BOLIVIAN INFRASTRUCTURE: TRANSPORTATION GRIDLOCK

C O N F I D E N T I A L LA PAZ 001141

SIPDIS

E.O. 12958: DECL: 08/03/2019
TAGS: EMIN ECON EFIN EINV ETRD PREL BL
SUBJECT: BOLIVIAN INFRASTRUCTURE: TRANSPORTATION GRIDLOCK

REF: A. 07LAPAZ 001975

B. LAPAZ 000968

C. LAPAZ 000183

Classified By: Acting EcoPol Chief Holly Monster for reasons 1.4 b,d

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Summary
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1. (C) Bolivia's ground transportation infrastructure is
either in complete disrepair or the standard by which South
America should be measured, depending on one's perspective.
Seventy percent of Bolivia's 50,000 KM (31,000 miles) of
roads are in need of repair, yet the 3521 KM (2188 miles) of
rail lines are too modern to link with Brazil or Argentina's
aging rail infrastructure. However, no matter the
perspective, the future of Bolivian transportation may be in
danger. The Administradora de Boliviana Carreteras (ABC),
which controls the Bolivian highways, and the Autoridad para
el Transporte y las Telecomunicaciones (ATT),which is in
charge of the railways, have both seen their internal
technical knowledge purged in favor of bureaucrats with no
experience in their respective industries. Despite competing
with other projects for funding the resources are available,
but the competency is not. The rail companies remain
optimistic despite repeated threats of nationalization since
2007 (Ref A),but highway construction companies do not share
that rosy outlook, and believe that a change in leadership is
the only thing that will improve the situation.

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Political Gridlock
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2. (C) Hernan ((Toranzo)) Suarez of the Vice-Ministry of
Transportation explained that the GOB is presently working on
a list due by the end of the year of 300 projects to be
completed by 2012, although Toranzo admits completion of the
projects could run until 2020. The plans are being
coordinated with the Ministry of Planning and the
transportation projects are competing for funding with public
works and social projects. In addition to battles over
funding, delays are also the result of each project's details
being coordinated with the Prefectures and local governments,
as well as the international financial institution
responsible for providing the funding.

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Bolivian Highways - Stuck in Neutral
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3. (C) Gustavo ((Assad)),Bolivian Director of Norberto
Odebrecht, a Brazilian company with operations in 22
countries, working in the fields of transportation and
energy, calls Bolivia's infrastructure backwards. A lack of
know-how and a resistance to foreign investment has caused
the highway infrastructure to crumble. Assad sees no
improvement forthcoming, stating that Bolivia moves at such a
slow pace it is useless to look forward less than 5-10 years.


4. (C) Assad listed a number of pending highway projects
awaiting completion:
- The highway from Puerto Suarez to San Jose (227 miles)
was recently completed, but it will be another two years
before the 165 mile highway from San Jose to Santa Cruz, the
business center of Bolivia, is completed.
- The highway linking the cities of Tarija and Potosi
(217 miles) will need another two to three years for
completion. This is an important artery since it continues
into Argentina.
- The region around Santa Cruz has the potential to draw
many tourists with historic and religious settlements in the
area, but the lack of reliable roadways in the vicinity is
handicapping the industry and the local economy.
- The northern highway from Cochabamba to Northern Brazil
(Ref B),which was highly touted by Brazilian President Lula,
was halted due to administrative issues, despite being fully
funded by Brasilia.


5. (C) The inability to put available financial resources
to use is a common problem for the GOB. ABC's $380 million
budget accounts for more than 20% of the Ministry of
Development Planning's total budget, yet through the first
half of 2009 ABC only spent 25% of its allotment, blaming the
inability to invest on a lack of liquidity. The
Inter-American Development Bank has loaned Bolivia $174
million over the past five years for infrastructure projects,
including two major highways, with subsequent plans for $900
million in projects, but 45% of the money is idle due to
bureaucratic and implementation delays.


6. (C) ABC's primary interest is in keeping costs low
rather than completing projects. An Odebrecht competitor
pulled out of a contract after inflation raised the prices of
labor and materials. Rather than re-bid the contract, ABC is
waiting in the hopes that prices will return to their
previous levels.


7. (C) Bolivian Highways require a great deal of
maintenance since there is no regulation on the weight and
condition of vehicles using the roadways, according to Assad.
However, maintenance projects tend to fall under the auspices
of the Prefectures, and are often too small scale to be cost
effective for international companies. Odebrecht, which
currently does not have a project in Bolivia, is planning to
bid on the La Paz to Oruro Highway (127 miles) in order to
remain in the Bolivian market, despite the project's small
size compared to the company's normal jobs.


8. (C) Assad maintains that Bolivia is missing an
excellent opportunity to upgrade its infrastructure. Upcoming
elections in Argentina, Brazil and Chile could bring an end
to the spirit of regional cooperation which has prevailed in
recent years.

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Bolivian Railways - I Think I Can, I Think I Can
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9. (C) Jaime ((Valencia)) Valencia, General Manager of
Ferroviaria Oriental, the railway line serving Bolivia's
eastern half, touted the gains that the industry has made in
the last 13 years. Through 1995 the railroads were controlled
by the Bolivian government. In 1996, as part of a plan to
"capitalize" major industries, the GOB sold off 50% of the
railways to private investors, including a 26.4% stake in the
eastern rail line to US Company Genesee & Wyoming.


