Identifier
Created
Classification
Origin
07LJUBLJANA731
2007-11-29 09:33:00
CONFIDENTIAL
Embassy Ljubljana
Cable title:  

HARRAH'S FACES MORE BARRIERS TO JOINT VENTURE IN

Tags:  ECON EINV ETRD SI 
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RR RUEHWEB

DE RUEHLJ #0731/01 3330933
ZNY CCCCC ZZH
R 290933Z NOV 07
FM AMEMBASSY LJUBLJANA
TO RUEHC/SECSTATE WASHDC 6275
INFO RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L LJUBLJANA 000731 

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/29/2017
TAGS: ECON EINV ETRD SI
SUBJECT: HARRAH'S FACES MORE BARRIERS TO JOINT VENTURE IN
SLOVENIA

REF: LJUBLJANA 416

Classified By: CDA Maryruth Coleman for reasons 1.4 (b) and (d)

-------
Summary
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C O N F I D E N T I A L LJUBLJANA 000731

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/29/2017
TAGS: ECON EINV ETRD SI
SUBJECT: HARRAH'S FACES MORE BARRIERS TO JOINT VENTURE IN
SLOVENIA

REF: LJUBLJANA 416

Classified By: CDA Maryruth Coleman for reasons 1.4 (b) and (d)

--------------
Summary
--------------

1. (C) Continued local opposition to the proposed
Harrah's/Hit joint venture threatens to derail the project
altogether, although Harrah's Entertainment has gained the
support of key Slovenian officials and economists. Although
the Government of Slovenia, th government-owned Slovenian
casino company Hit, and Harrah's Entertainment signed a
second letter of intent in June 2007, Hit -- always a
reluctant partner -- is now advocating for a new set of
agreements that basically nullifies the 2007 letter of
intent. President of Hit Niko Trost told Charge November 15
that Harrah's would have to address at least four issues in
order for Hit and the local community to support the joint
venture. Meanwhile, local opposition to the deal seems to be
growing and formalizing. Some local residents have suggested
that Trost, never a strong public proponent of the deal,
might actually be rallying some of the local opposition. End
Summary.

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Hit Trying to Back Out of the Deal?
--------------

2. (C) During the Charge's November 15 visit to Nova Gorica
in the west, the site of the proposed entertainment center,
the president of Slovenian gaming company Hit, Niko Trost,
expressed his doubts about the progress of the joint venture.
Trost claimed that the deal, as is, would not pass muster
with the local community. (Note. During Harrah's Vice
President Jan Jones' September visit to Slovenia, she
received positive press on Harrah's plans for Slovenia and
Jones seemed to impress many of the local leaders during a
town hall meeting in Nova Gorica. End Note.) Trost argued
that the 2007 letter of intent does not show "real and true
partnership." Trost told Charge that Harrah's would need to
change four fundamental aspects of the current agreement in
order for the deal to go forward. He said Hit seeks a more
equitable power sharing structure, a simplified ownership
structure, increase in hotel size, and confirmation of new
gaming legislation. (Comment. At least three of these would

potentially dissolve the project. End comment.)


Trost's New Demands
--------------

3. (C) Trost complained that Hit and Harrah's are equal
partners in this deal, yet Hit has not had equal say on the
details of the deal (ref A). Trost, local mayors and local
community leaders believe that they were wrongly left out
during initial negotiations between the Government of
Slovenia and Harrah's. (Note. The GOS and Harrah's
negotiated new gaming legislation that would give Harrah's
the tax and ownership structures it needed for viable
investment in Slovenia. Hit worries that this could possibly
be an unfair advantage for Harrah's in the future. End Note.)


4. (C) A second trouble spot is Trost's desire to revisit the
ownership structure of the deal. The current letter of
intent is too complicated and opaque, according to Trost.
The 2007 letter of intent creates one primary company and two
subsidiary companies. Trost is concerned that although Hit
would own 51% of the main company and Harrah's would own 51%
of the subsidiary companies that Harrah's would still be the
decision-maker in the partnership. He proposes an "equal
partnership," but did not reveal to Charge what that would
be. (Note. The 2007 letter of intent has a "complex"
ownership structure because the GOS would not budge on owning
the majority share of the joint venture but Harrah's
negotiators refused to invest one billion dollars without
management control. End note.)


