VZCZCXYZ0007
RR RUEHWEB

DE RUEHSJ #0364/01 1202152
ZNR UUUUU ZZH
R 302152Z APR 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0800
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHSO/AMCONSUL SAO PAULO 0174
RUEATRS/DEPT OF TREASURY WASHDC

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. 
 
---------------- 
MEET THE PLAYERS 
---------------- 
 
¶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. 
 
--------------------------------------------- 
JAPDEVA MODEL: THE PORT PAYS FOR THE PROVINCE 
--------------------------------------------- 
 
¶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. 
 
------------------------------------ 
THE CHALLENGE OF "JAP" VERSUS "DEVA" 
------------------------------------ 
 
¶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. 
 
-------------------------------------------- 
THE ARIAS ADMINISTRATION CHARTS A NEW COURSE 
-------------------------------------------- 
 
¶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. 
 
--------------------------- 
THE FORCEFUL VOICE OF LABOR 
--------------------------- 
 
¶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). 
 
--------------------------------------------- ----- 
PORT OPERATIONS: SLOW, COSTLY AND BEHIND-THE-TIMES 
--------------------------------------------- ----- 
 
¶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. 
 
------------------------------------- 
SO, BUY THEM OFF OR BUILD AROUND THEM 
------------------------------------- 
 
¶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. 
 
---------------------- 
THE GOCR'S PORT DREAMS 
---------------------- 
 
¶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. 
 
------- 
COMMENT 
------- 
 
¶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