10. (C) The annual amount of freight shipped since
capitalization has doubled from 700,000 tons to 1.5 million
tons. The number of passengers per year has tripled from
200,000 to 600,000. The total amount invested has increased
four-fold from $25.8 million to over $100 million. Oriental
is increasing its annual investment from $4.5 million in 2008
to between $5 and $6 million in 2009. Valencia expressed
pride in the company's growth and optimism about its future.


11. (C) Beginning in 2007, President Morales has repeatedly
threatened to nationalize the railroads. This year, there
have been strikes by workers for Ferroviaria Andina, the
western rail line, in support of nationalization, but there
have been no such actions in the east. Oriental maintains
good relations with its workers and contracts out to small
businesses in the region encouraging economic growth.
Valencia is certain that nationalization is not on the
horizon. The GOB has an agreement with the government of
Chile not to nationalize Andina, and Valencia assesses that
the Bolivian government will not nationalize the railroads
piecemeal. Subsequently, Bolivia's agreement protecting
Andina will protect Oriental as well, at least until the
December elections, after which Valencia concedes that the
political realities could change.


12. (C) Oriental's confidence is also rooted in the GOB's
need for the eastern rail line. Oriental is the main supplier
of diesel fuel from the Bolivian hydrocarbon company, YPFB,
to Santa Cruz, shipping one million liters per day. Oriental
is also responsible for shipping 96,000 tons of wheat and
flour per year and 700,000 tons of soy. The economy relies on
Oriental, and therefore the government does not interfere
with its operations, according to Valencia. The GOB is also
aware of Oriental's commitment to the community. Currently
the company operates its passenger rail service at a $1.5
million annual loss, but continues the service, and is even
upgrading it, to sustain good relations with the community.


13. (C) Oriental maintains regular contact with ATT,
meeting every two months. The superintendency is receptive to
suggestions for improvements, but has made it clear that its
first priority is the community, not the company. ATT has
lost 80% of its transportation workers during the Morales
administration, and replaced them with MAS party members
loyal to the President, according to Valencia.


14. (C) A number of projects have been proposed by Oriental
since 2005, and the GOB has been receptive, but is only now
beginning to move forward on any of them. Valencia reports
that his company has proposed:
- A rail extension to the city of Trinidad (334 miles
north of Santa Cruz).
- Three routes connecting the Oriental and the Andina
lines: One through the Chapare region (207 miles),one to the
city of Sucre (234 miles),and one in the South through
Tarija (285 miles).
- An extension along the Eastern border from Puerto
Suarez to the Mutun mining region (18 miles).
The GOB recently received a $100 million loan from the Andina
Financial Confederation (CAF) and is using the money to begin
two of the proposed projects; the Mutun mining extension and
the connection through the Chapare region. The Chapare line
is the shortest of the proposed routes to connect the Andina
and Oriental rail lines, but it also runs through the region
most politically loyal to Morales, raising suspicion about
the motive for the decision. The GOB plans to invest $1
billion of public funds to develop the rail lines, but no
timeframe for the project has been set, a detail that
Valencia describes as worrisome.


15. (C) Despite the poor conditions of the Bolivian
highways, Valencia projects that Oriental will lose 15-20% of
exports to the growing trucking industry, but will remain
competitive because of rail's reliability. Currently there
are less than 4000 trucks in the Bolivian shipping industry
and half of those are locally focused, according to Valencia.
Of the remaining 2000, 75% operate between Santa Cruz to
Arica, Chile, putting them in direct competition with Andina
rather than Oriental.

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Mutun Mining - The Eye of the Beholder
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16. (C) Valencia contends that the success of the Mutun
rail extension will depend on Mining Company Jindal. The GOB
awarded the potentially lucrative mining concession to the
Indian company three years ago (Ref C),but has yet to see
results. Valencia is pessimistic because he claims that
Jindal still has not presented a logistical plan or disclosed
any details or needs for the mine. In addition, Valencia
alleges that the company only brought seven engineers from
India to work on the multimillion dollar project. Jindal's
efforts have been focused on social and public relations
rather than mining, according to Valencia, and a rail line
will not create revenue since the company is likely to
continue finding excuses about infrastructure and contractual
shortfalls. Assad, on the other hand, assesses that the
reason Jindal has yet to begin full-scale operations is
because of the lack of infrastructure which the GOB pledged
would be in place.

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Comment
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17. (C) Economically, Bolivia's infrastructure presents a
Rorschach test for companies. There are those who view it as
full of reasonable challenges, which, in the end, strengthen
your firm. Then there are those who view Bolivia's
infrastructure as a series of obstacles, incessantly wearing
down your resolve and your business. Regardless of one's
disposition, there is universal cause for concern about the
future of the Bolivian infrastructure. As the technical
competency for the highways and railways are being replaced
by political loyalty, the challenges facing Bolivian industry
will likely become harder to overcome and the delays and
obstacles increasingly common.


18. (C) Post speculates that in addition to hindering
Bolivia's economic growth, the poor road conditions and
limited mobility between regions contribute to the social
mistrust and political tension between segments of the
population. The limited amount of contact between the Andean
region in the west and the Media Luna in the east probably
adds to the increased impact of rumor and innuendo.
CREAGAN