Cablegate: Colombia's Public Bidding Process Comes Under Scrutiny

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C O N F I D E N T I A L SECTION 01 OF 03 BOGOTA 003147

SIPDIS

E.O. 12958: DECL: 2019/10/08
TAGS: ECON EINV ECPS MARR PGOV CO
SUBJECT: COLOMBIA'S PUBLIC BIDDING PROCESS COMES UNDER SCRUTINY

REF: BOGOTA 3033; BOGOTA 3006

BOGOTA 00003147 001.2 OF 003

CLASSIFIED BY: Brian A. Nichols, Deputy Chief of Mission, Department
of State, Executive Office; REASON: 1.4(B), (D)

1. (C) SUMMARY. The September resignation of the National
Concessions Institute Director, amid allegations of corruption,
underscores the fragility and inconsistency associated with the
bidding process on public projects in Colombia. Dealings with the
Ministries of Transportation and Communications often leave
international investors doubting the GOC's commitment to its stated
goal of increasing direct foreign investment. While the GOC is
still generally receptive to our advocacy efforts, passing the
stalled U.S.-Colombian Trade Promotion Agreement (CTPA) has become
the GOC's argument of choice as to how the USG can create better
investment conditions for U.S. companies. We will encourage the
GOC to join the WTO Government Procurement Agreement and offer U.S.
Trade Development Agency assistance to bring Colombian bidding
processes up to international standards. END SUMMARY.

CORRUPTION AT INCO UNDERMINES INFRASTRUCTURE PROJECTS

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2. (C) On September 21, five senior officials from the Ministry of
Transportation and the National Concessions Institute (INCO),
including its Director, Alvaro Jose Soto, were forced to resign
after recorded phone conversations implicated them in soliciting
bribes in connection with the Central Magdelena railroad
concession, which has been frozen pending an investigation. A
group of U.S. investors from Montana had dropped out of the same
railroad project because of what they described as: 1) an
unrealistically short bid timetable; 2) unnecessary and inequitable
qualification criteria established by INCO for the rail operator;
and 3) an illogical amalgamation of construction and rail projects
that created an irreconcilable dichotomy within the bidding
consortium.

3. (SBU) Juan Martin Caicedo, President of the Chamber of
Infrastructure, characterized the corruption scandal as yet another
setback for Colombia's ailing infrastructure, which represents a
huge brake on the economy. Caicedo told Econoff that Soto's
replacement will be INCO's ninth director in six years in an
industry where investments are long term and maintaining the same
interlocutor is essential to build investor confidence.

TROUBLE GETTING SATELLITE BID OFF THE GROUND

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4. (C) Colombia's bid for a satellite to support communications in
remote areas (Ref B) has also experienced difficulties. The
Ministry of Communications postponed public meetings with
international bidders at the last minute (and after executives from
various countries had already flown to Bogota) in mid-September.
Press reports said the reason for the postponement was that the
draft terms of reference favored two French companies with close
ties to Libya, and this caused concern within other parts of the
GOC. (NOTE: The meetings, which defined risk-sharing and
solicited comments on the terms of reference, finally took place on
September 29 and October 1. END NOTE.)

5. (SBU) The satellite bid process is unorthodox in that the GOC
has not yet secured its orbital slot. As a result, U.S. and other
satellite manufacturers will be forced to partner with service
providers who can offer the slot. The GOC's need for a satellite
as well as a place to put it has distorted the Request for
Proposal, since it requires technical as well as service
commitments. This burden is exacerbated by the short timetable the
GOC is requiring for bids.

BOGOTA 00003147 002.2 OF 003

INACTION AND CORRUPTION AFFECT SUCCESSFUL BIDDERS

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6. (SBU) Companies who win bids in Colombia have reason for
caution as well. Scientific Games International (SGI), a
U.S.-based lottery and gaming company won a bid in 1992 for a
national instant ticket lottery. Due to factors beyond its
control, SGI was unable to meet the sales level stipulated in its
contract with ETESA (a company owned by the Ministry of Social
Protection for the purpose of generating funds for the Ministry's
public health-related functions). ETESA has refused to enter into
arbitration as the contract requires and instead pursued litigation
in multiple fora (including unsuccessfully in the U.S.). SGI is
still trying to reach a negotiated settlement with ETESA in order
to be able to eventually do business again in Colombia. SGI met
with the Ministry of Social Protection and Econoff as recently as
September 2009 to this end. As demonstrated by this case, the GOC
does not always respect standard arbitration clauses in commercial
contracts. This adds another level of risk and uncertainty for
U.S. businesses considering investments in Colombia.

7. (C) Another U.S. company, GTECH, has had the concession with
ETESA for a separate lottery for nine years. In exchange for
allowing their secure terminals to be used to provide banking
services to rural areas, GTECH asked that ETESA grant them an
extension that is allowed in their contract. GTECH claims that a
"colleague" (since fired) of ETESA's Director approached them for a
bribe to ensure the extension was granted. Emboffs raised the
issue directly with Vice President Santos.

MILITARY SALES NOT IMMUNE

-------------------------

8. (C) Multiple cases of irregularities in military tenders give
reason for pause as well. One case involved the U.S. company,
Textron, which was pursuing a $100 million sale of tracked vehicles
to the Colombian Army. Textron formally requested Embassy advocacy
assistance when they could no longer secure meetings with the
officials managing the tender and it became clear the army was
considering a South Korean vehicle that had only been produced as a
prototype and had not yet been tested. Textron eventually won the
bid, but only after the USG raised concerns about the bid process
at the highest levels. Subsequent to the award, retired Colombian
Army officials offered $10 million to the company's local
representative to rescind Textron's bid.

STALLED FTA HINDERS ADVOCACY EFFORTS

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9. (C) The GOC, particularly at more senior levels, is generally
receptive to Embassy's advocacy on behalf of U.S. companies.
Nonetheless, we have begun to receive push-back in the form of GOC
indignation at the U.S. lack of action on the U.S.-Colombia Trade
Promotion Agreement (U.S.-CTPA). During a recent meeting with
Trade Vice Minister Gabriel Duque, Emboffs expressed concern over a
bill in Colombia's Congress, backed by domestic TV networks that
would impose stiff taxes on international television companies and
prohibit them from advertising in Colombia. Duque, who served as
Colombia's services negotiator for the U.S.-CTPA responded, "We
know this law violates our FTA commitments. But until you pass the
FTA, this law is Colombia's prerogative."

BOGOTA 00003147 003.2 OF 003

STEPS TO STRENGTHEN PUBLIC BIDS

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10. (C) Colombia is not a signatory to the WTO Government
Procurement Agreement, which could improve its performance in
executing international tenders. We will encourage Colombia to
join the Agreement, underscoring its benefits in promoting foreign
direct investment--a key goal of President Uribe. We will continue
to offer assistance through the U.S. Trade Development Agency and
other mechanisms to improve transparency and bring the Colombian
bidding process more in line with international standards.

MINIMIZE CONSIDERED
BROWNFIELD

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