VZCZCXYZ0022
OO RUEHWEB

DE RUEHBU #1703/01 3521315
ZNR UUUUU ZZH
O 171315Z DEC 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2697
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 001703 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND SENV AR
SUBJECT: Argentina: World Bank's Ambitious Riachuelo River Basin 
Clean-Up Project 
 
Ref:(A) 07 Buenos Aires 2080 
    (B) 07 Buenos Aires 2059 
 
This cable contains sensitive information - not for internet 
distribution. 
 
------- 
Summary 
------- 
 
¶1. (SBU) Current World Bank (WB) priorities in Argentina include 
reforming and rationalizing the Argentine social safety net in 
anticipation of greater needs during this economic downturn, and 
finalizing a major $2 billion, ten-year loan project to clean-up 
Greater Buenos Aires' heavily polluted Riachuelo river basin.  The 
Riachuelo is Argentina's most contaminated river basin and home to 
over 3.5 million, Argentina's largest concentrations of urban poor, 
and some 4000 industrial facilities.  WB Country Director Pedro Alba 
hopes to propose to the WB Board in February/March a large $840 
million first tranche Riachuelo project loan to lock in a GoA 
commitment of political capital.  The Supreme Court has recently 
mandated a Riachuelo clean-up and Alba said President Kirchner hopes 
to announce the project prior to mid-term October 2009 elections. 
Presentation of the Riachuelo project to the WB Board has been 
delayed by squabbles between GoA federal and municipal stakeholders. 
 Key outstanding issues to be resolved include negotiating a 
concession contract to appropriately channel and supervise GoA 
public works spending; notifying Uruguay that Argentina will 
discharge treated domestic and industrial sewage to the Rio de la 
Plata waterway; and finalizing a GoA commitment to raise water 
tariffs and to cover any shortfalls in required project 
contributions by the municipal waterworks authority.  No WB policy 
based or fast disbursing lending to Argentina is under consideration 
in light of the GoA's heterodox policy framework and absent a 
reconciliation and GoA accord with the IMF.  Current WB exposure to 
Argentina has stabilized in the $5 billion-plus level, with $1.1 
billion in new commitments per year anticipated over the next few 
years.  Alba asked the Ambassador to seek support for the Riachuelo 
project in Washington.  Comment:  Alba appears to Embassy to be 
seeking the right GoA commitments for this cleanup project.  It 
appears to us to be a valuable and high profile WB initiative which 
could have significant positive impact if carried out well.  End 
Summary 
 
--------------------------------------------- --- 
World Bank Focus: Social Safety Net, Environment 
--------------------------------------------- --- 
 
¶2. (SBU) World Bank Country Director Pedro Alba met December 12 with 
Ambassador Wayne. The WB is working on a new 5-year 2009-13 Country 
Assistance Strategy (CAS), Alba said, that will define those areas 
where the World Bank can have a significant and visible impact.  He 
outlined current WB priorities as re-working the Argentine social 
safety net (in cooperation with the IDB) in anticipation of greater 
needs during this economic downturn, and finalizing a major $2.9 
billion ten-year project to clean up the greater Buenos Aries 
Riachuelo river basin.  No policy based or fast disbursing lending 
to Argentina is under consideration in light of the GoA's heterodox 
policy framework and absent a reconciliation and GoA accord with the 
IMF. 
 
¶3. (SBU) Current WB exposure to Argentina has stabilized in the $5 
billion-plus level, with an anticipated $1.1 billion in new 
fgexposure given 
that demand has multiplied in the wake of the international 
financial crisis.  Crisis-related WB portfolio expansion is 
anticipated in Eastern Europe, Mexico, Brazil and India.  In 2008 to 
date, the WB has disbursed US$350 million to Argentina, versus a 
projected full-year total of $500 million. 
 
¶4. (SBU) WB priorities in Argentina in the coming months include 
addressing Argentine project implementation risk.  Things move 
slowly through the GoA bureaucracy, Alba explained, with little 
value added by the GoA during an average one-year lag from final WB 
proposal submission to GoA signing.  Another priority, according to 
Alba, is to address fiduciary risks; the WB's integrity unit is 
currently investigating alleged procurement fraud in a number of 
health projects. 
 
