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 -------------- Summary -------------- ¶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. -------------- Political Gridlock -------------- ¶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. -------------- Bolivian Highways - Stuck in Neutral -------------- ¶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. -------------- --- Bolivian Railways - I Think I Can, I Think I Can -------------- --- ¶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. -------------- Mutun Mining - The Eye of the Beholder -------------- ¶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. -------------- Comment -------------- ¶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