GAINS IN SECURITY PLUS $2.5 BILLION YIELD BIG INFRASTRUCTURE

UNCLAS BOGOTA 004120 SENSITIVE SIPDIS 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