BRAZIL: INFRASTRUCUTRE COOPERATION AND SECURITY ISSUES:

UNCLAS SECTION 01 OF 05 SAO PAULO 000049

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/BSC, INL, EEB/IFD/ODF
DEPARTMENT ALSO FOR DS/IP/WHA, DS/IP/ITA, DS/T/ATA
STATE PASS USTR FOR KATE DUCKWORTH
STATE PASS EXIMBANK, OPIC, AND TDA
NSC FOR TOMASULO
TREASURY FOR OASIA - DAS O'NEILL AND JHOEK
DHS FOR PLCY/OIA DONNA MONTIEL
USDOC FOR 4332/ITA/MAC/WH/OLAC
USDOC ALSO FOR 3134/USFCS/OIO
DOL FOR ILAB
SOUTHCOM ALSO FOR POLAD
USAID FOR LAC/AA

E.O. 12958: N/A
TAGS: PGOV SNAR EINV EFIN BEXP ASEC KJUS EAIR BR
SUBJECT: BRAZIL: INFRASTRUCUTRE COOPERATION AND SECURITY ISSUES:
AMBASSADOR SAO PAULO GOVERNOR, AND DAS O'NEILL

REF: (A) 07 SAO PAULO 447 (B) 05 SAO PAULO 1181

SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY

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SUMMARY
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1. (SBU) Ambassador met January 28 with Sao Paulo Governor Jose
Serra to follow up on previous discussions of cooperation between
the state government and the USG on law enforcement and public
security issues. He also conveyed USG's interest in supporting
Brazil's efforts to develop its physical infrastructure. Governor
Serra was pleased to learn that under the new USG-GoB Letter of
Agreement (LOA) on counter-narcotics and cooperation, USG may
provide training, expertise, and other assistance directly to the
state government with prior notification of the GoB. With respect
to infrastructure, the Governor outlined several major undertakings,
such as the "Rodoanel" (ring road around the metropolitan area),
which could benefit from TDA feasibility studies or other
U.S.-sponsored technical expertise, and suggested that post follow
up on the specifics with Planning Secretary Vidal Luna. Governor
Serra, a likely 2010 presidential candidate and currently considered
the front-runner, is looking to establish a solid record of
achievement in developing the state's economy and improving its
quality of life as a means of bolstering his expected candidacy.
End Summary.


2. (U) Ambassador was accompanied by Treasury DAS for the Western
Hemisphere Brian O'Neill, Consul General (CG),LEGAT, and Financial
Attache. In addition to State Secretary for Economy and Planning
Francisco Vidal Luna, Governor Serra was accompanied by State
Secretary for Public Security Ronaldo Bretas Marzagao and foreign

SIPDIS
affairs advisors Helena Gasparian and Jose Roberto de Andrade.

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LAW ENFORCEMENT COOPERATION
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3. (SBU) Ambassador began by reminding the Governor of the May 2007
meeting with then-INL A/S Anne Patterson (ref A),which featured
discussions of the state government's need for law
enforcement-related training and technical assistance. As one
result of A/S Patterson's visit, he noted, Embassy has two new
positions in its Narcotics Affairs Section (NAS),a Resident Legal
Advisor (RLA) and a Law Enforcement Advisor (LEA). In addition, the
GoB has indicated that it will sign a bilateral Letter of Agreement
(LOA) during the week of February 11. The combination of new
personnel and a new framework, the Ambassador said, will make it
possible for the USG to move forward to address some of Sao Paulo's
needs.


4. (SBU) Elaborating on the Ambassador's overview, LEGAT explained
that the RLA will focus on training for prosecutors and judges,
while the LEA will assist in coordinating post's counter-narcotics
efforts. When appropriate, the RLA and LEA will be able to help
match requests for specific types of assistance with the USG agency
best equipped to provide it, whether DOJ, FBI, DHS, DEA, State, or
some other entity. Signing of the LOA will free up funding for post

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to provide some technical assistance to state entities that support
our mutual objectives.


