US embassy cable - 05SANSALVADOR2659

UNCLAS SECTION 01 OF 03 SAN SALVADOR 002659 
 
SIPDIS 
 
SENSITIVE 
 
USDOC FOR 4332/MAC/WH/MSIEGELMAN, USDOC FOR 
3134/USFCS/010/WH/MKESHISHIAN/BARTHUR 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, EWWT, ENRG, ES 
SUBJECT: DESIRES OUTWEIGH ACTION AT SALVADORAN PORT 
AUTHORITY 
 
 
(U)  Summary:  Econoffs met on August 30 with Juan Jose Llort 
Choussy, the President of the Comision Ejecutiva Portuaria 
Autonoma (CEPA), which administers El Salvador's ports and 
airports.  Llort discussed CEPA's overall structure and 
activities they are undertaking, specifically running the 
railroad and administration of the two airports and the two 
seaports.  The meeting gave insights into CEPA's plans and 
highlighted projects which the U.S. government and firms 
should monitor as potential business opportunities.   End 
Summary. 
 
 
1.  (U)  During econoff's August 30 introductory call with 
the Economic Counselor, Autonomous Executive Port Commission 
(CEPA) President Juan Jose Llort Choussy laid out his goals 
for CEPA infrastructure development.  Llort's briefing 
indicated that there will be a number of potential 
opportunities over the coming few years for US companies or 
public agencies interested in El Salvador.  See paragraph 10 
for comment. 
 
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Railways 
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2.  (U)  Llort said first, he would like to see two sections 
of the now idle railroad be reactivated for passenger service 
to alleviate commuter traffic on heavily travelled routes. 
CEPA suspended service on the last operating segment of the 
railways in 2002, although a short portion in metropolitan El 
Salvador was reactivated from October 2004 until May 2005. 
One segment would be the section from Apopa, a northern 
municipality of San Salvador to central San Salvador, and the 
other segment from Ilopango, a municipality east of San 
Salvador, to central San Salvador.   These lines are 
currently narrow gauge tracks, and CEPA is looking at earning 
money to rehabilitate these lines through the sale of old 
rolling stock as scrap. 
 
3.  (U)  Another upgrade would be the rehabilitation of the 
rail line from the port of Acajutla to the Guatemalan border 
at Anguiatu.  This would require the addition of standard 
gauge track to the existing narrow gauge line in order to 
carry heavier loads of freight traffic but would allow 
containers to be shipped by rail to the Guatemalan Caribbean 
port, Santo Tomas, or the Honduran port Puerto Cortes.  The 
rail lines within Guatemala and Honduras would need to be 
upgraded as well, something Llort thinks both countries would 
be willing to do.   He does not see the resulting Acajutla - 
Santo Tomas rail link to be the basis of a dry canal or 
alternative to the Panama Canal.  He says costs for 
transiting the Panama Canal are about $75.00 per container, 
while unloading costs in Acajutla alone are higher than that, 
not even counting the costs for rail freight and reloading. 
Llort does, however foresee the rail link being used in 
conjunction with logistics centers set up in the Acajutla 
area, which would provide transit 
times of six days to U.S. East coast ports.  Comment:  The 
upgrade of the rail line would be dependent upon the 
Guatemalans and Hondurans upgrading their rail 
infrastructure, as well as investments in creating logistics 
centers.  Logistics centers are a development target for the 
Salvadoran government, which believes that its 
infrastructure, geography and institutional advantages would 
make it competitive in offering merchandise transhipment and 
related services in the region.  Both of these other projects 
would require large capital outlays, for which the planning 
and financing have not yet begun, and are out of the control 
of CEPA.   End Comment 
 
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Seaports 
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4.  (U)  CEPA's main goal is to improve productivity at the 
port of Acajutla, which has improved immensely over the past 
four years but still lags behind other ports in the region. 
Productivity is hampered by the lack of cranes specifically 
for unloading of containers, so ships that call at the port 
must be self-loading.  In 2001 CEPA attempted to increase 
productivity at the port, and doing so chose to fire dock 
workers and hire new labor, leaving it with costs of $13 
million in severance pay.  In 2004 CEPA attempted to get a 
private operator for the port, but only received one bid that 
was determined to be non compliant with the requirements of 
the tender.   Llort attributed the lack of bidders to the 
unfavorable terms required by CEPA, including a payment to 
CEPA to cover the $13 million severance payout.  In addition, 
20 percent of profits would have been taxed, and requirements 
for investing in the port would have totaled up to $20 
million. 
 
