COSTA RICA: BALANCING SIEPAC PROGRESS AGAINST THE

UNCLAS SAN JOSE 000747

SENSITIVE
SIPDIS

DEPT FOR WHA/EPSC MROONEY, FCORNIELLE, AWONG;
EEB/ESC/IEC/EPC MMCMANUS; AND EEB/IFD/OIA GHICKS

E.O. 12958: N/A
TAGS: CS ECON ENRG KIDE PGOV PREL EINV
SUBJECT: COSTA RICA: BALANCING SIEPAC PROGRESS AGAINST THE
RULE OF LAW


1. SUMMARY. Costa Rica struggles to complete its portion of
the Panama to Guatemala power grid interconnection project
(SIEPAC). The negotiation and acquisition of land consumes
most of the project's time )- much more so than actual
construction -- such that only approximately 60 percent of
the Costa Rican segment is complete. Experts estimate
project completion between late 2010 and first quarter 2011.
Post has become aware of acquisition challenges as an AmCit
landowner's low-impact, eco-tourism plans for his property
were jeopardized by the current route of the line. We
continue to balance and support the need to complete the
power grid tempered by the rule of law as it pertains to
AmCit real estate investments. End Summary.

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WHEN CAN COSTA RICA COMPLETE THE SIEPAC LINE?
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2. (U) On July 22, we met with Pedro Pablo Quiros, Chief
Executive Officer of the state telecommunications and
electricity entity (ICE). When asked about the status of the
Costa Rican portion of the Electricity Interconnection System
for Central America (SIEPAC) transmission line, Quiros made
two points regarding project status:

-- The Costa Rican segment spans 425 kilometers (km) and all
but 60 km are complete. (Note: Figures for the Costa Rican
segment vary from as low as 425 km to as high as 493 km. End
Note.)

-- However, construction as a function of distance is not the
challenge; time as a function of expropriation is.
Acquisition negotiations, studies, and permitting consume the
time. Thus, though 80 percent of the transmission line has
been constructed, Quiros estimated that only 60 percent of
the project is complete. Quiros projected a completion date
between late 2010 and first quarter 2011.

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IS ICE DIRECTLY INVOLVED?
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3. (U) The Network Business Owner (EPR) is constructing the
project in Costa Rica as in other Central American countries.
Public and private capital finance this firm whose mission
is to construct the SIEPAC interregional grid. However, ICE
recently joined EPR to facilitate and hasten the land
acquisition/easement rights part of the work. Quiros
claimed, "We have much experience with that type of work."

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INVESTOR CHALLENGES
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4. (SBU) As an example of acquisition challenges, AmCit
landowner Kirk McDonald Park contacted Embassy San Jose in
November 2008 about ICE encroachment on his property. Park
plans to develop a low-impact, eco-tourism lodge on his
property. ICE wants to run the SIEPAC line through Park's
property. This route will avoid the village of La Alfombra
(which is the most direct route) and is south of Park's
property. Park proposed that ICE skirt his property further
to the north. Park has lined up the support of virtually all
environmental groups (such as The Nature Conservancy,
Conservation International, Peace for Nature, etc.) and two
key GOCR agencies, one similar to the USG's Environmental
Protection Agency (SETENA) -) and the Ministry of
Environment, Energy and Telecommunications (MINAET). Park
has even gained verbal support from the GOCR's Ministry of
the Presidency.


5. (SBU) From the Quiros meeting, we learned that ICE now
believes that the Park property cannot be avoided. ICE,
however, seemingly has flip-flopped on the "north alternate
route," initially not supporting, then supporting, and now
not supporting it. (Comment: ICE's changes in position seem
to be related to turnover in its expropriation group. End
Comment.) Park claims to have a construction estimate
demonstrating that the marginal cost of the "north alternate"
route is not considerable. Just last week, Park had a
meeting scheduled with Quiros but Quiros cancelled the
meeting.

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NOT JUST AMERICANS
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6. (SBU) Canadian citizens are also affected by the SIEPAC
line in the immediate area of Park's property. Canadian
Ambassador Neil Reeder drafted a joint Canadian
government-USG letter requesting that ICE avoid this
eco-tourism sensitive area. The letter, signed by CDA
Brennan, recognized the cooperation between local villagers
and ex-pats in the La Alfombra area i seeking an alternative
route with ICE.

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COMMENT
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7. (SBU) Currently, we ar attempting to balance the
contrasting positions of inter-regional energy needs with the
rule of law as applicable to an AmCit investor. Though we
are limited in what we can directly do with the GOCR on such
a case (there is no expropriation without compensation),we
nonetheless monitor the Park case since a respect for GOCR
approvals and studies -- which support Park's claim of owning
ecologically sensitive land -- is essential to creating a
predictable regulatory and investment climate.
WILSON
WILSON