been able to invest heavily
in road maintenance as a result of the funding received
through the single fuel tax. In 2006, it invested
approximately USD 45.6 million and in 2007 investments
totaled about USD 111 million. Looking forward, MOPT
estimates that it will need an additional USD 75 million
annually for maintenance and basic improvements of the
existing paved roads of the national system as well as
USD 50 million annually for gravel roads. (Source: MOPT)

THE IDB LENDS A HELPING HAND
----------------------------

12. The Inter-American Development Bank (IDB) extended
an USD 850 million line of credit to the government of
Costa Rica for the development of the country's
transportation system. The IDB loan focuses on new
construction projects rather than regular maintenance.
The credit line must be approved by the Costa Rican
national assembly because the IDB loan instrument has a
preferred credit guarantee, which stipulates that the
Costa Rican government must pay off this loan prior to
other creditors. Without this guarantee, loans do not
need to be approved by the legislature. Minister
Gonzalez expects the IDB loan to be approved by end of
the calendar year without major political controversy.
However, as the tortuous approval process for the CAFTA-
DR implementation legislation highlighted, "quick" action
by the legislature is never a given.

13. The GOCR will match the IDB loan with USD 200
million. The first disbursement of USD 300 million from
IDB plus a match of USD 75 million from GOCR will fund
the First Road Infrastructure Program (PIV). The monies
will be spent on rehabilitating 500 kilometers of

highways and bridges throughout Costa Rica. MOPT splits
this first tranche for direct construction costs of USD
342.5 million and for engineering, administration, and
support and capacity building to MOPT and CONAVI of USD
32.5 million. The IDB expects that the investment will
result in a 20 percent reduction in the number of days
that roads are impassable and a 10 percent reduction in
the amount of time traveled on asphalt roads.

14. The IDB will disburse the USD 300 million loan over
five years. The GOCR will pay back the loan over 25
years with a five year grace period. The anticipated
interest rate is 5.64 percent annually.

15. Based on the assumption that the Legislative Assembly
will approve the USD 850 million in IDB loans, MOPT has
created a long-term plan for future road improvements and
construction, entitled El Programa de Infraestructura de
Transporte (PIT). The plan distributes funding between
national and municipal roads in phases. The PIT also
includes rehabilitation of additional highways, the
metropolitan train system, and bike paths.

COMMENT
-------

16. The legislative assembly is expected to approve the
IDB line of credit, but the nature of the legislative
approval process, complex to say the least, may still
cause delays. Once this line of credit is approved and
the first loan disbursed, road projects ultimately will
alleviate congestion, save time, and lower fuel costs,
but all projects may endure the tenuous nature of
construction contracting in Costa Rica. Improvements to
the highway system are desperately needed to support
increased levels of intra-city traffic, interregional
traffic, and cargo transit resulting from the anticipated
implementation of CAFTA-DR and potential trade agreements
with the European Union and eventually, China. Road
improvements are also part of the equation for lowering
the accident fatality rate for Costa Rica, running at
nearly 7 deaths per 100,000 thus far in 2008. Auto
accidents are the leading cause of violent death in the
country.

CIANCHETTE

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