VZCZCXRO9512
RR RUEHRG
DE RUEHSO #0598/01 1921433
ZNR UUUUU ZZH
R 111433Z JUL 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 7211
INFO RUEHBR/AMEMBASSY BRASILIA 8317
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2832
RUEHMN/AMEMBASSY MONTEVIDEO 2383
RUEHBU/AMEMBASSY BUENOS AIRES 2798
RUEHSG/AMEMBASSY SANTIAGO 2089
RUEHLP/AMEMBASSY LA PAZ 3407
RUEHRG/AMCONSUL RECIFE 3672
RUEHRI/AMCONSUL RIO DE JANEIRO 8198
RUEHAC/AMEMBASSY ASUNCION 3054
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 SAO PAULO 000598 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/BSC, WHA/EPSC 
STATE PASS TO USTR FOR SCRONIN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE 
NSC FOR TOMASULO 
USDOC FOR 4332/ITA/MAC/OLAC 
USDOC FOR 3134/USFCS/OIO 
TREASURY FOR JHOEK 
AID/W FOR LAC/AA 
 
E.O. 12958:  N/A 
TAGS: EINV EFIN ETRD BEXP EWWT BR
SUBJECT: SANTOS PORT INFRASTRUCTURE INVESTMENT: WHERE IS THE MONEY? 
 
 
SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY 
 
SUMMARY 
------- 
 
¶1.  (SBU) Summary:  Econoff and Econ FSN visited the Port of Santos 
recently to follow up on several news stories relating major 
infrastructure investment.  Interviews with municipal and GoB Port 
Authority (CODESP) officials revealed that there are several 
privately-funded projects under way, and planned projects to be 
funded by the Lula administration's Growth Acceleration Program 
(PAC), but that most major investment initiatives are still in the 
planning stage and have yet received funding or begun to be 
implemented.  End Summary. 
 
PORT OF SANTOS:  THE CURRENT STATUS 
----------------------------------- 
 
¶2.  (SBU) The Port of Santos is located 60 kilometers southwest of 
Sao Paulo across the Serra do Mar mountain range.  Santos serves the 
industrial and agricultural trade needs of the state of Sao Paulo 
and neighboring states of Minas Gerais, Mato Grosso do Sul, and 
Parana, as well as states further inland like Mato Grosso, Goias, 
and Rondonia.  It is the largest port by volume in South America, 
annually moving more than 25 percent of the value of goods traded by 
Brazil on international markets.  The Port of Santos was responsible 
for 29 percent of total Brazilian export shipments in 2006. 
Similarly, 28 percent of imports entered through Santos.  Santos 
also serves as a major port for transit of products to Paraguay, 
Bolivia and Chile.  According to Fabio Ferraro Oliari, Special 
Assistant to the President of CODESP, the federally-operated Sao 
Paulo State Docks Company will see approximately 82 million tons of 
cargo transiting through the port in 10,500 vessels in 2007.  The 
port area has 7.7 million square meters of space (480,000 in 
warehousing) along 13 kilometers of wharves, and can berth up to 64 
ships at a time in 55 CODESP and 9 private terminals. 
 
¶3.  (SBU) Santos has been plagued with three major problems 
hindering its expansion and capability to handle more activity:  1) 
limited capacity to access the port via the road, rail, and barge 
systems; 2) its shallow ship channel prevents larger ships from 
entering some berths; and 3) insufficient number of berths.  With 
the introduction of the Growth Acceleration Program (PAC) and the 
creation of a new Ministry of Ports, there is expected to be greater 
focus on and more attention to port infrastructure development with 
the necessary allocation of funds.  The PAC is expected to provide 
investments of USD 1.4 billion for development of 12 Brazilian ports 
by 2010, and a portion of this could realistically address some of 
Santos' needs. 
 
A VIEW FROM THE MAYOR'S OFFICE 
------------------------------ 
 
¶4.  (SBU) In a conversation with Maria Luiza Justo Nascimento, 
International Relations Advisor in the office of Mayor Joao Tavares 
Papa, Econoff learned that the federal, state, and city projects 
planned for the expansion and improvement of the port are still in 
the planning phase, and to this date have not received any specific 
funds.  The expansion of the downtown port marina complex is still 
very much on the agenda, and the city is waiting for funds to be 
approved.  The major holdup is that the land and the eight former 
port warehouses, currently abandoned, are owned by the Federal 
Government, which must deed this property to the city before any 
substantial movement in the project can occur.  The city envisions 
this complex to incorporate a new marina for tourists arriving via 
ships, restaurants, commercial port establishments, a port research 
and training center (based on a similar school in Antwerp), and 
commercial businesses.  The influx of jobs and tourism could be a 
major boom for the city. 
 
