NICARAGUA: INTEROCEANIC CANAL PROPOSALS MIRED IN

UNCLAS MANAGUA 002584

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECIN EIND ELTN EWWT NU
SUBJECT: NICARAGUA: INTEROCEANIC CANAL PROPOSALS MIRED IN
POLITICS

SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY.


1. (SBU) Summary: In early October, President Bolanos
unveiled the "Grand Interoceanic Canal for Nicaragua (GNIC)"
project, a proposed $18 billion, 172-mile long, trans-isthmus
"wet canal." The GNIC will compete with three more modest
"dry canal" proposals also under consideration. The most
advanced of the four projects is Canal Interoceanico de
Nicaragua (CINN),which proposes a trans-isthmus railroad or
"dry canal." CINN completed its feasibility study in 2003
and plans to begin an environmental impact study in the
coming year. SIT Global also proposes a trans-isthmus
railroad with an oil pipeline and fiber optic cable that
would run parallel to the rail line. While it has not yet
completed a feasibility study, SIT Global has announced its
plans to begin an evironmental impact study. The Eco-Canal,
proposed by the GON in 2004, would be a combination "wet and
dry" barge canal. President-elect Daniel Ortega has
supported the idea of a "dry canal," first backing the 1997
SIT Global proposal and more recently backing the CINN
proposal. With the Bolanos presidential term ending in
January 2007 and the "wet canal" sporting an enormous price
tag, a "dry canal" would appear more likely to receive
government approval. End Summary.

"The Grand Interoceanic Canal for Nicaragua"
--------------


2. (SBU) In early October, President Bolanos unveiled the
"Grand Interoceanic Canal for Nicaragua (GNIC)" project, a
proposed $18 billion, 172-mile long, trans-isthmus "wet
canal." The GNIC idea has been around since 1999, but was
revived in October 2006 when Bolanos presented the project at
the Defense Ministers of the Americas conference. The
most-favored route of the proposed "wet canal" would pass
through five rivers and Lake Nicaragua, beginning at
Bluefields Bay on the Atlantic coast and ending in Brito on
the Pacific coast. Environmental critics of the GNIC worry
that any oil spillage in Lake Nicaragua would destroy the
ecosystem. Members of the government-appointed GNIC
Commission include Mario Alonso Icabalcete (former-President
of the Central Bank),Arturo Harding (Minister of Environment
and Natural Resources (MARENA)),and Alejandro Arguello
(Minister of Trade and Commerce). Bolanos has not provided a
timeline for moving the project forward and admitted that the
project is in its "infancy." Diplomats who received the
proposal expressed skepticism about the plan, questioning the
timing of the proposal, coming just months before Bolanos'
term ends and weeks before a referendum in Panama on
expanding its canal. Ironically, (or perhaps calculatedly)
the splash made by Bolanos may have encouraged Panamanian
support for its then-struggling referendum, which passed
without difficulty on October 22.

CINN: The "Dry Canal"
--------------


3. (SBU) Bolanos was not the first to propose an interoceanic
canal for Nicaragua, but his proposal is the most ambitious
and must compete with three more modest proposals to build a
"dry canal." Canal Interoceanico de Nicaragua (CINN),
founded in 1994, is the most advanced of the four projects.
It proposes a $2.6 billion railroad from Monkey Point on the
Atlantic coast to El Gigante on the Pacific coast, linking
deepwater container ports built for the project, and creating
free trade zones. The National Assembly granted a 40 year
concession to CINN in 2001 and the company completed a
feasibility study in 2003. CINN has complained, however,
that the Bolanos government has purposefully impeded its
progress since 2003 by not issuing the necessary permits to
begin an environmental impact statement. CINN reportedly has
financial backing from Hong Kong, Taiwanese, Japanese, and
Chinese investors and would compete with U.S. west coast
railroads to transport Asian goods to the U.S. east coast.
CINN, led by a U.S. investor, claims to have the support of
President-elect Daniel Ortega. After the November 5
presidential election, CINN sponsored a full-page
advertisement in a local newspaper extending congratulations
to Ortega. The general manager of CINN, Francisco D'Escoto
Brockman is the former Sandinista Ambassador to the United
Kingdom and currently occupies a home that was expropriated
from a U.S. citizen during the Sandinista regime.

SIT GLOBAL: The Other "Dry Canal"
--------------


4. (SBU) SIT Global proposes a $4 billion trans-isthmus
railraod running from Monkey Point on the Atlantic coast to
Corinto on the Pacific coast. An oil pipeline and fiber
optic cable would run parallel to the rail line, using the
same right-of-way. CINN has accused President Bolanos of
"stealing" its "classified" plans, which were presented to
Bolanos in 1995 when he was then Vice-President, and giving
them to his son Enrique, who created SIT Global in 1997.
CINN's accusations have never been proven and Enrique Bolanos
filed libel charges against CINN in 1998. (Note: The charges
were dismissed by a judge, who resigned his position on the
day of the ruling. End Note.) SIT Global is backed by
Bayardo Arce (a high-ranking Sandinista Liberation Front
(FSLN) official and businessman) and claims to have the
support of private Canadian oil and telecommunications
companies. President-elect Ortega supported SIT Global in
1997, but switched to CINN in 2003 for unknown reasons. SIT
Global has not undertaken a feasibility study, but has
announced its plans to begin an environmental impact study,
despite not having the necessary permits.

Eco-Canal: Still in the Running
--------------


5. (U) The Eco-Canal, proposed by the GON in 2004, would be a
combination "wet and dry" canal. A barge canal would run
from San Juan del Norte on the Atlantic coast to Granada, via
the San Juan River and Lake Nicaragua. Ground transportation
from Granada to the Pacific coast would complete the
trans-isthmus route. In 2004, GON officials invited the
United States Army Corps of Engineers (USACE) to conduct a
feasibility study for the Eco-Canal. While USACE officials
met with the GON, discussions concluded with no plans for
further USG involvement. Costa Rican officials have
publicly stated that they will not allow the San Juan River,
which forms 37 miles of the Nicarguan and Costa Rican border,
to undergo the necessary dredging for a canal. They believe
that dredging would harm the ecosystem and threaten their
burgeoning eco-tourism industry. Despite this obstacle, the
GON still cites the Eco-Canal as a possibility.


6. (SBU) Comment: The four interoceanic canal projects tell a
story of competing interests vying for funding and political
support. Bolanos' "wet canal" proposal seemed only to focus
attention on the perhaps more realistic "dry canals"
currently struggling to find political champions to move
their projects forward. CINN has met strong resistance from
MARENA, which has blocked the issuance of environmental
permits for almost three years. Notably, the Minister of
MARENA sits on the GNIC commission and has publicly supported
the "wet canal." SIT Global contends that it would
complement a "wet canal" by offering the added benefit of an
oil pipeline and fiber optic cable, however, it has struggled
financially. President-elect Ortega stated on November 11
that he is reviewing all the canal proposals, but noted that
the "wet canal" would create more jobs. Historically, Ortega
has favored the idea of a "dry canal," first backing the 1997
SIT Global proposal and then backing the CINN proposal in

2003. CINN may win Ortega's full blessing, but such a
benediction depends on whether the firm can successfully
navigate the political waters of the new administration. End
Comment.
TRIVELLI