5. (SBU) Serra asked whether the LOA requires prior federal
authorization for the U.S. to provide assistance to the state and
was pleased to learn that the state government may ask Embassy
directly for training or assistance, and the Embassy need only
notify, not seek authorization from, the GoB. (Note: Under the LOA,
USG would coordinate with the National Public Safety Secretariat
(SENASP) in addition to working with the states. End Note.) He
noted that the state prison system is "very problematic" and cited
the need for technical expertise in prison administration. He and
State Secretary Marzagao also expressed interest in improving police
intelligence methods and wiretapping capabilities. Finally, the
Governor urged that we not neglect the fight against IPR piracy,
noting that during his brief stint (2005-06) as Mayor of Sao Paulo,
his administration had taken a hard line against stores selling
pirated goods (ref B),and that IPR enforcement is one area where he
and the USG are in total agreement. Ambassador and Serra agreed
that Embassy and Sao Paulo state security personnel would pursue
working-level discussions to work out details of training and
technical assistance.

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INFRASTRUCTURE DEVELOPMENT
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6. (SBU) Turning to a new topic, Ambassador recalled that at the
March 2007 Camp David meeting between Presidents Bush and Lula, the
latter had expressed interest in tapping into U.S. expertise to help
Brazil pursue regional integration and to develop its
infrastructure. Brazil needs in particular to improve its
transportation - roads, railroads, ports, pipelines - and energy
infrastructure. Ambassador noted that OPIC provides loan guarantees
and insurance, EXIM offers financing for projects with the potential
to increase U.S. exports, and TDA conducts feasibility studies and
project analysis. The U.S., he said, wants to help stimulate U.S.
investors' involvement in Brazil's infrastructure projects. He
introduced Treasury DAS Brian O'Neill, who was scheduled to meet in
Brasilia with Minister of Planning Paulo Bernardo and National
Economic and Social Development Bank (BNDES) President Luciano
Coutinho. O'Neill noted that in working with the GoB, Treasury has
found that often the problem is not in financing, but rather in
identifying the best projects and making them viable.


7. (SBU) Governor Serra said that for the state government, the
main bottleneck is actually doing the project. The "Rodoanel" - a
ring road around the Sao Paulo metropolitan area designed to
facilitate movement of cargo and to alleviate urban traffic - is a
prime example. The stretch of highway west of the city has been
built and is in use, and construction has begun on the southern
tranche. Serra would like to get started on the eastern side as
well, but a variety of environmental issues have stalled the
process. The state government wants to put together a package that
would make the private concessionaire responsible for all elements
of the project. Foreign affairs advisor Gasparian noted that TDA
has experience working in Sao Paulo state, citing its funding of
technical assistance to enable the City of Sao Paulo to improve its
network of urban infrastructure (gas, oil, water, sewage,

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telecommunications networks). O'Neill noted that U.S. technical
experts engage directly with project developers, and that the only
prerequisite is that the project have the potential for U.S.
involvement. While there is some skepticism in the investor
community about Brazilian federal government projects and
public-private partnerships, he said, most state
government-sponsored projects appear more realistic and sound.


8. (SBU) Ambassador noted that he is arranging a dinner in Brasilia
for several Ministers to meet with the heads of U.S. investment
banks, and that he could if desired arrange a similar encounter for
Governor Serra and some of his key advisors. Serra expressed
interest. He joked about how his attitude towards the United States
had evolved over the years. In his youth, when Serra was President
of the National Students' Union (UNE),he and all his friends
considered USAID "deadly." Also, at a 1963 dinner hosted by
then-President Joao Goulart, Serra recalled, he urged the President
to expel U.S. Ambassador Lincoln Gordon from Brazil. But those were
different times, he said. (Biographic Note: Student radical Serra
went into exile after the 1964 coup, first to Chile, where he met
his wife, and subsequently to the United States, where he earned a
PhD in Economics at Cornell and taught for two years at Princeton's
Institute for Advanced Studies. End Biographic Note.)


9. (SBU) Another project where the U.S. might be helpful is the
proposed "bullet train" between Rio de Janeiro and Sao Paulo. Serra
noted that, speaking as an economist, he did not believe a
European-style high-speed or bullet train was viable. O'Neill
agreed, noting that such a project would require either a capital
subsidy or an operating subsidy. According to Serra, some Italian
visitors claimed that the private sector could develop and operate
such a project, but that he believed their calculations were skewed
and that a better alternative might be an express similar to the
Washington-New York Amtrak model.


