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Cablegate: Gains in Security Plus $2.5 Billion Yield Big Infrastructure

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R 302111Z DEC 09
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 1849
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
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RULSJGA/DEPT OF TRANSPORTATION WASHINGTON DC

UNCLAS BOGOTA 004120

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E.O. 12958: N/A
TAGS: ECON ELTN EFIN ETRD EINV PGOV CO
SUBJECT: GAINS IN SECURITY PLUS $2.5 BILLION YIELD BIG INFRASTRUCTURE
PROJECTS

REF: BOGOTA 3033

1. (SBU) Summary. Due to consistent improvements in the security
situation and US$2.5 billion in financial incentives, Colombia has
been able to award the largest transportation project in its
history - called "Ruta del Sol" or the Sun Route. This 1,000
kilometer highway project connects Colombia's north cost to its
interior (Bogota) and should bring goods to markets at cheaper
prices. The GOC awarded two of the three legs in December, with
plans to reopen the bidding for the third leg in early 2010. No
U.S. companies submitted bids primarily due to requirements to
build and manage the highway for a 20-year term. However, U.S.
exporters of safety and security equipment and intelligent
transportation systems software and hardware are following the
project closely. End Summary.

The Sun Route Lures International Investors

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

2. (U) The Ruta del Sol project is a 1,000 kilometer four-lane
highway that will stretch from Bogota to the port of Santa Marta on
the Colombian Caribbean coast. In defining the terms of the
concessions, the GOC received assistance from the World Bank's
International Finance Corporation. The project is divided into
three legs, two of which were awarded on December 15 to Consorcio
Vial Helios (an Argentinean-Colombian consortium) and Promise of
Future Society Plural Structure Concessionary Ruta del Sol SAS (a
Brazilian-Colombian consortium). The third leg had one bidder, a
Chinese-Colombian consortium, who failed to meet the conditions of
the bid.

3. (SBU) The ability to award these mega-infrastructure projects
and receive bids from major international companies is due to the
GOC's willingness to provide US$2.5 billion to those who will
construct the highway and the improved security situation. Over
the years, murder and kidnapping rates have dropped dramatically,
while the rule of law has strengthened through major judicial
reforms. [Comment: The $2.5 billion is essentially a grant to
attract foreign companies who would otherwise not bid due to
perceived security conditions, the size of the project, and the
timeframe of the concession. End Comment]

4. (U) Minister of Transportation Andres Uriel Gallego said highway
construction will begin in 2010 and should be completed in five
years. The project will go through eight departments and 39
municipalities, (an area that makes up 23.3 percent of Colombia's
GDP). The new highway is expected to reduce transportation costs
within Colombia, which at the moment increases the price of goods,
coming and going, by 20 percent. Another positive aspect is that
Gallego expects the project will create more than 8,000 jobs in a
job market that has over 11 percent unemployment.

Internationals Represented but No U.S. Companies Bid

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

5. (U) Consorcio Vial Helios, made up of Colombian companies
Conconcreto and Solarte Brother and the Argentinean Company Lecsa,
will receive US$500 million from the GOC over six years as it
constructs the first leg, measuring 78 kilometers. The
Brazilian-Colombian consortium, consisting of Brazilian firm
Odebrecht and the Colombian financial group Grupo Aval (owned by
the wealthiest Colombian - Luis Carlos Sarmiento), will receive
US$1 billion over 16 years as it builds and operates the second


leg, measuring 528 kilometers. Although not awarded, the GOC
expects to provide an additional US$1 billion to the third
consortium in its efforts to construct and manage the third leg,
measuring 465 kilometers. Embassy contacts told us that they
expect China Railway Shisiju company to rebid on the third leg in
January.

6. (SBU) No U.S. companies threw in their hat for this mega
highway project. Officials from the U.S Trade Development Agency
and the U.S. Export-Import Bank note that the majority of large
U.S. construction companies do not build, maintain, and manage toll
highways for 20-year concessions. They added that once a highway
is built, the companies normally hand it over to the state or
federal government to manage. Other factors that have dissuaded
U.S. investment are a)Colombia ranked 153 out of 180 for respect
for contracts in the World Economic Forum's "Global Competitiveness
Index", and b)GoC's overly complicated Law 80 which is the
framework for these awards and is in need of an overhaul (see
reftel).

GOC to Sell State Assets to Help Finance More Projects

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

7. (SBU) The Ruta del Sol project is one of many infrastructure
projects Colombia is finally moving forward on. For years, the GOC
has penciled these highway projects in its agenda, but has been
unable to execute any due to security, investment, or contractual
concerns. At the moment, there are an additional 2,700 kilometers
worth of highway projects in the pipeline. To help finance these
projects, the GOC plans to sell state assets to include Colombia's
third largest electricity power company, ISAGEN, and an additional
10 percent of GOC's stake in Colombia's petroleum company,
Ecopetrol, the largest company in Colombia.
BROWNFIELD

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