------------------------------------ 
Riacheulo Basin Cleanup Mega-Project 
------------------------------------ 
 
¶5. (SBU) Alba described the Riachuelo basin as the most contaminated 
river basin in Argentina and home to Argentina's largest 
concentrations of urban poor.  Of 3.5 million basin residents, 1.2 
million live below the poverty line.  Some 4,000 industrial 
facilities located in the basin discharge untreated effluents into 
the drainage system or directly into the Riachuelo river.  In 
addition to high levels of organic pollution, these industrial 
discharges contribute toxic contaminants such as heavy metals from 
petrochemical industries, tanneries, and meat processing facilities. 
 
¶6. (SBU) The GoA, under pressure from a July 2008 Supreme Court 
order to clean up the basin, has adopted a policy of "progressive 
withdrawal of all known points of discharge" to clean up the river. 
This will require a 90-95% reduction in industrial organic pollution 
via the connection of industrial effluents to the Greater Buenos 
Aires area water and sanitation utility AySA's sewerage network. 
After suitable pre-treatment, this would be discharged via 
underground pipeline to the middle of the La Plata River. 
¶7. (SBU) The cost of this project will total some US$2.9 billion 
over 10 years (2009-2019), of which the WB will lend approximately 
$2 billion. Of this amount, the Bank will shortly propose to its 
Board a large $840 million first stage loan.  The WB strategy here, 
Alba explained, is to ensure up front that the GoA (and the various 
municipal and provincial stakeholders) buys into and commits 
political capital to the project.  The Supreme Court has recently 
mandated a river clean-up and Alba said that President Cristina 
Fernandez de Kirchner hopes to announce the project prior to 
mid-term October 2009 elections. 
8.(SBU)  Alba emphasized the large variety of stakeholders in the 
river basin, including the Secretariat of the Environment (SAyDS), 
the Basin Agency (ACUMAR), the water utility (AySA), the Ministry of 
Planning, Public Works and Services, and the Chief of Cabinet's 
office as well as a host of sub-national actors, including 
slum-dwellers living along the river bank.  Beyond financing, Alba 
said, the WB's true value-added in this project will be measured in 
terms of its ability to craft a shared vision among these diverse 
stakeholders. 
¶9. (SBU) Presentation of the project to the WB Board has been 
delayed by squabbles between stakeholders, Alba said.  Key 
outstanding issues to be resolved before the loan can be reviewed by 
the Board (hopefully in the February/March timeframe) are: (1) 
finalizing GoA internal agreement on arrangements for fund flows, 
packaging of major works and supervision arrangements for those 
major works, including hiring an independent consulting engineer to 
supervise contracting to limit tender and procurement corruption; 
(2) negotiating and finalizing a concession contract linking AySA 
and the GoA (Alba said that Chief of Cabinet Massa supports the 
concept of a detailed concession contract while Minister of Planning 
De Vido opposes any constraint on GoA public works spending); (3) 
notifying Uruguay under the WB's International Waterways Safeguard 
Policy that Argentina will discharge treated domestic and industrial 
sewage to the Rio de la Plata waterway; and (4) Water and sewage 
tariff increases.  While the GoA agrees on the need to increase 
water and sanitation tariffs (AySA is currently unable to cover even 
operations and maintenance expenditures from its revenues), it is 
sensitive about the timing of a tariff increase as the economy slows 
and users adjust to higher tariffs in other sectors.  Alba said that 
Minister De Vido has privately assured him and WB V.P. for Latin 
America Pamela Cox that the GoA will commit to cover the difference 
between tariff revenues and project working capital costs. 
 
------------------------------ 
Comment - Seeking USED Support 
------------------------------ 
 
¶10. (SBU) Alba noted some WB staff and Executive Director (ED) 
concern about implementation risk given the size and complexity of 
the project and allegations of malfeasance in large GoA procurement 
exercises.  He asked that the Ambassador seek support for this 
project in Washington, given its positive impact on the wellbeing of 
over 3 million Argentine citizens.  If approved, this clean-up 
project will define much of the World Bank's medium term engagement 
here. 
 
¶11. (SBU) A Riachuello cleanup has been a contentious political 
football since President Menem's Environmental Secretary, Maria 
Julia Alsogary, famously committed in the mid-1990s to clean up the 
river in 1,000 days and subsequently served a prison term for 
malfeasance.  The WB's current Riachuelo cleanup project is large, 
bold, and, with billions to be spent on primary sewage 
transportation and treatment, a tempting target for stakeholder 
procurement corruption.  Post ESTH Counselor has met with World Bank 
implementation officials and will follow and report on Riachuelo 
basin project development in the run-up to a Board vote.  If handled 
well, this project could have a very valuable and positive impact. 
 
 
Wayne