10. (SBU) Ambassador and DAS O'Neill suggested that on future
visits to Washington to meet with IDB and World Bank officials,
Governor Serra meet also with USG agencies that can help with
technical project assistance, and that he also designate a POC to
discuss areas of common interest in infrastructure development. The
Governor suggested that Financial Attache follow up with Planning
Secretary Vidal Luna.

SIPDIS

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AIRPORT INFRASTRUCUTRE
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11. (SBU) CG inquired into the Governor's view on the state's
aviation capacity, which has been a topic of ongoing public debate
since the July crash of TAM 3054 at Sao Paulo's Congonhas airport
exposed that airport's severe capacity problem. Serra lamented that
the state government is not yet well organized to address the
question and that the federal government's public handling of civil
aviation has not been coherent. Contrary to the GoB's position,
Serra does not believe that Sao Paulo state needs a new airport,
which would require a large amount of expensive infrastructure
support. He would prefer to improve access to the international
airport at Guarulhos - where a third terminal is being developed -
and upgrade Viracopos airport in Campinas. In fact, the state has a

SAO PAULO 00000049 004 OF 005


number of small domestic airports that, if expanded, could help
carry the commercial aviation load, he said. The state government
will soon send a bill to the Legislative Assembly to create a state
company dedicated to airport development. O'Neill suggested that
the Governor consider having TDA conduct a pre-feasibility study to
help identify options.


12. (SBU) Ambassador noted that the International Air Transport
Association (IATA) has been engaging with Solange Vieira, the
recently installed President of the National Civil Aviation Agency
(ANAC),with respect to U.S. airlines' serious concerns with
proposed enormous aircraft parking fees at Sao Paulo airports.
Given the importance of aviation to Sao Paulo, Ambassador suggeste
that Serra coordinate with Vieira and Defense Miister Nelson Jobim
(since the Brazilian militaryruns the airport agency, Infraero).

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BREAST CANCER AWARENESS
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13. (U) The Ambassador noted the involvement of the Governor's wife
in breast cancer prevention and awareness and the potential linkages
between her work and the USG's Partnership for Breast Cancer
Awareness and Research of the Americas. Following up on Mrs.
Serra's recent meeting with Health and Human Service's Secretary
Michael Leavitt, the Ambassador and Governor agreed to further
explore areas for joint cooperation within the framework of the
partnership.

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COMMENT
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14. (SBU) As Governor of a state of 41 million people which
accounts for approximately one third of Brazil's GDP, Serra retains
deep interest in expanding capacity. The state is home to South
America's largest port at Santos, and developing port infrastructure
as well as highways and railroads to transport goods are critical to
reducing the "custo Brasil," the cost of doing business that
private-sector leaders frequently cite as a major hindrance to the
country's global competitiveness. Serra recently called for bids on
a 30-year concession to improve and operate some 1500 kilometers of
major state highways. He also plans soon to privatize the Sao Paulo
Energy Company (CESP),which operates six hydroelectric plants in
the state.


14. (SBU) Public security is also a key concern of Serra's. While
statistics show a continuing decline in violent crime throughout the
state, the organized criminal gang First Capital Command (PCC)
remains a serious threat, and the Governor has repeatedly
highlighted the importance of combating drug and arms trafficking
and other forms of contraband. He has been a major USG ally in
combating IPR piracy. Like most state Governors, he finds
coordinating with the federal government extremely frustrating and
therefore relishes the possibility of doing business directly with
the USG with minimal federal interference.


15. (SBU) As of this writing, most observers consider Serra the
front-runner for Brazil's 2010 presidential election, assuming he

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can defeat his principal rival, Minas Gerais Governor Aecio Neves,
for his party's nomination. Serra, who ran unsuccessfully against
Lula in 2002, knows that in order to retain his advantage, he needs
to show a solid record of achievement in governing his home state,
both in developing its economy and in improving its quality of life.
End Comment.


16. (U) This cable was coordinated with Embassy Brasilia and
approved by Ambassador Sobel.

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