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C O N F I D E N T I A L SECTION 01 OF 03 BOGOTA 003147 

SIPDIS 

E.O. 12958: DECL: 2019/10/08 
TAGS: ECON EINV ECPS MARR PGOV CO
SUBJECT: COLOMBIA'S PUBLIC BIDDING PROCESS COMES UNDER SCRUTINY 

REF: BOGOTA 3033; BOGOTA 3006 

BOGOTA 00003147  001.2 OF 003 


CLASSIFIED BY: Brian A. Nichols, Deputy Chief of Mission, Department 
of State, Executive Office; REASON: 1.4(B), (D) 

¶1.  (C)  SUMMARY.  The September resignation of the National 
Concessions Institute Director, amid allegations of corruption, 
underscores the fragility and inconsistency associated with the 
bidding process on public projects in Colombia.  Dealings with the 
Ministries of Transportation and Communications often leave 
international investors doubting the GOC's commitment to its stated 
goal of increasing direct foreign investment.  While the GOC is 
still generally receptive to our advocacy efforts, passing the 
stalled U.S.-Colombian Trade Promotion Agreement (CTPA) has become 
the GOC's argument of choice as to how the USG can create better 
investment conditions for U.S. companies.  We will encourage the 
GOC to join the WTO Government Procurement Agreement and offer U.S.
Trade Development Agency assistance to bring Colombian bidding 
processes up to international standards.  END SUMMARY. 



CORRUPTION AT INCO UNDERMINES INFRASTRUCTURE PROJECTS 

--------------------------------------------- -------- 

¶2. (C) On September 21, five senior officials from the Ministry of 
Transportation and the National Concessions Institute (INCO), 
including its Director, Alvaro Jose Soto, were forced to resign 
after recorded phone conversations implicated them in soliciting 
bribes in connection with the Central Magdelena railroad 
concession, which has been frozen pending an investigation.  A 
group of U.S. investors from Montana had dropped out of the same 
railroad project because of what they described as: 1) an 
unrealistically short bid timetable; 2) unnecessary and inequitable 
qualification criteria established by INCO for the rail operator; 
and 3) an illogical amalgamation of construction and rail projects 
that created an irreconcilable dichotomy within the bidding 
consortium. 



¶3. (SBU) Juan Martin Caicedo, President of the Chamber of 
Infrastructure, characterized the corruption scandal as yet another 
setback for Colombia's ailing infrastructure, which represents a 
huge brake on the economy.  Caicedo told Econoff that Soto's 
replacement will be INCO's ninth director in six years in an 
industry where investments are long term and maintaining the same 
interlocutor is essential to build investor confidence. 



TROUBLE GETTING SATELLITE BID OFF THE GROUND 

-------------------------------------------- 

¶4. (C) Colombia's bid for a satellite to support communications in 
remote areas (Ref B) has also experienced difficulties.  The 
Ministry of Communications postponed public meetings with 
international bidders at the last minute (and after executives from 
various countries had already flown to Bogota) in mid-September. 
Press reports said the reason for the postponement was that the 
draft terms of reference favored two French companies with close 
ties to Libya, and this caused concern within other parts of the 
GOC.  (NOTE:  The meetings, which defined risk-sharing and 
solicited comments on the terms of reference, finally took place on 
September 29 and October 1.  END NOTE.)



¶5. (SBU) The satellite bid process is unorthodox in that the GOC 
has not yet secured its orbital slot.  As a result, U.S. and other 
satellite manufacturers will be forced to partner with service 
providers who can offer the slot.  The GOC's need for a satellite 
as well as a place to put it has distorted the Request for 
Proposal, since it requires technical as well as service 
commitments.  This burden is exacerbated by the short timetable the 
GOC is requiring for bids. 

BOGOTA 00003147  002.2 OF 003 


INACTION AND CORRUPTION AFFECT SUCCESSFUL BIDDERS 

--------------------------------------------- ---- 

¶6. (SBU)  Companies who win bids in Colombia have reason for 
caution as well.  Scientific Games International (SGI), a 
U.S.-based lottery and gaming company won a bid in 1992 for a 
national instant ticket lottery.  Due to factors beyond its 
control, SGI was unable to meet the sales level stipulated in its 
contract with ETESA (a company owned by the Ministry of Social 
Protection for the purpose of generating funds for the Ministry's 
public health-related functions).  ETESA has refused to enter into 
arbitration as the contract requires and instead pursued litigation 
in multiple fora (including unsuccessfully in the U.S.).  SGI is 
still trying to reach a negotiated settlement with ETESA in order 
to be able to eventually do business again in Colombia.  SGI met 
with the Ministry of Social Protection and Econoff as recently as 
September 2009 to this end.  As demonstrated by this case, the GOC 
does not always respect standard arbitration clauses in commercial 
contracts.  This adds another level of risk and uncertainty for 
U.S. businesses considering investments in Colombia.



¶7. (C) Another U.S. company, GTECH, has had the concession with 
ETESA for a separate lottery for nine years.  In exchange for 
allowing their secure terminals to be used to provide banking 
services to rural areas, GTECH asked that ETESA grant them an 
extension that is allowed in their contract.  GTECH claims that a 
"colleague" (since fired) of ETESA's Director approached them for a 
bribe to ensure the extension was granted.  Emboffs raised the 
issue directly with Vice President Santos. 



MILITARY SALES NOT IMMUNE 

------------------------- 

¶8. (C) Multiple cases of irregularities in military tenders give 
reason for pause as well.  One case involved the U.S. company, 
Textron, which was pursuing a $100 million sale of tracked vehicles 
to the Colombian Army.  Textron formally requested Embassy advocacy 
assistance when they could no longer secure meetings with the 
officials managing the tender and it became clear the army was 
considering a South Korean vehicle that had only been produced as a 
prototype and had not yet been tested.  Textron eventually won the 
bid, but only after the USG raised concerns about the bid process 
at the highest levels.  Subsequent to the award, retired Colombian 
Army officials offered $10 million to the company's local 
representative to rescind Textron's bid. 



STALLED FTA HINDERS ADVOCACY EFFORTS 

--------------------------------------------- ------- 

¶9. (C) The GOC, particularly at more senior levels, is generally 
receptive to Embassy's advocacy on behalf of U.S. companies. 
Nonetheless, we have begun to receive push-back in the form of GOC 
indignation at the U.S. lack of action on the U.S.-Colombia Trade 
Promotion Agreement (U.S.-CTPA).  During a recent meeting with 
Trade Vice Minister Gabriel Duque, Emboffs expressed concern over a 
bill in Colombia's Congress, backed by domestic TV networks that 
would impose stiff taxes on international television companies and 
prohibit them from advertising in Colombia.  Duque, who served as
Colombia's services negotiator for the U.S.-CTPA responded, "We 
know this law violates our FTA commitments.  But until you pass the 
FTA, this law is Colombia's prerogative." 

BOGOTA 00003147  003.2 OF 003 


STEPS TO STRENGTHEN PUBLIC BIDS 

------------------------------- 

¶10. (C) Colombia is not a signatory to the WTO Government 
Procurement Agreement, which could improve its performance in 
executing international tenders.  We will encourage Colombia to 
join the Agreement, underscoring its benefits in promoting foreign 
direct investment--a key goal of President Uribe.  We will continue 
to offer assistance through the U.S. Trade Development Agency and 
other mechanisms to improve transparency and bring the Colombian 
bidding process more in line with international standards. 

MINIMIZE CONSIDERED 
BROWNFIELD