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Cablegate: Goc Outlines Ambitious Infrastructure Plan, But

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E.O. 12958: N/A
TAGS: EINV ECON ELAN EWWT EFIN PGOV CO
SUBJECT: GOC OUTLINES AMBITIOUS INFRASTRUCTURE PLAN, BUT
WHO WILL PAY?

1. (SBU) SUMMARY: Infrastructure has long constrained
Colombia's economic competitiveness, geographical cohesion
and presence of the state. However, as security continues to
improve and Colombia aims to position itself to compete in
the global marketplace, the GOC is launching an ambitious
plan to expand and modernize its transportation,
infrastructure. Primary focus lies in major road projects to
link Colombia's economic centers to its coasts, followed by
integrated efforts to improve mid-size ports and airports and
extend Colombia's limited rail network. The GOC intends to
rely on private investment and concessions for the majority
of the estimated USD 39 billion in required infrastructure
investment over the next six years. The role of a recently
announced USD 500 million public investment fund that will
tap Colombia's pension system and multilateral bank resources
remains to be determined. Colombian business contacts regard
lack of infrastructure development as President Uribe's
greatest failing to date, and wonder whether this latest GOC
push has simply come too late given the current scarcity and
high cost of major project financing. END SUMMARY.

Highways Top Priority
---------------------

2. (SBU) According to National Planning (DNP) Director
Carolina Renteria and Transportation Minister Andres Gallego,
the GOC's top infrastructure priorities are three
superhighway projects that will link Colombia's central
industrial region to its Pacific and Caribbean coasts as well
as interconnect the country's booming northern coast
population centers. The largest of the three projects,
referred to as the "Route of the Sun" will connect Bogota to
Santa Marta via 680 miles of divided highway at an estimated
cost of USD 3 billion. The Ministry of Transport, which is
dividing the project into three segments, will begin the bid
process on December 9 and forecasts completion of the
project, reportedly the second largest road project currently
planned in Latin America, by 2015.

3. (SBU) The "New Independence Road" concession will link
Colombia's industrial capital, Medellin, to the growing port
of Turbo on the Caribbean Coast near the Panamanian Isthmus.
The 340-mile road rehabilitation and new construction will
require an estimated USD 780 million in investment and will
open for bidding in mid-2009. The third super-highway
project, called the "Highway of the Americas", plans to
interconnect Colombia's north coast from the Guajira
peninsula to the Panamanian border via more than 1,500 miles
of primary and secondary roads. While an estimate of
investment is still under development by the DNP, Director
Renteria told Econoff the final cost would likely exceed that
of the "Route of the Sun" project.

Airports, Ports, Rail, & Mass Transit Also Planned
--------------------------------------------- -----

4. (U) Beyond highways, the GOC has identified over two dozen
priority infrastructure projects for airports, ports, rail
lines, and mass transit. In the air sector, the GOC plans to
follow the 2008 issuance of 20-year operating and investment
concessions at six airports with an additional six
concessions (Santa Marta, Riohacha, Valledupar,
Barrancabermeja, Bucaramanga and Cucuta) in 2009. The GOC
estimates USD 104 million in total investment for the six new
concessions. In the ports sector, the GOC extended the
concessions for three of Colombia's largest ports
(Buenaventura, Santa Marta, and Barranquilla) in 2008
contingent upon respective investments totaling USD 750
million. In 2009, the GOC expects to finalize new
development projects at the ports of Aguadulce (north of
Buenaventura--USD 103 million) and Contecar (near
Cartagena--USD 297 million) as well as issue solicitations
for greenfield investments in the ports of Bahia Malaga and
Tribuga on the Pacific Coast and Turbo on the Caribbean
Coast.

5. (U) Although Colombia has traditionally placed low
priority on developing its rail network, the GOC has two
railroad renovation projects presently under concession
(Santa Marta-Chiriguana and Buenaventura-La Felisa), and

plans to begin the bidding processes for three more
concessions in early 2009. The largest of the three proposed
concessions will link the northern Santa Marta-Chiriguana
line to central Colombia and the outskirts of Bogota via 650
miles of new and rehabilitated rails. The 30-year concession
will require an estimated USD 437 million of investment. The
GOC is also preparing studies to offer the construction
concession for a completely new 345-mile line to link coal
fields in Boyaca and Cundinamarca to existing lines running
north to Colombia's Caribbean coast.

