NICARAGUA: AMBASSADOR CALLS ON NEW MINISTER OF

UNCLAS MANAGUA 000453

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, EB/TRA
PLEASE PASS TO USTDA FOR KMALONEY
COMMERCE FOR ITA/MSIEGELMAN
TRANSPORTATION FOR FEDERAL HIGHWAY ADMINISTRATION

E.O. 12958: N/A
TAGS: ELTN EWWT EAIR EIND EPET ECON ETRD PINR NU
SUBJECT: NICARAGUA: AMBASSADOR CALLS ON NEW MINISTER OF
TRANSPORTATION AND INFRASTRUCTURE

REF: A. MANAGUA 0384

B. 06 MANAGUA 2587


1. (SBU) Summary. The Ambassador called on the new Minister
of Transportation and Infrastructure Pablo Fernando Martinez
Espinoza on February 7 to introduce himself and discuss
transportation and infrastructure issues in Nicaragua. The
Ambassador explained that the Millennium Challenge
Corporation (MCC) is spending $92.8 million on building roads
in the Departments of Leon and Chinandega, and that the
United States Trade and Development Agency (USTDA) is funding
$750,000 worth of feasibility studies on the expansion of sea
and air cargo facilities. Martinez suggested that USTDA
might also want to look at funding a feasibility study on a
second runway at the airport, and that the MCC should
consider investing in the Port of Corinto.


2. (SBU) Martinez outlined the government's policy
priorities: fighting poverty, combating corruption,
developing democracy, and fostering the private sector. He
believes that the government sorely needs to establish a
policy on investment -- first defining objectives, then
setting investment criteria and establishing priorities.
Decrying a ministry and a sector in disarray, Martinez said
he wants to develop institutions and industry capacity, and
to attract people to the ministry who want to achieve
results, are not corrupt, and are willing to learn. End
Summary.


3. (U) The Ambassador called on new Minister of
Transportation and Infrastructure Pablo Fernando Martinez
Espinoza on February 7 to introduce himself and discuss
transportation and infrastructure issues, especially roads,
in Nicaragua. Martinez was joined by Vice Minister Fernando
Valle. DCM and Econoff accompanied the Ambassador.

Millennium Challenge Corporation
--------------


4. (U) The Ambassador opened the meeting by acknowledging
that in recent years the U.S. mission had not been very
active in areas related to infrastructure. However, this was
changing now that the MCC is building roads in the
Departments of Leon and Chinandega. MCC road project tenders
are starting to flow. Over half of MCC's $175 million
program is funding the construction of primary and secondary
roads. The Ambassador underscored that as a member of the
MCC Board of Directors, the Minister of Transportation and
Infrastructure is an integral part of what the MCC
accomplishes.


5. (SBU) Martinez commented that he is interested in
replicating the MCC model in other areas because it keeps
programs off budget, therefore avoiding distortions related
to legislative and constitutional earmarks for education, the
judicial system, and municipal government. (Note: there is no
small irony in Martinez's comments, since the Sandinistas
imposed most of these earmarks.) Additionally, the model
involves the private sector in the development of public
infrastructure. Martinez believed that the model might be
applied to the construction of a Pacific coast highway
between San Juan del Sur and the border of Costa Rica. The
Ambassador pointed out that along with a coastal road, one
would want to make sure that there is adequate water and
power supply to support increased regional development.

Coastal Highway
--------------


6. (SBU) Martinez estimated that a new coastal road along the
Pacific Ocean would cost on average about $1 million per
kilometer, versus the $200,000 cost of rehabilitating an
existing road, given the need to build the foundation,
drainage systems, bridgework, among other requirements.
Because the objective of the road was to hasten tourism,
economic benefits would accrue to a different measure -- a
different kind of traffic.

Expanding Cargo Capacity Under CAFTA-DR
--------------


7. (SBU) The Ambassador informed Martinez that the United
States Trade and Development Agency (USTDA) is providing a
total of $750,000 to fund feasibility studies on the
expansion of cargo facilities at the Port of Corinto and
Managua International Airport. Trade under CAFTA-DR had
risen to the point where both the port and the airport needed
to expand. A lack of adequate infrastructure could adversely
affect the country's international competitiveness. To
facilitate private sector investment in the ports, the
Ambassador noted, USTDA will fund an advisory to help the
government draft a ports law. Currently, the ports are
relegated to applying general procurement law, which
precludes public-private partnerships such as joint ventures,
build-operate-transfer projects, and concessioning terminals.
Martinez suggested that USTDA might also want to look at
funding a feasibility study on a second runway at the
airport, and added that the MCC might want to consider
investing in the Port of Corinto.

