VZCZCXYZ0000
PP RUEHWEB

DE RUEHSJ #0900/01 3232125
ZNR UUUUU ZZH
P 182125Z NOV 08
FM AMEMBASSY SAN JOSE
TO SECSTATE WASHDC PRIORITY 0277

UNCLAS SAN JOSE 000900 
 
SIPDIS 
 
DEPT FOR WHA/CEN RBEAL AND EEB/IFD/ODF MSIEMER; 
PLEASE PASS TO DOT AND TREASURY SSENICH 
 
E.O. 12958: N/A 
TAGS: PREL ELTN EFIN PGOV ETRD ECON CS
SUBJECT:  COSTA RICAN ROADS SUFFER NEGLECT, NOW A FOCUS 
OF THE GOCR AND THE IDB 
 
¶1.  SUMMARY: After nearly two decades of neglect, Costa 
Rica's roads and transportation infrastructure in general 
are about to receive significant investment courtesy of 
the Inter-American Development Bank (IDB).  The IDB 
approved a USD 850 million line of credit to rehabilitate 
roads, railways, and ports in desperate need of repair. 
This amount will be matched by a USD 200 million 
investment by the GOCR for a total infrastructure 
investment of USD 1.05 billion.  Meanwhile, construction 
finally restarted on the 30 year-delayed connector 
highway between the Central Valley (where San Jose is 
located) to the Pacific port of Caldera, and is projected 
to finish in mid-2010.  Improvements to the highway 
system are desperately needed to support increased intra- 
city, interregional, and cargo traffic likely to result 
from implementation of CAFTA-DR and potential trade 
agreements with the European Union and China.  Highway 
improvements should also help make Costa Rica's highways 
safer.  Auto accidents are the leading cause of violent 
death in the country. END SUMMARY 
 
MANY ROADS, BUT NOT SO GOOD 
--------------------------- 
 
¶2.  Costa Rica has one of the densest road networks in 
Latin American with 0.70 kilometers of road for kilometer 
squared of land and roads are the principal means of 
transporting goods and people in the country.  The 
national road system includes 4,905 km of paved roads and 
an additional 2,734 km of gravel and dirt roads that are 
classified as in good, medium, or bad condition.  Roads 
classified as in "good" condition, 24 percent, are in the 
minority: 
 
Condition:   -- Good --      -- Medium --       -- Bad -- 
             KM   Percent    KM     Percent    KM  Percent 
Paved       1197   24%      2282      47%     1436   29% 
Gravel/Dirt   50    2%      1795      66%      890   32% 
 
Source: MOPT 
 
Costa Rica's road system also includes 29,014 km of roads 
maintained by municipalities, including 4,454 km of paved 
roads.  Thirty percent of these paved roads are 
considered to be in "good" condition. 
 
¶3.  Whether part of the national or municipal system, 
many kilometers of roadway are riddled with potholes, 
regularly washed out in the rainy season, equipped with 
old and poorly-maintained bridges, or constructed with 
too few lanes to accommodate heavy, slow-moving truck 
traffic as well as private vehicles ascending and 
descending mountainous terrain.  The poor condition of 
many roads and highways impacts tourism, logistics, and 
safety: the average speed of advance (even between major 
cities with normal traffic) can be as low as 30 miles per 
hour which surprises tourists, increases business 
transportation costs due to time, and increases accident 
rates as drivers attempt to overtake slower-moving 
traffic on winding, mountainous, two-lane roads. 
 
¶4.  In the last twenty years, the population of Costa 
Rica grew from 2.7 million in 1987 to approximately 4.4 
million in 2007.  This 59 percent population growth was 
accompanied by a large increase in the number of drivers 
in Costa Rica.  The Ministry of Public Works and 
Transportation (MOPT) estimates that there are twice as 
many cars on the road in Costa Rica today compared to ten 
years ago.  In 1984 there was one car for every 12 
residents, now there is one car for every four. 
 
TOO MANY CARS, NOT ENOUGH CAPACITY 
---------------------------------- 
 
¶5.  With a steady increase in vehicular traffic, neither 
highway capacity nor road system maintenance has kept 
pace with the expanding country.  Throughout Costa Rica, 
and particularly in metropolitan San Jose, serious 
traffic congestion bogs down the transport of goods and 
people.  Increased trucking, as a result of overall 
economic growth and the termination of the train link 
from San Jose to the major ports on both coasts (due to 
the 1991 earthquake), added an additional strain to the 
road system. 
 
¶6. One example of national frustration with the growing 
gap between road capacity and the increase in vehicles is 
the long-awaited San Jose-Caldera road.  Underway for 30 
years and repeatedly blocked by land acquisition and 
financing and political obstacles, construction has 
 
finally resumed.  The 77 kilometer right-of-way stretches 
from the west side of San Jose to the Pacific port city 
of Caldera.  MOPT estimates a savings of 45 minutes in 
travel time (currently a two-hour trip under ideal 
conditions) plus a reduction in transit accidents and 
fuel consumption. 
 
