HARRAH'S HAMMERS OUT 11TH HOUR AGREEMENT WITH

C O N F I D E N T I A L LJUBLJANA 000416

SIPDIS

SIPDIS

EUR/NCE MNORDBERG, USDOC/ITA CRUSNAK

E.O. 12958: DECL: 06/14/2017
TAGS: ECON EINV ETRD SI
SUBJECT: HARRAH'S HAMMERS OUT 11TH HOUR AGREEMENT WITH
SLOVENIAN NEGOTIATORS


Classified By: COM Thomas B. Robertson for reason 1.4 (b) and (d)


1. (SBU) Summary. On June 5, Harrah,s Entertainment and the
Slovenian state-owned casino company Hit signed a letter of
intent to build a mega entertainment center in Nova Gorica in
western Slovenia worth up to $1 billion in U.S. foreign
investment. Since talks were initiated eighteen months ago,
the Slovenian Government has agreed to lower taxes and modify
foreign ownership limits in the gaming industry. The
Parliament will consider these proposed legislative changes
in September. Local officials and residents have expressed
concerns about lack of transparency in the negotiations and
about potential pressures on regional infrastructure and the
environment. Harrah,s CFO told COM that the company plans
to ramp up its public relations campaign to convince people
in the region of the many benefits of the project. He also
said he does not foresee any other major hurdles that
Harrah,s must overcome to press ahead with this enormous
business deal. End Summary.


2. (C) Harrah,s Chief Financial Officer Chuck Atwood arrived
in Slovenia June 4 with four other members of Harrah's
negotiating team. They met with municipal mayors in Nova
Gorica, the largest city in western Slovenia to present the
plan for the proposed center. During this town hall meeting,
the mayors were able to ask questions and present their
concerns about the intended project. After the town hall
meeting, Atwood and Harrah's delegate Jan Jones, former mayor
of Las Vegas had an interview with national newspaper Delo on
June 5, where they enumerated the multiple benefits of the
project, which would represent the largest single foreign
investment in Slovenia at upwards of 1 billion USD --
increases in jobs, tourism, direct and indirect revenue from
center and valuable knowledge transfer.


3. (C) Harrah's CFO Chuck Atwood expressed to COM during a
meeting on June 5 that he thought the negotiations went very
well and he did not see any other major hurdles. The GOS has
stated that it will submit legislation this fall which will
address two significant hurdles left unresolved from the
previous letter of intent -- lowering the applicable tax rate
and increasing the limit on foreign ownership in the gaming
industry. By the end of 2007, with the Parliament's
approval, the GOS plans to lower the effective tax rate of
the gaming industry from 33% to 17.5% and increase the limit
on foreign ownership from 20% to 49%. Harrah's VP of
Government Relations and Development David Satz confirmed
that he felt that the roles and responsibilities were
"memorialized" this time around. Still, Satz was clear that
Harrah's would need to woo the mayors in order to get
stronger buy-in for the center and reduce public backlash
against the project. COM strongly urged Harrah's to take an
active role in reaching out to the Slovenian public rather
than leaving it to Slovenian partner Hit since, in his
experience, Slovenians are notoriously weak in managing
public relations. End Summary.

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THE GOOD...INCREASES IN REVENUE AND JOBS
--------------

4. (SBU) From the beginning, the GOS has seen the benefits of
a major greenfield investment coming into Slovenia.
Currently foreign direct investment (FDI) is on the decline
and increasing FDI is a major economic goal for the GOS.
According to Niko Trost, CEO of Slovenian casino Hit, and
Chuck Atwood, annual tax revenues alone are expected to top
120 million euros. The center will spend at least 165
million euros a year on local goods and services and the
companies constructing the center could earn somewhere
between 700 million and 1 billion euros. Moreover, the
center will directly create 3,200 new jobs and another 1,000
indirectly. The center would also help attract international
visitors, with approximately 90 percent of the new center's
guests expected to come from abroad. The exact timelines and
location for the building are still unclear and the best-case
scenario would see the complex open within three years,
though most experts believe 4 or 5 years is a more likely
target.

