UNCLAS SECTION 01 OF 02 MANAGUA 000789

SIPDIS
SENSITIVE

STATE PASS USTR AND USAID
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN

E.O. 12958: N/A
TAGS: EAID ELTN ETRD ECON NU
SUBJECT: NICARAGUA: NEVER LOOK A GIFT BUS UNDER THE HOOD

REFS: A. MANAGUA 721; B. MANAGUA 600; C. 08 MANAGUA 1437

Summary
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1. (SBU) On August 2, the first of 130 Russian buses began to
transit the roads of Nicaragua. Several months ago, President
Ortega announced that Russia had donated the buses -- at an event
where he also blamed United States policies for having impoverished
Nicaragua. A financial cooperative funded by the monetization of
Venezuelan oil through the Bolivarian Alliance for the Americas
(ALBA) is providing financing to favored transportation cooperatives
allowed to purchase units at below-market prices. This
"sweat-heart" deal is the latest evidence of President Ortega's
partisan approach to foreign assistance and public services.

Ortega Announces Russian Bus Donation
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2. (U) Several months ago, President Ortega announced that Russia
had donated 130 new buses to replenish Managua's aging bus fleet.
At an event held May 15, he declared, "The Russian Federation has
helped us, without imposing political or economic conditionality."
He contrasted this donation with the suspension (now termination) of
a portion of the Millennium Challenge Account, complaining about
"the Yankees and their interference" and lamenting that Nicaragua
had one of the smallest MCA compacts "despite having been
impoverished by the policies of the Yankee empire."

Buses Finally Hit the Road
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3. (U) On August 2, Francisco "Chico" Lopez, Treasurer of the
Sandinista National Liberation Front (FSLN) as well as President of
ALBA Nicaragua S.A. (ALBANISA) -- the Nicaraguan/Venezuelan joint
venture that funnels the proceeds of Venezuelan petroleum
cooperation -- presided over the delivery of the first of the buses
to transportation cooperatives. A total of 59 units now traverse
the streets of Managua. Manufactured by the Gorky Automobile Plant
(GAZ), they seat 25 passengers but can accommodate an additional 31
standing.


4. (SBU) After Ortega's announcement on May 15, mechanics at the
Managua municipal garage, located next to the Embassy property,
began modifying the buses to make them ready for Nicaraguan roads
and weather. Each unit required significant alterations, including
the installation of airbrakes, radiators, windows for ventilation,
and the red and black flags of the FSLN. Passengers have told
emboffs that the buses are comfortable, but they fear that the
introduction of new equipment will eventually result in a hike in
fares, currently 2.5 cordobas (about 13 cents) for urban routes.

ALBA-CARUNA Financing
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5. (U) The National Rural Fund (ALBA-CARUNA), a microfinance
organization linked to the FSLN that has received funding from
ALBANISA, is providing financing for those bus cooperatives selected
to receive a unit. The process by which ALBA-CARUNA chose
recipients is unclear, but representatives of cooperatives not
selected claim that only those with close FSLN ties were allowed to
participate. ALBA-CARUNA is offering the buses for $25,000,
financed with 8-year loans at 2% interest.

Donation or Sale?
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6. (SBU) An Emboff source familiar with the transaction asserted
after Ortega's announcement that the buses are used and that they
were not donated but in fact sold by GAZ to ALBANISA. In addition,
the now-deceased Mayor of Managua Alexis Arguello told the media,
"The buses were bought, on soft terms." Arguello later retracted
his statement, claiming that he did not have all the details.


7. (SBU) Russian Ambassador to Nicaragua Igor Kondrashev contradicted these accounts in a conversation with the DCM in late May. He said GAZ, of which the Russian Government owns a percentage, agreed to donate the buses to ALBANISA as a loss leader, in the hope that additional business would result. In fact, ALABANISA's Chico Lopez announced at the August 2 handover that the government would buy additional units this year.





Comment
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8. (SBU) ALBANISA, despite the fact that it is a joint venture
between two state-owned oil companies (PETRONIC of Nicaragua and
PDVSA of Venezuela), is clearly identified with the FSLN, as is
ALBANISA-funded ALBA-CARUNA. This "sweat-heart" deal to funnel
busses to in-favor cooperatives is the latest evidence of President
Ortega's partisan approach to foreign assistance and public
services, as we have also seen in the areas of health, education,
public sector employment, and food security (Reftels).

CALLAHAN