Policy Priorities and Investment Objectives
--------------


8. (SBU) Martinez outlined the government's policy
priorities: fighting poverty, combating corruption,
developing democracy, and fostering the private sector. He
believes that the government sorely needs to establish a
policy on investment -- first defining objectives, then
setting investment criteria and establishing priorities.
Until now, he commented, Nicaraguan governments have lacked
the vision to do this. One of the problems, he mused, is
that Nicaraguans want to do everything at once, when it would
be better to do things gradually, but well. As an example,
he pointed out that sometimes emergency repair done the wrong
way actually destroys a road over the medium term.


9. (SBU) Martinez added that the government has to start
counting all of the economic costs of having roads in poor
condition including, for example, the cost of killed cattle,
road accidents, and the value lost by taking too much time in
getting perishable goods like seafood and fruit to market.
Taking into account all of these economic costs will help him
justify funding road construction.

Sector in Disarray
--------------


10. (U) Referring to recent negative newspaper articles about
the transport sector, Martinez decried what he saw at his
ministry as well as in the construction industry. There had
been a lack of transparency at the ministry. Contracts had
not been drawn correctly. Costs had been exaggerated.
Planning had been ignored. Ministry officials often lacked
education and training. Coordination with the municipalities
had been poor. Institutions had grown weak. Moreover, the
ministry had ignored the health of the construction industry
and taken no steps to foster greater capacity, e.g.,
Nicaragua has no laboratory with which to test construction
materials or the quality of road construction. Even
engineering professors are teaching old technology, Martinez
said.

Developing Institutions and Industry Capacity
--------------


11. (SBU) Martinez said that he wants to develop institutions
and industry capacity. He wants to attract people to the
ministry who want to achieve results, are not corrupt, and
willing to learn. The most important thing, he asserted, is
to instill a sense of professionalism. He would like to
provide incentives to construction companies to invest in
themselves and build capacity in the industry. He hopes to
re-establish a testing laboratory at a local university, and
work with universities to improve the quality of education
for civil engineers.


12. (U) The Ambassador wondered if the United States could
assist in some way. Could we put together a three-week
training program in contract law for the ministry? Could we
bring a Fulbright scholar to teach at a local university or
some other sort of professional exchange? There seemed to be
two immediate needs: construction science and contract law.
Martinez showed interest in the possibility of putting
together seminars on contract law for officials at his
ministry, and perhaps officials from other ministries as
well. (Note: the Embassy and USAID are reviewing ideas along
these lines.)

Large Projects
--------------


13. (SBU) The Ambassador asked about some of the large
projects reported in the press, such as a canal across the
isthmus that would compete with the Panama Canal (Ref B).
Martinez quietly indicated his view that it is unlikely that
these projects would materialize, but he did say that if a
China or a Brazil were interested, it could happen. He
admitted that local industry is unprepared for such a large
project. Salinas added that a transisthmus oil pipeline
might be viable in the medium term.

Biography: Pablo Fernando Martinez Espinoza
--------------


14. (SBU) Pablo Fernando Martinez Espinoza is well known to
Nicaraguan construction and engineering circles. From 1984
to 1990, he was a member of President Daniel Ortega's first
administration, serving as Vice Ministry of Construction. In
the early 1990s, Martinez founded CEICO SA, a construction
company that has received a number of government contracts to
build roads and bridges, as well as a dock at the Port of
Corinto and an airport on Corn Island. CEICO has also won
contracts to maintain and rehabilitate national roads from
the government's Roadway Maintenance Fund (FOMAV).


15. (SBU) Martinez has already appeared before the National
Assembly Committee on Infrastructure and Public Services to
discuss the state of the ministry. He claimed that the
ministry is bloated and suffers from corruption. He pointed
to the fact that contractors regularly go over budget on
projects they never finish, while ministry officials ran up
large bills on things like personal gasoline allowances.
Such finger pointing sessions at the National Assembly have
included his predecessors Ricardo Vega Jackson, Ariel Lopez,
and Pedro Solorzano. (Note: Vega Jackson resigned under a
cloud of corruption in the fall of 2006, but then promptly
pointed the finger at Solorzano, his predecessor and then
advisor to President Bolanos (Ref A).)


16. (SBU) Martinez has been a member of the Executive Council
of the Nicaraguan Chamber of Construction. He holds a degree
from the Central American University in Civil Engineering,
and has worked as the Dean of the College of Engineering at
the same institution. He is one of the founders of the
National Engineering University.


17. (SBU) Martinez was recommended for the job by the
Nicaraguan Construction Chamber and the Architects and
Engineers Association. Before becoming Vice Minister of
Transportation and Infrastructure, Fernando Valle was the
General Manager of the Nicaraguan Construction Chamber.
TRIVELLI