 
SAO PAULO 00000598  002 OF 003 
 
 
¶5.  (SBU) On the private sector side, Nascimento indicated that 
Petrobras is expanding its operations in Santos to develop the 
extensive natural gas reserves recently discovered in the Santos 
basin.  In a subsequent discussion, Fabio Oliari of CODESP stated 
that Petrobras will develop platforms capable of tripling the amount 
of gas currently extracted in Brazil and transforming Santos into 
one of the country's most important natural gas extraction centers. 
The most recent major private investment in the city, which will 
positively affect the port area and the economy of the city, is the 
announcement by Switzerland-based Mediterranean Shipping do Brasil 
Ltda (MSC) of plans to build a new office complex in Santos. 
According to Nascimento, MSC is currently the second largest 
container transport company in the world and already employs 250 
people in Brazil.  A 50-percent increase in the company's work force 
is expected upon the completion of the new office in approximately 
18 months. 
 
CODESP:  PLANNED INFRASTRUCTURE PROJECTS 
---------------------------------------- 
 
¶6.  (SBU) Fabio Farraro Oliari, Special Assistant to the President 
of CODESP, agreed with Nascimento.  Up to now, there has been no 
allocation of funds from the PAC to the port of Santos, and all 
projects are still in the planning stage.  Projects that are moving 
forward are those being developed by private companies.  Oliari 
explained that a change in the President and Board of Administrators 
of CODESP has put all government-sponsored projects on hold.  He 
characterized it as a political move related to the Lula 
administration's recent creation of a new Ministry of Ports.  Oliari 
expects some progress on the allocation of funds for the port 
development projects as soon as the new members of the board are 
announced.  On the positive front, he stated that Santos presently 
accounts for 40 percent of container traffic, occupying now 39th 
place in world rankings, up from 61st place in 2001.  The port of 
Santos is now Brazil's most important port for soy shipments, 
surpassing the port of Paranagua. 
 
¶7.  (SBU) Oliari highlighted five major investment projects 
currently underway or in the planning phase:  1) deepening of the 
canal to approximately 17 meters of depth, expected to begin in 
2008-09 after the environmental license is approved; 2) the 
Barnabe-Bagres project (approximately USD 680 million), which will 
double the capacity of the port of Santos, presently undergoing an 
environmental study, with construction projected to begin in 6-7 
years; 3) relocation of inhabitants of two slum areas located on 
future port terminal areas, approved for PAC funding; 4) Embraport 
Terminal, a private investment project for a large multi-modal port 
terminal complex, already licensed, currently under construction and 
to be completed this year; and 5) the Dry Bulk Terminal Project, 
which will use land ceded by the federal government to the private 
sector and will be jointly funded by the municipal government, 
CODESP, and private investors (USD 200 million); this project will 
provide containers for soy meal, fertilizer, and alcohol, to name a 
few products. 
 
CHANGING PORT PROCEDURES TO ENCOURAGE INVESTMENT 
--------------------------------------------- --- 
 
¶8.  (SBU) In an effort to improve the success of the current 
dredging project at Santos and encourage private investment, the new 
Minister of Ports, Pedro Brito, has announced a change in procedures 
for the dredging project.  (Santos has an ongoing dredging operation 
which maintains the waterways open for port traffic.)  Rather than 
keeping the current contract, which basically grants three companies 
exclusive rights to operate the dredging project, Brito has proposed 
that the concession be opened internationally to bidders, and 
contracts be given for a period of five years, renewable depending 
on the quality of the work delivered.  With this move, Brito expects 
to take the project out of the hands of the three Brazilian 
companies currently dredging, Bandeirantes, Dragaport and Enterpa. 
According to "Folha de Sao Paulo", Brito reportedly said that these 
 
SAO PAULO 00000598  003 OF 003 
 
 
three companies represented "an oligarchy that does not permit 
competitive prices, nor efficiency, nor modern equipment" in the 
process. 
 
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COMMENT 
------- 
 
¶9.  (SBU) With the federal PAC program, which specifically targets 
port projects, there was hope that necessary port improvements at 
Santos would soon be underway.  However, the ongoing uncertainty 
about levels and allocations of PAC funding and the impending 
changes in CODESP's leadership make it difficult to predict when 
those projects will be implemented.  These difficulties are 
unfortunately typical of the problems surrounding many of the GoB's 
efforts to invest in necessary infrastructure.  In an attempt to 
bypass the federal bureaucratic morass, Sao Paulo Governor Jose 
Serra recently proposed that the GoB transfer the port's 
administrative functions to the state government in order to 
harmonize port projects with other state-sponsored infrastructure 
development in the area, but the GoB declined.  End Comment. 
 
¶10. (U) This cable was coordinated with Embassy Brasilia. 
 
HELLING