PARTIAL GOB TAKE-OVER OF BOLIVIA'S LARGEST

UNCLAS LA PAZ 001144 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/AND TREASURY FOR SGOOCH STATE FOR EB/CIP/BA/NFETCHKO E.O. 12958: N/A TAGS: ECON ECPS EINV BL SUBJECT: PARTIAL GOB TAKE-OVER OF BOLIVIA'S LARGEST TELEPHONE COMPANY REF: 2006 LA PAZ 2770 -------------- Summary -------------- ¶1. (SBU) On April 23, the GOB reportedly issued a decree taking over 47 percent of the nation's largest telephone company, Entel, from the Bolivian Pension Fund Administrators, who previously held the shares in trust to pay pensions to the Bolivian public. GOB negotiations with Telecom Italia, who owns 50 percent of Entel, are ongoing to acquire the remaining 3 percent plus one share that the government needs to gain majority ownership of the company. The GOB aims to complete the take-over by May 1. According to Entel contacts, the negotiations have progressed minimally to date. End summary. -------------- GOB Gains 47 Percent of Entel -------------- ¶2. (U) On April 23, in a first step towards its goal of majority ownership of the country's largest telephone company Entel, the GOB reportedly issued a decree to gain 47 percent of the shares of the company. (Note: The press did not indicate the decree number, and Emboffs have been unable to verify that the decree was actually issued yet. End note.) These shares were held by the Bolivian Pension Funds Administrators (AFPs) in trust for the Bolivian people, to be used to pay a pension, "Bonosol," to the elderly, following Entel's partial privatization (capitalization) in 1995. (Comment: Although the GOB has pledged to continue paying the "Bonosol" pension, it seems that such payments will not be feasible. The GOB plans to use the earnings from these shares, and previously confiscated hydrocarbons shares, to revamp formerly state-owned companies, expand rural telephony, and implement other social programs, which implies that they will not be available for the Bonosol. End comment.) Fifty percent of Entel's shares are privately held by Telecom Italia, while the remaining three present are owned by former state company workers. ¶3. (SBU) On April 23, the GOB also reportedly issued a decree abrogating a decree issued in 2005 related to the certification that Telecom Italia had completed the investments that it promised to undertake as part of its purchase agreement for Entel in 1995. The GOB's action is likely an attempt to pressure the company in negotiations for majority control by claiming that the company did not fulfill its contract and is thus subject to GOB intervention. -------------- -- Entel Take-Over Mirrors Hydrocarbons Take-Overs -------------- -- ¶4. (U) The GOB stated in its national development plan, released in June 2006, that it intended to gain majority ownership of nine companies that were capitalized in the 1990s. Thus far, in addition to Entel, it has recouped the shares formerly held by the AFPs for three hydrocarbons companies (Chaco, Andina, and Transredes),but has not yet negotiated with the private investors the sale of the additional shares necessary to control 50 percent plus one share of those three companies. -------------- -------------- GOB Plans Uncertain -- 50 Percent Plus One or 100 Percent? -------------- -------------- ¶5. (SBU) GOB telecoms officials told Econoff previously that the government would seek to gain majority control of Entel, but not operating control (reftel). They said that the government would allow a private company to continue running Entel, but wanted access to Entel's profits to expand rural telephone services and school internet access. However, recent press reports indicate that the GOB may be seeking total ownership. According to such reports, the GOB began negotiations with Telecom Italia on April 2 to either gain majority or total ownership of the company by May 1. -------------- -------------- Telecom Italia Wants to Sell All of its Entel Assets -------------- -------------- ¶6. (SBU) Entel's president previously told Econoff that Telecom Italia was seeking to sell its 50 percent ownership of Entel (reftel). Telecom Italia has already begun negotiations with other private companies regarding such a sale. According to recent conversations with Entel contacts, the negotiations with the GOB have not progressed. The delegation that came to Bolivia from Italy in mid-April was low-level and lacked the authority to strike a deal with the GOB on Telecom Italia's Entel assets. The delegation was sent to listen to the GOB's points and report back to the board, but not to negotiate. Telecom Italia would rather sell its entire interest in Entel, rather than the three percent and one share to the GOB that would grant the government majority ownership. If the GOB obtained operating control of the company, Entel would likely decline and Telecom Italia would suffer profit losses. According to press reports, the Italian foreign minister sent a note to the GOB requesting it to respect prior agreements regarding the company and has requested the intervention of the European Commission. -------------- Comment -------------- ¶7. (SBU) Based on the failed, delayed hydrocarbons sector negotiations as an example, it is unlikely that the GOB will reach its May 1 deadline for negotiating majority ownership of Entel. Post will continue to monitor the progress of the so-called telecommunications "nationalization," which seems to be the government's next big political deliverable, symbolically scheduled for May Day -- the one year anniversary of hydrocarbons "nationalization." End comment. GOLDBERG