6. (U) The GOC also plans to significantly increase
investment in urban mass transit infrastructure, following
the success of Bogota's TransMilenio Bus Rapid Transit System
(BRTS). The national and local governments will cover up to
70 percent of the infrastructure investment and private
concessionaires will provide the balance of investment and
operate the systems in 17 major metropolitan areas. The
first five new BRTS (Cali, Cartagena, Barranquilla,
Bucaramanga, and Medellin) are scheduled for operation by
2010. The GOC has also prepared plans for a 65-mile commuter
railway network for Bogota and anticipates soliciting bids in
mid-2009.

In Search of Investors
----------------------

7. (SBU) The GOC expects to fund these infrastructure
projects primarily through the granting of long-term toll and
operating concessions to private investors and construction
firms. On the margins of Colombia's Infrastructure Congress
in Cartagena November 20, President Uribe met with more than
30 such international investors to encourage bidding on the
GOC's priority projects. While several of the assembled
investors, including companies from Spain, Mexico, Portugal,
Brazil, and the United States, expressed particular interest
in the highway projects, most underscored the current
international credit crunch greatly complicated the financial
viability of such investments. The investors urged the GOC to
make available domestic sources of financing, such as public
pension funds, as part of the concessions.

8. (SBU) In response, Finance Minister Oscar Zuluaga agreed
to examine such mechanisms, while President Uribe suggested
the GOC could provide certain minimum toll receipt guarantees
to enhance concession terms. GOC officials also highlighted
plans to utilize new public-private investment vehicles to
augment private direct investment.

New Investment Fund Role Still in Development
---------------------------------------------

9. (SBU) In October, the GOC signed a letter of intent with
the Inter-American Development Bank (IDB) and Andean
Development Fund (CAF) to establish a public-private
investment fund focused on infrastructure. The fund will be
capitalized with initial contributions from the IDB and CAF
as well as GOC fiscal appropriations and investments by
Colombian public pension funds totaling approximately USD 500
million. In order to maximize transparency for potential
private investors, the GOC plans to contract a private
administrator with independent authority to select
infrastructure projects in Colombia to support. Projects
will pay investors back through a combination of tolls and
usage fees.

10. (SBU) While the GOC is touting the fund as an important
new mechanism for infrastructure development in Colombia (and
expressed hope to Econoffs that U.S. investors and
development agencies such as the Overseas Private Investment
Corporation could support the initiative), current
participants and potential investors note that the initial
fund size is inadequate to support even one major project.
Separately, the new World Bank Resident Representative told
EconCouns that the World Bank would likely not contribute to
the fund due to concerns about moving such public investment
activities off GOC books. At present, fund coordinator and
Director of Public Credit Viviana Lara acknowledged to
Econoff November 20 that it would take several more months to
fully define the fund's role in the GOC's overall

infrastructure plan.

Comment: Too Late, and Now Too Expensive?
-----------------------------------------

11. (SBU) After years of systemic underinvestment in
infrastructure exacerbated by access limitations from the
civil conflict, Colombia is now focusing on the importance of
infrastructure for economic competitiveness, national
integration, and provision of government services. The GOC's
plans are ambitious given the investment requirements and its
fiscal pressures, but reflect both the priority the Uribe
Administration is now placing on infrastructure development
and its commitment to finding private investment solutions to
Colombia's development needs. The question that many in
Colombia are asking is why it has taken so long. Our private
sector contacts -- who usually have little negative to say
about the President's performance -- generally cite lack of
infrastructure development as his greatest failing to date.
Transportation Minister Gallego is widely regarded as among
the most ineffective members of Uribe's Cabinet, and is
routinely blamed for not having moved these projects sooner
when international financing was plentiful and less costly.
BROWNFIELD

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