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THE BAD...LACK OF TRANSPARENCY AND INFORMATION
-------------- -

5. (C) One constant theme in the Slovenian press since the
first letter of intent was signed in 2005 has been the
"secrecy" surrounding this project. In the absence of
concrete information suspicion was growing, along with doubt
that a Harrah's/Hit deal would be good for Slovenia. During
the roundtable meeting with municipal mayors on June 5, the
emotions ran from full-fledged support to resentment to
outright hostility. The mayor of Bovec and Social Democratic

Party (SDS) parliamentarian Danijel Krivec is fully
supportive of the venture, seeing the potential for increased
jobs and new revenue streams for his municipality. Nova
Gorica mayor Mirko Brulc, representing the most dominant
sentiment among the mayors, stated that the presentation was
not detailed enough. He felt that saying that the center
will donate money and sponsor many local activities was too
vague and not a satisfactory response to the concerns raised
by the mayors in the region regarding loss of revenue due to
the proposed lowering of gaming taxes. The most vocal
opponent is Marjan Poljsak, the mayor of Ajdovscina. He
holds an anti-American view that Slovenian company Hit should
develop the entertainment center alone and maintain a
"European" identity. Satz explained to COM that Harrah's has
been willing to be more public but that the Slovenian Finance
Ministry and Hit have been insisting on secrecy.

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AND THE UGLY...ENVIRONMENTAL CONCERNS
--------------

6. (SBU) Slovenian officials and NGOs alike are concerned
about the impact on their environment and the quality of life
from all the infrastructure development that will be
necessary to support the center. Some members of parliament
have asked for additional studies on the effects of this
project on the environment. The Social Democrat party (SD)
is the most supportive of the project since it creates jobs,
but they believe more information is needed on plans for
regional infrastructure development. Harrah's representatives
Chuck Atwood and Jan Jones emphasized Harrah's respect for
environmental concerns and stated that the way forward will
involve cooperation between all the stakeholders. (Note.
Environmental NGOs are very strong in Slovenia and have
derailed or delayed economic ventures in the past. End Note)

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COMMENT
--------------

7. (C) Slovenia seems to have a love/hate relationship with
the outside world. It has worked furiously since its
independence in 1991 to join myriad international
organizations -- EU, eurozone, NATO, World Bank, and the OECD
to name a few. Although Slovenia wants to have a presence in
the international arena, it is somewhat more ambivalent about
an international presence in Slovenia. Whether it is growth
in tourism, foreign investment, or privatization Slovenians
hold staunchly to the "slow and steady" principle. Although
the GOS wants the Harrah's/Hit deal to succeed, there is a
public sense that this may be too much too fast. For the
members of parliament and the NGOs, the call for more impact
studies seems to be an effort to apply the brakes and slow
down the process. The cry for more information from the
mayors is more an effort to get a bigger share of the pie.
In all fairness, however, Hit and the GOS had not made any
serious efforts to brief the public and the mayors before the
Harrah's visit this month, so the reaction is understandable.



8. (C) Harrah's will need to take a more active role in
public outreach to counteract these efforts to slow
development of the project. It will also need to reach out
to stakeholders and opinion makers -- including members of
parliament, NGOs, municipalities, press -- directly with
arguments about the advantages of bringing American
investment into Slovenia. The proposed entertainment center
will attract international visitors and employees, helping to
make Slovenia a world destination rather than a passageway,
something that raises concern for many Slovenians. Although
privately the GOS strongly supports the project, some
politicians, such as Finance Minister Bajuk, are unlikely to
make a strong public case for the importance and value of a
large-scale investment like the one on the table with
Harrah's, due to some moral concerns surrounding gambling
among the church and population. That said, Prime Minister
Janez Jansa has made it clear that he wishes this project to
go through, and we expect that his leadership and that of the
local mayors, when they see the clear advantages of the
project for their region, will ultimately help make this
investment a reality. End Comment.

ROBERTSON