Is Russia eyeing dry canal?

Analysis.

Russia’s ambiguous interest in rebuilding Nicaragua’s defunct train system and stitching the country together with a new inter-oceanic railroad has led to triumphant high-fiving among government enthusiasts, and skeptical sidelong glances among the rest of the population.

The Sandinista government delegation that returned from Moscow last week could barely get out of their winter coats and ushankas before delivering the good news: Russia wants to invest in rebuilding Nicaragua’s train infrastructure!

 The railway venture is part of Russia’s thick portfolio of potential projects for Nicaragua, including a $41 million hospital, investment in fisheries, electricity, tourism, telecom and light manufacturing. But it’s the train project that’s generating the most whistle-blowing among the two countries’ officially sanctioned media arms.  

“As part of our cooperation in the construction of locomotive infrastructure in Nicaragua, Russia is interested in participating in the project to unite the cities of Managua and Granada,” reads a press release from the Russian Ministry of Transportation.

The first and most pressing question is: Why? Or as a Russian might ask his government, Почему?

Nicaragua’s passenger train between Granada and Managua failed 20 years ago, when the government of Violeta Chamorro sold the old choo-choo clunker to Bolivia and junked the rest of the rail for scrap metal to pay off the train authority’s mounting debt with its workers and the state.  If the train wasn’t viable then—back when the Carretera Masaya was a 47-kilometer-long pothole and no one in Nicaragua owned cars—it’s not clear why Russia thinks the old passenger service would suddenly work now, especially considering no one has done the math on the feasibility.

Foreign-investment promotion agency ProNicaragua says the train project is still in the “preliminary phase,” suggesting it hasn’t advanced much beyond Ortega’s vague promise four years ago to get the trains rolling again.

ProNicaragua says the government has “preliminary technical studies” for the Managua-Granada route, but, “We still have to do the economic feasibility studies and the environmental impact studies.”

In other words: We’re excited about this, but we have no idea if it makes sense.

Nicaragua pulls the breaks on the train

For decades, Nicaragua’s old railroad connected Corinto to Managua to Granada, which, not coincidentally, is why the Gran Sultana still has an old train station and a rustbucket locomotive sitting on a rail to nowhere.

But those who put the iron horse out to pasture in 1993 say they did so precisely because the train wasn’t feasible then.  And they doubt the situation has changed much after 20 years of highway expansions and car imports.

“The train was losing two-to-three times what it was bringing in, and the government had to use emergency budget funds on several occasions to keep the train line operating,” Antonio Lacayo, the influential chief of staff for the Chamorro administration, told The Nicaragua Dispatch.

Lacayo says the economy was in ruins and the train wasn’t helping the situation. He said the freight line to Corinto hadn’t worked since the early 1980s, and the Managua-Granada passenger run was bleeding money.

When the Chamorro administration negotiated an agreement with the International Monetary Fund (IMF) to try to get the economy back on track after the war, the train was discontinued as part of the structural readjustments to eliminate extraneous government spending.

“It was impossible to maintain the train any longer,” Lacayo said. “It had no present and no future.”

Lacayo says even the Sandinistas’ erstwhile comrades in the late ‘80s were advising them to scrap the train. He said the first Sandinista government brought over an East German technician to help them modernize their railroad, but the advisor told them, “Your train system belongs in a museum.”

Ironically, East Germany ended up in a museum first, but Nicaragua’s train wasn’t far behind.

“The train was a victim of technology; who wants a landline when you have a cell phone, and who wants to use the telegraph when we have internet?” the former minister said. “Trains only work when you have to cover long distances, like in the United States, Russia, Brazil or Europe. Here it is not competitive.”

Lacayo dismisses the revived train project as more Sandinista will-o’-the-wisp.

 “Nicaragua has many experiences with projects that have no technical studies and are not profitable; and eventually they don’t work,” he says. “When the Venezuelan money dries up, and it will sooner or later, rationality will have to return to the economy.”

Russians eyeing dry canal?

Russia’s real interest in laying rail in Nicaragua might be other than that which was initially advertised. While the Sandinista media narrative has focused on reviving the ill-fated Managua-Granada passenger run, there are hints that Russia’s real interest could be investing in the transoceanic “dry canal” project, a freight line that would connect future deepwater ports at Monkey Point and Corinto.

