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Cablegate: U.S.-Chilean Joint Infrastructure Assistance Identifies

VZCZCXYZ0001
RR RUEHWEB

DE RUEHSJ #0686/01 2251236
ZNR UUUUU ZZH
R 131236Z AUG 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 1115
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHSG/AMEMBASSY SANTIAGO 0465
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SAN JOSE 000686

SIPDIS

DEPT FOR WHA/CEN, WHA/EPSC:MROONEY AND AWONG, EEB/IFD/ODF
TREASURY FOR LMCDONALD, DVKOCH, AND SSENICH

E.O. 12958: N/A
TAGS: ECON EFIN EINV PGOV PREL CS CI
SUBJECT: U.S.-CHILEAN JOINT INFRASTRUCTURE ASSISTANCE IDENTIFIES
COSTA RICAN PROJECT

REF: SAN JOSE 497, SAN JOSE 364

1. SUMMARY. From July 13-16, a Treasury Department team from the
Office of Technical Assistance (OTA) and a representative of Chile's
Ministerio de Obras Publicas (GOC MOP) met with GOCR leaders and
private sector officials to consider how to deliver infrastructure
technical assistance (TA). Both USG and GOC advisors represented
the Infrastructure Finance Expert Corps (IFEC), a joint assistance
program which selected Costa Rican as a pilot project (reftel A).
After successful previous trips by an OTA team and GOC
representatives in late May and early June, this second engagement
focused on identifying candidate projects. By the last day of the
meetings, the GOCR identified the Liberia airport concession as the
candidate for TA. All parties agreed that the size and scope of the
project -- a USD 35 million renovation / expansion with a term of
approximately 8-12 months -- worked well with the GOCR's needs,
OTA's assistance horizon, and the GOC MOP expertise. Next steps
include drafting, finalizing, and signing a TOR agreement between
the OTA and the GOCR and for the GOC to provide funding (direct or
through a multi-lateral bank) to support its participation. End
Summary.

--------------------
ACT TWO: THE PLAYERS
--------------------

2. OTA Advisors Harry Tether and Barry Gray traveled to Costa Rica
for four days of meetings commencing on July 13. The GOC MOP sent
John Diaz as its representative. On this second Costa Rican trip,
the OTA team again met with a variety of players in Costa Rican
infrastructure, including:

-- Karla Gonzalez, Minister, Guillermo Matamoros, Vice Minister of
Concessions, and Eduardo Navarro, Director of Concessions, and
Hernan Vasquez Director of Planning, Ministry of Public Works and
Transportation (MOPT);

-- Jose Luis Araya and Jenny Phillips, Vice Ministers of Finance
(Hacienda) and Melvin Quiros, Deputy Director, Public Credit,
Hacienda;

-- Marco Vargas, Minister, Inter-Ministerial Coordination;

-- Carla Morales Rojas, Vice Minister, Ministry of Planning;

-- Javier Cascante, Director, Superindentency of Pensions (SUPEN);

-- Lourdes Fernandez, Interim Director of Investment Banking for
Banco Nacional de Costa Rica;

-- William Hayden and Ronald Vargas, Hayden-Vargas-Fernandez
Financial Consulting;

-- Carlos Andres Arguedas Vargas, Contract Division Manager,
Contraloria General (Comptroller) of the GOCR;

-- Jose Antonio Munoz, Partner, Arias and Munoz;

-- Carlos Arrea, Partner, LEX Counsel (attorney for the Liberia and
Port of Caldera concessions);

-- Mariela Diaz, Director, and Cecilia Montero, Manager, ProChile;
and

-- Bill Abraham, Partner, Osa Pacific Partners (holds a minority
stake in the Liberia concession).

--------------------------------------------
ACT TWO HIGHLIGHTS I: DO WE HAVE A PROJECT?
--------------------------------------------

3. During the initial days of meetings, the OTA team and Post
became slightly puzzled by the GOCR's lack of providing specific
examples or even a list of candidate projects. The most direct
suggestion came from MOPT Minister Gonzalez who proposed Costa
Rica's Limon-Moin port complex (on the Caribbean, reftel B) as a
candidate. However, the OTA team and Post agreed that the scale
(USD 700+ million), complexity, and political/labor implications of
this project were completely mismatched to IFEC's more immediate
goals. Other than the Minister's specific suggestion, GOCR contacts
offered few specifics.

