COSTA RICAN PORTS: ANOTHER CAFTA SAGA IN THE MAKING?

UNCLAS SAN JOSE 000364

SENSITIVE
SIPDIS

DEPT FOR EEB/IFD/ODF:MSIEMER
DEPT FOR WHA/CEN AND WHA/EPSC:AWONG
TREASURY FOR SSENICH

E.O. 12958: N/A
TAGS: ETRD ECON EWWT ELAB PGOV PREL CS
SUBJECT: COSTA RICAN PORTS: ANOTHER CAFTA SAGA IN THE MAKING?

REF: 2008 Sao Paulo 612


1. (SBU) SUMMARY. Stakeholders in the operation of Costa Rica's
major port, the Limon-Moin complex on the Caribbean, struggle to
find a solution to the competing interests of delivering
international port services, developing the impoverished Limon
region, upgrading long-neglected port plant and capacity, and
introducing flexible rules to the stubborn work force. With
CAFTA-DR's entry into force on January 1, 2009, free trade
agreements under negotiation with the EU, China, and Singapore, and
the US Container Security Initiative deadline of July 2012 looming,
Costa Rica faces the complex, interrelated challenges of meeting
rising demand for exporting and importing goods, handling cargo in a
safe and efficient manner, addressing regional development needs,
and dealing with the powerful local union. This fight may be as
tough as passing CAFTA. END SUMMARY.

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MEET THE PLAYERS
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2. (U) There are three major players in this drama. One is the
port authority for Limon and Moin, the Junta de Administracisn
Portuaria y Desarrollo Econsmica de la Vertiente Atlntica
(JAPDEVA). Part port operator and part redevelopment authority,
JAPDEVA relies on equipment that is only 40 percent operational to
move 80 percent of Costa Rica's port traffic. The second player is
the GOCR, which is pushing for a concession solution which would
modernize existing facilities plus build a new port near Moin (a USD
600 million package). The third player is the Sindicato de
Trabadores de JAPDEVA (SINTRAJAP),the dock workers' union, which
supports port modernization but adamantly opposes a private
concession which would replace JAPDEVA.

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JAPDEVA MODEL: THE PORT PAYS FOR THE PROVINCE
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3. (U) The Caribbean coastal province of Limon is Costa Rica's most
backward, by all socioeconomic measures. Long disconnected from the
Central Valley due to poor transportation links and cultural and
racial differences, the region's economic development continuously
lagged behind other parts of the country. In 1973, the GOCR backed
the idea of port development in the provincial capital of Limon in
order to jump start regional development. With the creation of
JAPDEVA, a reasonable solution seemed to be in hand (at the time).
JAPDEVA's operating principle was and still is founded on the
following model: port operations produce revenue which funds
economic development for the Limon region. Though the model
initially delivered a modicum of social services to the area, today,
one in three Limon residents live in poverty and unemployment is
pushing upwards of seven percent. Also, a homicide rate of 19 per
100,000 (nationally, the average is 10 per 100,000) highlights
growing criminality in Limon. Limon is the poorest and most violent
part of Costa Rica.

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THE CHALLENGE OF "JAP" VERSUS "DEVA"
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4. (U) The JAPDEVA model functioned well enough for decades as the
port operations -- "JAP" -- provided funds for the government-like
assistance agency -- "DEVA." Nonetheless, the acceleration of
global trade increasingly illuminated the operating deficiencies at
the Limon-Moin port complex, and begged the question about JAPDEVA's
core mission: is it a logistical operation or a development
assistance agency? This has become the key issue of the Limon port
conflict (and perhaps the greatest obstacle to its modern success).
Late last year officials at JAP emphasized to us that port
operations were primary.


5. (U) SINTRAJAP officials stress the benefits that JAPDEVA, re:
"DEVA," produces for Limon: roads, schools, community centers, and
social programs, which they say are key to Limon's vitality. From
the SINTRAJAP point of view, no JAPDEVA means no more development
assistance for Limon; they are not confident the central government
in San Jose would pick up the slack. While claiming full support
for the modernization of the Limon-Moin port facilities, SINTRAJAP
opposes a private concession tender as it would supplant the union's
beloved "DEVA." Economics, Industry, and Coordination Minister
Marco Vargas acknowledged to us that the different objectives of JAP
and DEVA lie at the core of the port problem.

