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Cablegate: Peru Privatizes Port of Callao

VZCZCXYZ0002
RR RUEHWEB

DE RUEHPE #2708/01 1922101
ZNR UUUUU ZZH
R 112101Z JUL 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 1346
INFO RUEHBO/AMEMBASSY BOGOTA 3640
RUEHQT/AMEMBASSY QUITO 0525
RUEHLP/AMEMBASSY LA PAZ JUL SANTIAGO 0724
RUEHCV/AMEMBASSY CARACAS 9662
RUEHBU/AMEMBASSY BUENOS AIRES 2512
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUMIAAA/USSOUTHCOM MIAMI FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS LIMA 002708

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA/AND, WHA/EPSC, EB/ESC/IEC/EPC
TREASURY FOR OASIA/INL
COMMERCE FOR 4331/IEP/WH/MCAMERON

E.O. 12958: N/A
TAGS: ETRD ECON EINV PGOV PREL PE
SUBJECT: PERU PRIVATIZES PORT OF CALLAO

1. (U) Summary. Following up on a pledge to improve services at
Lima's Port of Callao, the GOP on June 23 granted to firm P&O Dover
a contract to build a new container terminal. Total cost of the
project is estimated at $617 million over the next six years. P&O,
along with its Peruvian partner, Uniport, pledged to reduce rates
and invest an additional $144 million to improve the port's
operations. Improved services at the Port of Callao, Peru's largest
container port, will enable to Peru to increase imports and exports
while becoming more competitive with other regional ports. End
Summary.

Privatization of New Container Terminal
---------------------------------------

2. (U) The Port of Callao, located at the edge of Lima, is Peru's
busiest port, handling more than 880,000 TEUs (twenty-foot
containers) annually. Due to its central location, Callao also
processes more than 85 percent of Peru's container traffic. It is
the fastest growing container port on the west coast of South
America, with an annual growth rate of over 14 percent since 2000.
Despite its fast growth, due primarily to the exponential increase
of Peruvian exports under the Andean Trade Promotion and Drug
Eradication Act (ATPDEA), many businesses complain about the
inefficiency and costliness of the port. Callao does not have
permanent cranes on the docks; instead, ships coming to port must
have their own cranes. Callao's costs are some of the highest in
the region, at $400 per twenty-foot container.

3. (U) The Peruvian Government has long talked of privatization as
a way to reduce costs at Callao, although several port entities
opposed the proposal. In May, ProInversion (the GOP Privatization
Agency) offered a tender to build a new terminal at Callao's
Southern Pier (Muelle Sur). A new terminal, complete with
installation of permanent cranes, would expand Callao's port
facilities 2,000 feet further out to sea and would allow larger
ships to dock at the port. The project also includes dredging the
port area to increase depth to 16 meters. According to
ProInversion, the new terminal would increase the Port of Callao's
capacity to more than 2 million TEUs, a 100 percent increase over
current capacity. Overall investment in the project could total as
much as $617 million over the next six years.

4. (U) Four consortiums bid on the project, with ProInversion
granting British-owned P&O Dover, along with its Peruvian partner
Uniport, the contract on June 23. (Note: P&O Dover/Dubai World Ports
is the world's second largest port operator, with two other ports in
South America: Puerto Cabello in Venezuela and Port of Buenos Aires
in Argentina. End Note. ) In its winning bid, P&O Dover offered
rates of $90 for twenty-foot containers and $135 for forty-foot
containers, while also pledging to invest an additional $144 million
in projects to improve the overall operation of the Port of Callao.
P&O expects that the new port facility will be operational by 2009.
The concession contract lasts ten years; after that, the facilities
revert back to the Government of Peru.

Benefits of the New Port
------------------------

5. (SBU) The Ministry of Transportation predicts that, once the
project is completed, Callao's port costs will drop by $200 million,
making it more competitive with Valparaiso and other ports on South
America's west coast. With lower costs per container movement, the
Peruvian Government hopes to increase both imports into and exports
from Peru, as well as container traffic from third countries. The
project should also create new up to 400 new jobs annually, enabling
the port to improve its overall efficiency while meeting its customs
obligations under the U.S.-Peru free trade agreement.

Comment
-------

6. (SBU) Peru's exports and imports have increased dramatically in
the past few years; this trend is expected to continue, particularly
once the U.S.-Peru FTA takes effect. The GOP expects exports in
2006 to total more than $20 billion, an increase of 17 percent since
2005. The Port of Callao desperately needs an upgrade, as it is
currently working near capacity and is labeled one of the most
inefficient ports in South America. This concession is an important
step in the implementation of the U.S.-Peru free trade agreement and
will make Peru more competitive.

STRUBLE

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