5. (C) A difference remains between the two partners on the
size of the venture. Trost emphasized that the new
entertainment center must be a more "European" resort. The
crux of this argument rests on the number of rooms. The Hit
management is absolutely fixated on the need for at least a
2,000-room hotel suggesting that fewer rooms would make it
"just another casino" and cannibalize from the current Hit
casinos in the area. Harrah's, partially responding to local
questions about the need for so many rooms, proposed a
1,000-room hotel. Harrah's explained that as the
entertainment center grows, Harrah's or other companies can
establish new hotels.


6. (C) According to Trost, Harrah's and Hit should not sign
any additional agreements until the new gaming legislation is

adopted by the Slovenian parliament. The GOS submitted the
new legislation in September, but parliament has yet to
debate it and adoption of the new legislation remains
uncertain. (Note. Jones met with several coalition and
opposition parliamentarians to discuss the benefits of the
joint venture and the necessity for the new gaming
legislation. Afterwards, in September 2007, parliamentarians
from the Social Democrats (SD),Slovenian Democratic party
(SDS),People's party (SLS) publicly came out in support of
the project. The main opposition was from the coalition
party New Slovenia (NSi),which is strong aligned with the
Catholic church. The Catholic church has gone on record
stating it fears the deal will increase "social evils"; it
has been organizing the local community and hosting town hall
meetings. Prime Minister Janez Jansa told COM Robertson
during a meeting in August that it was crucial to build
support in parliament for the new gaming legislation in the
fall since a majority vote is necessary to implement the new
gaming law. End note.)


7. (SBU) Trost said he had informed Jones during her
September visit that Harrah's should respond to these four
concerns on Harrah's next visit to Slovenia. Trost said that
Jones planned to come to Slovenia some time in November but
no set time had been established yet.

Trost Losing Credibility?
--------------

8. (C) Jansa criticized Trost publicly in July 2007 for
managing the launch of the joint venture so poorly, and
subsequently not moving the joint venture forward. According
to a November 28 article in the Slovenian daily Finance, the
president of Hit's trade union Marko Slivnik threatened a
workers strike, alleging that the on-going bad relationship
between Trost and Hit management board member Jana Grbec was
adversely affecting Hit employees. Finance speculated that
Trost might be losing support in both the supervisory and
management board. Supervisory board chairman Viktor Baraga
denied any knowledge of internal problems. (Note. Stories
about troubles among the Hit board have surfaced in the press
frequently since July. During a meeting with DCM August 3,
Jana Grbec expressed concern that Trost is not working harder
to help the deal succeed. End note.)

--------------
Local Opposition Organizing
--------------

9. (C) Dr. Karl Bonutti, former Slovene Honorary Consul to
the U.S. and resident of Nova Gorica, told Charge November 15
that he believes the Hit/Harrah's proposal is an excellent
project for the region, but he, too, is pessimistic about the
joint venture succeeding. He opined that Hit and the local
community are against the project because they fear that
Harrah's will hire non-Slovenes to staff the entertainment
center and that the Slovene workers and the Hit management
will eventually get squeezed out. He also suggested that
many smaller casino owners are interested in buying Hit when
the GOS finally sells its shares and they are afraid that a
Hit/Harrah's joint venture would block their ambitions.
(Note. Hit is the primary employer in Nova Gorica and there
is no significant foreign capital in the region. End note)

--------------
Comment
--------------

10. Hit and Harrah's only signed the 2007 letter of intent
after all night negotiations. Trost should be aware that any
demand for significant changes would likely be a deal
breaker. During the two-year negotiations between the
Government of Slovenia and Harrah's, Slovenians seem to have
forgotten that Slovenian government officials invited
Harrah's in 2004 to invest in Slovenia. Slovenia has had a
steady decline in Foreign Direct Investment since 2004 and
the GOS seems to have stepped back from promoting FDI.
Although Jansa and the national government have been in the
background pushing for this deal to move forward, given the
upcoming parliamentary election in fall 2008, Jansa and other
politicians would likely not force a deal upon an unwilling
local community. In this stalemate, those opposed to the
deal are increasingly taking the initiative while the
supporters are maintaining a low profile. End Comment.
COLEMAN