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THE ARIAS ADMINISTRATION CHARTS A NEW COURSE
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6. (SBU) The relationship between JAPDEVA and the GOCR changed with
the election of President Oscar Arias in 2006. Early on, the Arias
administration indicated its interest in tendering Limon-Moin port
operations to a private concessionaire. At the much smaller port of
Caldera on the Pacific, the GOCR completed a successful concession
with a Colombian company in 2006. But, on the Caribbean, SINTRAJAP
pressed the Arias administration to modernize port operations by
maintaining the JAPDEVA management/ local development structure and
to halt the concessionaire strategy. From 2006-2007, the GOCR and
SINTRAJAP engaged in a series of negotiations aimed to settle past
disagreements through cash payments to SINTRAJAP. Talks were
complicated by the backdrop of the CAFTA debate. SINTRAJAP was
egged on by their public sector union brothers, who were among the
most vocal opponents of CAFTA. GOCR toughness with the port workers
waxed and waned, linked to how well (or not) the CAFTA debate was
proceeding in the national legislature and around the country.

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THE FORCEFUL VOICE OF LABOR
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7. (SBU) In mid-2007, during a dispute over work schedules, the
GOCR paid SINTRAJAP USD 7 million to accept a work schedule of three
eight-hour shifts and no overtime, displacing the prevailing union
system of four six-hour shifts plus overtime. (The dispute and
apparent resolution helped the GOCR put out one political "fire" as
the CAFTA question headed for a contentious national referendum.)
However, SINTRAJAP continued its work slowdown, delaying export and
import services. With the CAFTA fight on its mind, the GOCR then
reversed its position and agreed to the union work schedule demands
in order to avoid further stoppages or slowdowns. However, Costa
Rica's Constitutional Court ruled in favor of eight-hour shifts and
the GOCR's Controller demanded that JAPDEVA stop paying permanent
overtime. (COMMENT: This confusing mix of government, union, court,
and Controller is typical of the "governability" challenges facing
Costa Rica. END COMMENT.)


8. (U) With the Controller's decision, and the Court's ruling
(neither of which JAPDEVA could easily challenge),negotiations on
pay stopped. The GOCR reverted to its original position, insisting
on eight-hour shifts, plus the addition of 100 new positions. In
October 2008 (with CAFTA finally ratified and headed for
implementation),the GOCR proceeded with its private concession
strategy by proposing a USD 80 million severance payment to
SINTRAJAP's work force (a USD 57,100 per person proposition).
SINTRAJAP countered the offer by opposing a private concession
(again) and demanded a USD 500 million payment (i.e. USD 357,100 per
person). Minister Vargas described the counter offer as "absurd."



9. (U) Earlier this year, SINTRAP threatened to "strike
indefinitely" if the GOCR were to tender a modernization/
development concession to a private operator. The union's most
recent demands consist of: refusal of any private concession,
investment by the (GOCR) of USD 80 million to upgrade the Limon-Moin
port facilities (in lieu of severance),and loosen JAPDEVA's legal/
budgetary restrictions so that it can compete (i.e., with the new
port).

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PORT OPERATIONS: SLOW, COSTLY AND BEHIND-THE-TIMES
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10. (U) Ports officials at JAPDEVA and an official at the shipping
company Maersk have described to us the following problems hampering
operations at Limon and Moin:

-- The typical waiting time per vessel is 42 hours. Through better
management and efficiencies, the wait time can be reduced to 22
hours;

-- At Limon, only one of two heavy lift cranes function;

-- There are no such cranes in Moin (vessel-based cranes move
containers to/from the dock);

-- On average, only 40 percent of all equipment is functional;

-- More automatic operations are desperately needed. This would
eliminate on-site payment of services and streamline documentation
processing;

-- Inflexible work force rules degrade port services;

-- Shippers need space for container yards adjacent to the docks;
these do not exist at either Limon or Moin; and

-- JAPDEVA is limited by its internal cash flow. With annual
revenue of USD 28 million, only USD 9 million remain after expenses
for investment in modernization. At a projected cost of at least
USD 500 million, financing such a sum with annual debt payments of
USD 9 million would take over 50 years.