¶7.  Critics point to the rising construction costs (from 
USD 150 million to USD 265 million with a concomitant 
rise in projected one-way tolls from USD 2.70 to USD 
3.50) and usage biased toward heavy transport when 
highway sections outside of San Jose are only one lane 
each way.  MOPT predicts a best case scenario completion 
date of mid-2010.  Autopistas del Sol, an Argentine-led 
consortium (financed by Banco Centroamericano de 
Integracion Economica and Caja de Madrid), will develop 
and manage the concession and will recoup its investment 
through tolls.  Autopistas del Sol will be responsible 
for operating the highway for 25 and a one half years. 
 
HOW TO FINANCE ROADS 
-------------------- 
 
¶8.  In the 1960s and 1970s, Costa Rica was a regional 
leader in investment related to infrastructure 
improvements, including the construction of its segment 
of the Inter-American Highway.  In fact, in the 1970s, 
government investment in the road system climbed to six 
percent of Costa Rica's Gross National Income (GNI). 
However, the financial crisis in the early 1980s led to a 
significant decrease in funding for road maintenance and 
construction.  During the previous administration (2002- 
2006), the rate of investment fell to just 1 percent of 
GNI.  To emphasize the state of neglect, MOPT Minister 
Karla Gonzalez remarked to a visiting Congressional 
delegation in March that highway revenues had not been 
allocated to the Ministry for more than ten years. 
 
¶9.  The National Roads Council (CONAVI), a MOPT agency, 
wields budget authority and the responsibility for 
administering the Roads Fund.  The Roads Fund receives 
financing from several sources:  fuel and vehicle taxes, 
national and international loans, gains from investments, 
tolls, and vehicle fines. 
 
¶10.  The primary source of funding for national and 
municipal roads is a single fuel tax, currently set at 
165 colones per liter (approximately USD 1.21 per 
gallon).  Thirty percent of the annual revenue yield of 
this tax is allocated to CONAVI.  Seventy-five percent of 
this allocation is earmarked for the National Road 
Network while the remaining 25 percent goes to municipal 
roads.  MOPT anticipates receiving USD 140 million from 
the fuel tax in 2008. 
 
¶11.  Since 2006, CONAVI has been able to invest heavily 
in road maintenance as a result of the funding received 
through the single fuel tax.  In 2006, it invested 
approximately USD 45.6 million and in 2007 investments 
totaled about USD 111 million.  Looking forward, MOPT 
estimates that it will need an additional USD 75 million 
annually for maintenance and basic improvements of the 
existing paved roads of the national system as well as 
USD 50 million annually for gravel roads.  (Source: MOPT) 
 
THE IDB LENDS A HELPING HAND 
---------------------------- 
 
¶12.  The Inter-American Development Bank (IDB) extended 
an USD 850 million line of credit to the government of 
Costa Rica for the development of the country's 
transportation system.  The IDB loan focuses on new 
construction projects rather than regular maintenance. 
The credit line must be approved by the Costa Rican 
national assembly because the IDB loan instrument has a 
preferred credit guarantee, which stipulates that the 
Costa Rican government must pay off this loan prior to 
other creditors.  Without this guarantee, loans do not 
need to be approved by the legislature.  Minister 
Gonzalez expects the IDB loan to be approved by end of 
the calendar year without major political controversy. 
However, as the tortuous approval process for the CAFTA- 
DR implementation legislation highlighted, "quick" action 
by the legislature is never a given. 
 
¶13.  The GOCR will match the IDB loan with USD 200 
million.  The first disbursement of USD 300 million from 
IDB plus a match of USD 75 million from GOCR will fund 
the First Road Infrastructure Program (PIV).  The monies 
will be spent on rehabilitating 500 kilometers of 
 
highways and bridges throughout Costa Rica.  MOPT splits 
this first tranche for direct construction costs of USD 
342.5 million and for engineering, administration, and 
support and capacity building to MOPT and CONAVI of USD 
32.5 million.  The IDB expects that the investment will 
result in a 20 percent reduction in the number of days 
that roads are impassable and a 10 percent reduction in 
the amount of time traveled on asphalt roads. 
 
¶14. The IDB will disburse the USD 300 million loan over 
five years.  The GOCR will pay back the loan over 25 
years with a five year grace period.  The anticipated 
interest rate is 5.64 percent annually. 
 
¶15. Based on the assumption that the Legislative Assembly 
will approve the USD 850 million in IDB loans, MOPT has 
created a long-term plan for future road improvements and 
construction, entitled El Programa de Infraestructura de 
Transporte (PIT).  The plan distributes funding between 
national and municipal roads in phases.  The PIT also 
includes rehabilitation of additional highways, the 
metropolitan train system, and bike paths. 
 
COMMENT 
------- 
 
¶16.  The legislative assembly is expected to approve the 
IDB line of credit, but the nature of the legislative 
approval process, complex to say the least, may still 
cause delays. Once this line of credit is approved and 
the first loan disbursed, road projects ultimately will 
alleviate congestion, save time, and lower fuel costs, 
but all projects may endure the tenuous nature of 
construction contracting in Costa Rica.  Improvements to 
the highway system are desperately needed to support 
increased levels of intra-city traffic, interregional 
traffic, and cargo transit resulting from the anticipated 
implementation of CAFTA-DR and potential trade agreements 
with the European Union and eventually, China.  Road 
improvements are also part of the equation for lowering 
the accident fatality rate for Costa Rica, running at 
nearly 7 deaths per 100,000 thus far in 2008.  Auto 
accidents are the leading cause of violent death in the 
country. 
 
CIANCHETTE