MOTC MINISTER ON HIGH-SPEED RAIL, DIRECT LINKS,

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 003099

SIPDIS

SIPDIS

STATE PASS USTR
STATE FOR EAP/TC
COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT
TREASURY FOR OASIA/LMOGHTADER
USTR FOR STRATFORD, ALTBACH

E.O. 12958: DECL: 09/06/2016
TAGS: ELTN EAIR ECPS PREL CH TW
SUBJECT: MOTC MINISTER ON HIGH-SPEED RAIL, DIRECT LINKS,
INFRASTRUCTURE DEVELOPMENT

REF: A. 05 TAIPEI 3779


B. TAIPEI 240

C. TAIPEI 729

D. TAIPEI 1697

E. TAIPEI 2860

Classified By: AIT Director Stephen M. Young, Reason 1.4 d


1. (C) Summary: In a September 5 meeting with AIT Director
Young, Ministry of Transportation and Communications (MOTC)
Minister Tsai Duei expressed confidence that Taiwan high-
speed rail will open in October as scheduled after a one-
year postponement. He also affirmed that the private
sector will continue to play a leading role in Taiwan's
infrastructure developments. End summary

High Speed Rail
--------------


2. (C) AIT Director Young met with the newly-appointed
Minister of Transportation and Communications Tsai Duei on
September 5, 2006. When asked about the prospects for
Taiwan's new high-speed rail system to begin operations as
currently scheduled in October, Tsai assured the Director
that there were no insurmountable technical problems and
the starting date would not be further postponed (ref A).
He said the only question was how soon the full length of
the rail would be operational. The train will eventually
offer service from downtown Taipei to Kaohsiung. However,
because of delays in preparing a tunnel just outside of
Taipei city, the northern terminus may initially be the
Taipei suburb of Banqiao. Tsai said that service to
downtown Taipei would be available before the Lunar New
Year holiday in February 2007.

Effect on Aviation Market
--------------


3. (C) Tsai acknowledged that the opening of the high-speed
rail would put additional pressure on Taiwan's struggling
local airlines, but he noted that they were already well
prepared for the transition. They have already drastically
reduced service on routes that will compete with the high-
speed rail. Tsai pointed out that capacity on Taipei-
Kaohsiung flights had fallen by 50 percent while airlines
looked to expand service to Taiwan's outlying islands and
other destinations in the region. He argued that high oil
prices presented a more serious challenge to the small,
local airlines and explained that the Taiwan authorities
had already taken measures to help them reduce costs, such
as lowering airport fees. (Note: United Airlines informed
us that when MOTC lowered airport fees, it increased
overflight fees by more than 50 percent. While local
carriers saw a substantial reduction in their total fees,
international carriers saw a much smaller reduction or in
some cases a net increase. End note.)

Cross-Strait Air Links
--------------


4. (C) Director Young asked if the opening of the high-
speed rail would create more pressure for direct aviation
links with the PRC. Tsai noted that local airlines have
been eagerly awaiting direct links for quite some time and
had invested in new aircraft years ago in anticipation of
cross-Strait flight. According to Tsai, an announcement
on further opening of Taiwan to PRC tourists will increase
industry pressure on the Taiwan authorities for direct air
links more than the opening of the high-speed rail. He
commented that the trend toward further cross-Strait
opening was positive, and he expects progress on tourism
soon. The Director urged Tsai to consider permitting
foreigners to use cross-Strait charter flights and to
permit foreign airlines to participate in the routes. Tsai
observed that local airlines would be eager to expand their
passenger base to include foreigners. He also explained
that Taiwan would be happy to have cross-Strait routes
categorized as international routes. Under the U.S.-Taiwan
bilateral aviation agreement, U.S. airlines would be

TAIPEI 00003099 002 OF 002


welcome to participate in such routes, he added. (Comment:
The PRC would almost certainly object strongly to such an
outcome. End comment.)

Transportation Security
--------------


5. (C) In response to a comment by the Director that new
security procedures had placed a heavy burden on U.S.
airlines, Tsai expressed Taiwan's willingness to cooperate
with U.S. security agencies on any enhanced security
procedures. The Director thanked Tsai for Taiwan's support
of the Container Security Initiative (CSI) and Megaports
Program. Tsai told the Director that the United States and
Taiwan "speak a common language" on transportation safety
and security, noting that Taiwan wants strong security to
help business and trade flourish.

Private Sector and Infrastructure Development
--------------


6. (C) When asked about the controversy surrounding
Taiwan's Electronic Toll Collection (ETC) System that
resulted in the resignation of Tsai's predecessor (ref E),
Tsai reaffirmed the role of the private sector in Taiwan's

SIPDIS
infrastructure development. The ETC has run into
difficulty because the award of the build-operate-transfer
(BOT) contract to Far Eastern Electronic Toll Corporation
(FETC),an affiliate of the Far Eastern Group, was
challenged in court by one of the losing bidders. Tsai
acknowledged that the ETC was "a little bit controversial"
right now, but underscored the fact that FETC was able to
begin service just one and half years after the contact was
awarded and without the government paying a penny. He
argued that it would have taken the government twice as
long to put the system in operation and would have had a
negative effect on the government budget. He said a new
bidding process was in the works and predicted that FETC
would be able to participate in the new round of bidding.
Tsai also commented that the private sector would continue

SIPDIS
to play a leading role in the development of Taiwan's
infrastructure and the Taiwan authorities would continue to
use BOT contracts for large projects like the ETC.

National Communications Commission
--------------


7. (C) Director Young reiterated U.S. support for Taiwan's
new independent telecommunications and broadcasting
regulatory agency, the National Communications Commission
(NCC). Tsai emphasized that the NCC was now completely
separate from MOTC and agreed that the agency needs to be
fully independent.
YOUNG