5.  (U)  CEPA will try again in 2006 to privatize the port. 
They will first ask possible investors to come and study the 
port and offer suggestions on how to improve productivity and 
operations.  Llort expects more favorable results, noting the 
terms of the deal will be better, as the operator will not 
have to pay the $13 million severance package  which has 
since been paid off. 
6.  (SBU)  Comment. In a later conversation Jorge Gomez, who 
is in charge of physical security for CEPA, said there are a 
lot of unanswered questions surrounding the possible 
privatization of the port, such as who will be responsible 
for port security - CEPA or the private operator.   He said 
he raises these questions with superiors at CEPA, but does 
not get answers.  This highlights an underlying theme with 
the CEPA administration: they have big plans but have not 
worked out the details very well.  End Comment. 
 
7.  (U)  CEPA is also building a new port at La Union; work 
started in May on the first phase of construction.  They plan 
to let a tender for the operation of the first phase of the 
port in 2006, which will allow the winner 18 months to 
purchase and install equipment with which to operate the port 
by its opening in 2008.  The development of the port will be 
in phases, with separate tenders for the rights to operate 
each phase.  Llort said they would prohibit the same operator 
from running both the Acajutla and the La Union ports in 
order to stimulate competition.  He said he thinks La Union 
will develop into primarily a container port, and Acajutla 
will be focused on bulk cargoes such as grain.  In addition 
to traditional transportation activities, CEPA has signed 
leases or options for land it owns at the port for 
construction of a 200-220 megawatt coal fired electricity 
generating plant, and a potential 500 megawatt natural gas 
powered electric plant and a terminal for liquified natural 
gas carriers.  Work on these projects is still pending 
environmental studies and  financing.  Llort admitted that 
work in the ports is going ahead without a master plan.  They 
are receiving technical support for port development from 
Spain, specifically the Port of Valencia. 
 
7.  (U)    Comment: Work at the ports, particularly La Union, 
may be opportunities for the USG to provide technical 
assistance, environmental studies or trade development 
assistance that fall under USG international programs.  They 
also present opportunities for U.S. companies to take part in 
the privatization of the ports.  By asking for companies to 
provide a study on how to improve the port of Acajutla, the 
bidder will be able to customize their bid focusing on the 
specific capabilities they will bring to the improvement of 
productivity at the port.  It will also allow the bidder to 
become more of a partner with CEPA earlier in the bidding 
process.  End Comment. 
 
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Airports 
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8.  (U)  Llort spoke about CEPA's administration of the two 
airports in El Salvador: Comalapa International Airport and 
Ilopango.  CEPA has a master plan for development of 
Comalapa, the commercial airport, but has deviated from it. 
His goal for Comalapa is to increase cargo load capacity, 
which will tie into plans for developing El Salvador as a 
regional logistics hub.  He would therefore like to build up 
airport infrastructure, including development of a new cargo 
terminal to replace the antiquated, 'Mickey Mouse' (sic) 
terminal now in use.  They are looking at options for the 
development of the airport, including possible French 
investment, to take over the the cargo business. 
 
9.  (SBU)  The airport at Ilopango is used for civil aviation 
and military purposes, and the Civil Aviation Authority has 
not certified it for commercial passenger transport.  CEPA 
does not own the land that the airport is on, so a priority 
is to try and gain control of the land so they can administer 
the airport and provide upgrades.  Llort hopes that 
improvements in infrastructure would allow it to be used as a 
cargo airport, attracting parcel carriers such as DHL.  It is 
not known when improvements in infrastructure would take 
place to make this happen. 
 
10.  (SBU)  Comment:   CEPA is continuing down a path 
supporting the development of El Salvador as a logistics hub 
for the region.  Improved efficiency at the Port of Acajutla 
has brought liner services back to the port, but the port 
still lags behind others in the region in costs and 
efficiency.  U.S. companies have opportunities if they are 
interested in bidding on the future concession of the ports 
at Acajutla and La Union.  Due to the decision to not let one 
company operate both seaports, El Salvador may lose some 
economies of scale, but they hope that competition will 
improve efficiency.  By focusing on the future of La Union as 
the container port for El Salvador, it appears that CEPA is 
trying to muddle through the next couple of years at Acajutla 
without making large improvements in infrastructure required 
to make it a true container port, with associated 
improvements in efficiency.  U.S. companies may face 
competition from foreign entities such as the Port of 
Valencia who are already working with the GOES.  It appears 
that while CEPA has an overall idea for improving 
transportation infrastructure the details are still 
incomplete.  CEPA is tasked to provide infrastructure 
improvements, but does not have the funding to build large 
scale infrastructure projects on its own.  There is still a 
gap between what CEPA plans to do and the actual commitment 
to these plans.  This may hinder implementation, as seen in 
the delays in starting construction of the port at La Union, 
but may be an advantage to firms attempting to land business 
here in El Salvador by allowing them to have a stake in the 
early development of these plans.  End Comment. 
Butler