11. (U) A comparison to Brazil's Santos port illustrates the
challenges facing Limon-Moin. The current Limon-Moin workforce of
1,300 full time workers handled 2 million tons of container cargo or
1,430 tons per employee in 2007. At Santos, the port's 1,400
workers handled 57,250 tons per employee in 2007, up from 4,000 tons
per employee in 1993 (Reftel). Over the past fourteen years,
Santo's work force decreased by over tenfold while the tons per
employee increased by over fourteen-fold. And, Santos plans to
modernize further as demand continues to outpace capacity. Already
at a disadvantage, and nearly 40 times less productive than Santos,
Limon-Moin is only falling further behind in comparison to a major
international port.

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SO, BUY THEM OFF OR BUILD AROUND THEM
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12. (U) A private concession represents the first step forward for
the GOCR with its vision of Caribbean port services. On January 27,
the GOCR hosted thirteen candidate concessionaires -- representing
operators from Asia, Europe, and the Americas -- for a presentation
of the potential of the Limon-Moin operation. The GOCR presented
the concession as a three-part package: (1) port operations, (2)
the design/build development of the new port north of Moin, and (3)
towing services. Interest was cautiously optimistic; however,
concession interest would dramatically increase if there were a
severance agreement between the GOCR and SINTRAJAP.


13. (U) The current SINTRAJAP labor agreement extends to 2012,
which creates a dilemma for the GOCR. If the GOCR does not push for
a severance agreement, any action on a private concession may be
difficult at best, as candidate concessionaires likely will steer
clear of working with SINTRAJAP under current terms. If the GOCR
pushes too hard for a severance settlement (to get SINTRAJAP out of
the way of a new concession),the union has proven it can make
trouble by more work slowdowns or stoppages, which would then
jeopardize 80 percent of the country's cargo.


14. (U) With the 2010 national elections less than one year away,
the Arias administration is likely loathe to stir up a high-profile
labor dispute. However, the GOCR clearly looks to the new port
north of Moin as a longer-term strategy to avoid labor problems in
the future. Planned to be operational in 2016, the new port would
commence operations with or without union support since the new port
is not part of the current JAPDEVA complex.

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THE GOCR'S PORT DREAMS
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15. (U) The GOCR's long range plan for the Limon-Moin complex
entails revising the function of the facilities of Limon and Moin.
(The port plan is based on a study by the Dutch firm of Royal
Haskoning, which was 75 percent paid for by the Netherlands.) At an
approximate cost of USD 600 million, the development plan prepares
Costa Rica for an estimated twofold increase in container traffic by
2030 -- from a 2007 volume of 2 million tons to a projected volume
of over 4 million tons in 2030, as follows:

-- Limon, which today caters to both container and cruise ship
traffic, would convert to a 100 percent cruise ship operation by

2016. In the meantime, the addition of two new mobile cranes and
eight straddle carriers would increase capacity;

-- Moin would modernize through the addition of four mobile cranes,
and expand through the construction of new docks to accommodate
larger cargo vessels; and

-- The new port north of Moin would commence operations in 2016
(replacing Limon) with six portable cranes, fifteen rubber-tire
gantry cranes, and space for 36 tractor trailers. By 2030, the new
port would add additional equipment, doubling capacity to twelve
portable cranes, 30 rubber-tire gantry cranes and space for 72
tractor trailers.

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COMMENT
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16. (SBU) Costa Rica hopes to resolve its "port problem" without
another painfully protracted CAFTA-like struggle. Several aspects
of the port conflict mirror the CAFTA-DR debate: long-standing and
stubborn union opposition to the Arias Administration, political
opposition in the form of partisanship in the national assembly, and
weariness with the issue by those not directly affected (until a
work slowdown alters the flow of goods). With only eight months of
effective governing time remaining, the Arias Administration will be
hard pressed to produce a creative but consensus-oriented,
Tico-style solution that delivers port operations and development
rights to a private concessionaire. Significant port reform is
needed, however, whether completed by Arias or his successor. In
the meantime, the "port problem" remains a significant obstacle to
Costa Rican development.

CIANCHETTE