Orlando Solórzano, Nicaragua’s minister of development, industry and commerce, told the daily La Prensa last week that Russia’s interest in the Nicaraguan railroad project “depends on the functioning of the port at Monkey Point.”

The proposed port at Monkey Point has been talked about for years, but it’s not clear how far—if at all—the project has advanced since 2007, despite the Sandinistas’ efforts to court various foreign investors, including Brazil, South Korea, Iran and whoever else will sit through their PowerPoint presentation.

The deep-water port is part of a collection of megaprojects related to the $3.9 billion Venezuelan-funded oil refinery that Sandinista officials insist is still moving forward in León, despite being some five years behind schedule (so far, all that has been build is the road to the site where the future refinery would be).

The Caribbean deep-water port at Monkey Point would make the refinery much more feasible, because it would mean huge savings on shipping costs for Venezuelan oil, which currently has to go through the Panama Canal and up to Nicaragua’s Pacific ports.

But even if a deepwater port is finally built at Monkey Point, that still doesn’t solve the problem of how to get the oil from the isolated Caribbean point across a countryside of jungle to the Pacific coast. That’s where the railroad—or dry canal—would come into play.

ProNicaragua says Russia’s interest in the dry canal project is, “Excellent news for the country and signifies an important advance towards doing the necessary studies to determine the viability of the development of this project of great magnitude.”

But the guy in charge of the dry canal project, New York lawyer Don Bosco, isn’t popping the Champaign cork quite yet.

“The Russian government doesn’t have a whole lot of latitude to commit to something like this,” Bosco, whose company owns the exclusive 40-year concession for the dry canal project, told The Nicaragua Dispatch Sunday afternoon in a phone interview from New York. “Plus, this project has to be private; it would never work as a government project. Shipping lines wouldn’t use it if they had to deal with the ineffectiveness of a government-run project.”

Bosco’s $3 billion dry canal project first came to Nicaragua in 1994, was granted “first option rights” in 1995, and then granted a concession from the National Assembly in 2000. After being stalled for five years during the presidency of Enrique Bolaños (2002-2007), the project got back on track when Ortega returned to power. At least sort of.

 In September 2007, Bosco, who commends Ortega for “always being true blue with me,” said he was optimistic that the dry canal would start laying track by early 2009 and have trains rolling by 2012. Then came the world financial implosion of 2008, and everything got derailed again.

Still, Bosco says he’s been in talks with investors from China and South Korea and now hopes to have the financing lined up by this year and construction underway by 2013.

Bosco says he has also spoken with “some Russian oligarchs” about investing in the project, but says the Sandinista government has not shared with him any of the details about its recent dry canal sales pitch to the Russian government.

The New Yorker says “I take it as a complement” that the Russian government is apparently interested in his project, but he’s not jumping up and down with excitement that the Russians will save the day.

“A delegation from Timbuktu could say this is a great project,” Bosco said. “But how are we going to get it done? Still, I welcome their interest and am open to participate with any group that can genuinely bring value to the table.”

The linchpin to the Sandinistas’ development plan?

The dry canal project, which has been modified several times since its inception a decade ago, is a proposed 377-kilometer long train line that would cut a 10-kilometer wide swath of railroad across the country to transport 800,000 containers a year on a double-decker freighter.

Once the dry canal is built, a parallel pipeline would be able to transport oil delivered by Venezuelan tankers to the would-be Supreme Dream of Bolivar Oil refinery in León, which the Sandinistas hope will be able to refine 150,000 barrels a day (if it’s ever built).

Even without the pipeline, the dry canal could serve as a means to get oil across the country by container.

“We could transport anything by container, including liquid,” Bosco said in 2007. “But we would consider building a pipeline if there was a demand for it.”

While there are still a lot of “ifs” and enigma surrounding the Sandinistas’ long-term development plan for Nicaragua, the transoceanic railroad is clearly the zipper that brings together the administration’s lofty mega-plans for a deepwater Caribbean port and an oil refinery on the west coast.

Whether or not the Russians’ interest in the dry canal pans out, if the project finally starts construction next year, the Sandinistas’ mega-project dreams will get closer—one rail tie at a time— to becoming a reality.

“In 2007, I was very optimistic about this project. And five years later, I am even more optimistic,” says Bosco. “I know I can’t continue to cry wolf on this. But now I might have the age and experience to get this done.”