China and Costa Rica

Reading on the way to Puerto Viejo

Since 2007 China has given Costa Rica hundreds of millions of dollars in foreign aid, autos, medical equipment and this sparkling national stadium. I thought many would be interested in this burgeoning odd-couple relationship between the two nations, and so I'm translating an opinion piece from the paper La Nación from Friday, June 13 about a recent agreement to let China build an oil refinery on Costa Rica's Caribbean coast. China's recent interest in Costa Rica is no doubt based on its growing need for resources and allies in new regions of the world. The article highlights the fears many Ticos share about what ultimate cost Costa Rica will be asked to pay for all of this kindness from the Chinese. The coercion of the little guy by the big guy hasn't changed much since 1492--it's just become more diplomatic.

"China: money Costa Rica pays for"

In this refinery project we are not talking about donations, aid, or concessions from China to Costa Rica. None of the above are necessary for international agreements, of course, but it should be clear from the start when they are or aren't involved. What we're dealing with is two associates making a business deal in which, as in any such deal, each party, if it is marginally intelligent, will try to gain the most it can. This current deal is nearing $1.5 billion or 3.5% of the national GDP. As a result of the project, a foreign power controlled by a dictatorship with global imperial ambitions will be, via his national businesses, co-owner of assets whose operation is part of a monopoly that will oversee a strategic area of national development.

But the truly absurd part of the refinery deal between Recope [Refinados Costarricenses de Petróleo--Costa Rican Refined Petroleum] and the China National Petroleum Corporation is that everything--absolutely everything--has been decided, controlled and executed by the foreign power. Subsidiaries of the CNPC have conducted the feasibility studies as well as overseeing the design, the size and other characteristics of the project--all without soliciting bids or approval of government accounting offices and with massive conflicts of interest in which the CNPC is judge, jury and executioner. All of this, remember, is at market cost. No gifts to Costa Rica this time.

On the 30th of May La Nación reported that Recope informed that a subsidiary of the CNPC would be in charge of construction. Just like that! Another conflict of interest. No bidding process like there should be when dealing with state institutions. That subsidiary is the China Petroleum Engineering and Construction Corporation (CPECC), the very company that, by means of one of its own arms (CEI), participated in the review of the feasibility studies and recommended the project be carried out!

And do you know, Costa Ricans, who may supervise the construction of the refinery? Personnel from another subsidiary of the CNPC. Amazingly, the CNPC will "supervise" itself as it builds! This in spite of the fact that dozens and dozens of world class businesses without links to the CNPC are available for the same services.

Also, we know that that the CPECC will need $1.3 billion to build the refinery. Experts believe that a refinery capable of processing 65,000 barrels is only profitable if its cost is less than $900 million. The fact that the CNPC itself will build it all explains the high price: the CNPC doesn't care about the excessive cost because one of its own subsidiaries will get the contract. What it overpays on one end it overcharges for on the other. For Recope, and by extension, all Costa Ricans, the equation is different: what we overpay for on one end is gone forever.

But here's the cherry on top: upon announcing that the subsidiary CPECC of the CNPC will charge $1.3 billion to build the refinery, the CEO of Recope, Jorge Villalobos, declared that "CPECC's offer is what we expected..." Essentially, the one man who ought to defend national interests declares that the price is fine for a project equaling 3.5% of the national GDP where no bidding process has occurred.

It is hard to find a worse business "strategy". With that statement any bargaining opportunity was lost. If this is how Villalobos manages his private enterprises--pay what they charge!--he is welcome to anger his descendants and inheritors, but Villalobos administers resources that are not his own but those of the whole country, and he should defend them with his life. Beyond that, this attitude underlines what we already know: in this unfortunate deal, China has decided everything, absolutely everything, and the Costa Rican government (just like during the Banana Republic days) obeys and pays what is charged them.

The fact that the president hasn't fired Villalobos still shows that there are reasons that this administration, just like the previous, has bent over backwards to accomodate all that China asks. In my mind, if China intends for Costa Rica to pay and repay the stadium and other donations with the refinery project, it is best that they share this intention with us. Then we will understand--even if we don't agree--the reasons that they so thoroughly trample our national interests. So don't expect that this project will continue on as planned with our silence.

The way this has played out is intriguing, educational and ironic. Who would have imagined that Communism could come up with such a classic Capitalist sleight of hand business deal! Who would have thought that the CNPC of Communist China, that studious observer of the United Fruit Company of Capitalist USA, would revive so perfectly the same practices that we hoped to see dead and buried.

The way in which China has surrounded and pulled in so many Recope executives, organizers, even the ambassadors and presidents of Costa Rica, is highly worrisome, but it also leads to a complete lack of faith in the project. What guarantees us that, one or two years after construction has started, the CNPC (with the approval of Recope) won't ask for more money than originally planned to complete the refinery, driving it closer to the $2 billion that some have speculated?

Distinguished analysts like Dr. Leiner Vargas and Dr. Manrique Jiménez Meza have found technical, financial and legal anomalies in the project. It is clear to me that this all began when our authorities allowed China to make all the decisions and to charge as they please.

What we must do is stop this project before more signatures further compromise the country. The warnings have been clear. The financial offices have been informed. Let no one claim that they didn't realize that this baby was born ill.