4. Having just met Bill Abraham, a minority partner in the Liberia
airport concession, the OTA team raised this as a possibility with
CNC's Vice Minister Matamoros toward the end of the week. The
airport concessionaire -- led by Coriport, an airport management /
development consortium -- proposes to invest approximately USD 25

million for a renovation / expansion of the Liberia airport. This
includes the construction of an 180,000 square foot
arrival-departure-immigration facility, estimated to take
approximately 8-12 months to build. Vice Minister Matamoros
responded positively to this suggestion and directed the OTA team to
focus on the Liberia concession.

5. After meeting with Vice Minister Matamoros, the OTA team
presented this result to Finance Vice Ministers Phillips and Araya
who both concurred with the selection. In addition, the Vice
Ministers also tapped the Office of Public Credit as Hacienda's
analytical team to assist with evaluating financing options for the
Liberia concession.

----------------------------------
ACT TWO HIGHLIGHTS II: CHALLENGES
----------------------------------

6. A key challenge to the process emerged on the very first day
when the GOC MOP John Diaz explained that the GOC did not have funds
to support IFEC assistance. Though, Diaz recognized a role for
Chilean participation (and certainly a strong interest), he could
not make any promise about the GOC's ability to support IFEC. By
the time of Diaz's departure from San Jose, we understood that the
GOC would explore the possibility of securing IFEC assistance
through a multi-lateral bank such as the IDB.

-------------------------------------
ACT TWO HIGHLIGHTS III: A PPP PRIMER
-------------------------------------

7. John Diaz shared with the OTA team and us the Chilean model of
managing concessions and / or public private partnerships. Within
the GOC's concessions agency, three distinct functions move a
concession from beginning to end. The first is Tendering. This
function manages the "offering" and award of a concession. Diaz
noted that concession competition (three to four bidders) is vital
to the process. The second function, Construction, manages the
design / build process and handles contractor disputes and change
orders. The third function, Operations, monitors the actual revenue
results versus projected revenue results and the distribution of
revenue to stakeholders (including the GOC) in accordance with the
terms crafted during the Tendering phase.

8. All three functions draw upon professional experts (e.g. legal,
appraisers, etc.) that are part of the GOC's concession agency. One
other function that plays a key role in the process is a Project
Manager. The concession agency charges this person with total
responsibility for shepherding a concession project through the
tendering, construction, and operations phases of the project's
life. The project manager also has a key liaison role with the
"requesting" or "sponsoring" ministry. For example, if the
concession is a hospital, then the Project Manager interacts with
the representatives at the Ministry of Health on the key technical
issues related to delivering a major health care facility.

-------
COMMENT
-------

9. After the first OTA and GOC visits in May and June respectively,
three near-term issues emerged for upcoming visits. We recount
those issues below along with comment updating the status of each:


-- Collaborating with the GOCR to select specific IFEC project(s)
and defining specific areas of focus for the IEFC team: the IFEC
team met most of this goal on its second visit to Costa Rica with
the selection of the Liberia airport concession. As the picture of
GOC assistance becomes clearer, the latter part of this goal will be
met.

-- Increasing the effectiveness of the Council of Concessions: this
remains a long term objective of the IFEC team and will require work
akin to "management consulting" in order to achieve results.

-- Publicizing concession and public-private partnership successes:
the recent opening of a segment of the San Jose-Caldera concession
tollway illustrates how much work remains in this area; a
combination of misshaped expectations, an approximate eight-fold
increase in tolls, and the lack of an awareness campaign by the
concessionaire, Autopista de Sol, highlights the critical important
of public awareness and information.

What may be a fourth issue is the GOC assistance. Though the lack
of GOC IFEC funding poses as a near term challenge, Chile clearly
wants to actively participate in IFEC as we gathered from the travel

of John Diaz and his enthusiastic engagement in our meetings. We
choose to remain optimistic that the GOC will find a way to insure
continued participation with IFEC's pilot project for Costa Rica.

BRENNAN

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