TO CLOSE OR NOT TO CLOSE? VENEZUELA'S ALUMINUM

UNCLAS SAN JOSE 000406 SIPDIS SENSITIVE SIPDIS FOR WHA/CEN, WHA/AND, WHA/EPSC AND EB E.O. 12958: N/A TAGS: ETRD EINV ECIN PGOV PREL CS SUBJECT: TO CLOSE OR NOT TO CLOSE? VENEZUELA'S ALUMINUM PLANT IN COSTA RICA ¶1. (SBU) SUMMARY. After two weeks of speculation, it appears that Venezuelan President Hugo Chavez has backed away, for now, from his planned closure of a Venezuelan state-owned aluminum processing plant in Costa Rica. The GOCR remains concerned, however, about the eventual fate of the CVG ALUNASA plant (http://www.alunasa.com),its 400 employees, and the local community (Esparza, Puntarenas) which depends on the plant for its livelihood. As possible medium- to long-term solutions, the GOCR may seek non-Venezuelan sources of raw material (ingots) for the plant, buy the plant outright, or help the employees convert it to a cooperative. Despite Chavez' public explanation that he had decided to close the plant based on "economic analysis", the GOCR sees the move as purely political retaliation for allegedly critical comments by President Oscar Arias. END SUMMARY. -------------- I'LL TAKE MY PLANT AND GO HOME -------------- ¶2. (U) The crisis began on February 14, when a group of ALUNASA workers wrote Arias to warn that Chavez had decided to close the Esparza plant, piqued by Arias's comments earlier in the month critical of the Venezuelan Congress's decision to grant Chavez special powers. Arias called this a "denial of democracy", and added that for a dictator "it is important to not have opposition and have absolute power." Chavez retorted that Arias had "offended" the Venezuelan people and alleged that Arias's comments were motivated to appeal to Washington. Later, Chavez accused Arias of wanting to "meddle in things he should not get into", insinuating that Arias should stay out of Venezuela's internal affairs. At the same time, Chavez also insisted to the media that the ALUNASA plant was really being closed for economic reasons. According to Bienvenido Venegas, the Legislative Assembly member representing the area, the GOV was also rubbing salt in the wound by suggesting that some of the plant operations might be moved to Nicaragua. ¶3. (SBU) Over the next 10 days, the GOCR sought confirmation of Chavez's plan, but neither Venezuelan Ambassador Nora Uribe nor ALUNASA chief executive Ramon Rosales would comment in public. Costa Rican concerns were stoked when Venezuelan media began to report the planned closure. Privately, Venegas told us that although the GOV's overall plans were unclear, the flow of aluminum ingots from Venezuela had been shut off, which would force the Esparza plant to cease operating by the end of March. On February 19, Minister of Government Rodrigo Arias met with Venegas, his brother (mayor of Esparaza) and ALUNASA employee representatives. Minister Arias offered no immediate solution, but meeting participants told the media that buying the plant or converting it to a co-op were under consideration. With a large anti-CAFTA rally looming for February 26, the GOCR tried to turn public attention to the apparent lack of concern about the ALUNASA closing by Costa Rican union leaders, who had offered neither a public defense of the plant nor criticism of Chavez. -------------- CRISIS PASSED, FOR NOW -------------- ¶4. (U) By February 28, the immediate crisis had subsided. Media reported that Chavez had postponed his decision and would restart ingot shipments to ALUNASA after meeting with a delegation of company employees in Caracas. In that meeting, Chavez reportedly pointed to economic feasibility "studies" which had sparked the idea to move ALUNASA's operations to Panama and Nicaragua. Chavez also reportedly offered to send a committee to Costa Rica to evaluate the plant's problems, with an eye to allowing ALUNASA to continue operations, but as part of the ALBA, the GOV's alternative to CAFTA. ¶5. (U) For his part, President Arias assured the media that he had no intention to "polarize" the ALUNASA issue, while maintaining that he had not "intervened" in Venezuelan affairs nor "offended" anyone. In response to the news of the postponed shutdown, Arias termed Chavez's decision as "wise" and thanked him, "...in the name of the government and people of Costa Rica..." -------------- BACKGROUND ON ALUNASA -------------- ¶6. (U) ALUNASA was established in 1981 as a GOCR state-owned entity to process aluminum ingots produced in Venezuela. In 1990, the GOV purchased the plant outright and has since operated it in one of GOCR's tax-free zones. The plant makes various forms of foils for industrial and packaging use. It processes 9,000 tons of aluminum annually of which 80% is exported to the U.S., Canada, and Mexico. According to Minister Arias, ALUNASA's exports are up from $26 million in 2000 to almost $47 million in 2006. The plant's accumulated investment went from $12 million in 2001 to $57 million in 2005. ¶7. (U) ALUNASA has 400 employees, who support nearly 2,000 family members in one of the poorest regions of Costa Rica. According to company employees, the community -- already feeling marginalized by the GOCR -- was greatly concerned by the halt in raw material shipments and remains worried about the uncertainty over the plant's future. Neither the employees nor the GOCR believes the plant could be moved quickly or inexpensively, however. The cost of relocation is estimated at between $20-$25 million. -------------- SO WHY THE WORRY? -------------- ¶8. (SBU) COMMENT: Why is the Arias administration so concerned about the potential loss of these 400 jobs, when the normal ebb and flow cycle of business nationwide sees job loss and creation all the time? The primary reason may be timing. The story broke less than two weeks before the anti-CAFTA protest, when the GOCR could not afford to appear insensitive to worker concerns, especially in communities outside the mainstream that (according to critics) might suffer under CAFTA. The GOCR weathered this well, since the protests were peaceful and union leaders' relative quiet on ALANUSA helped support the GOCR's argument that some of the loudest anti-CAFTA voices are pro-Venezuela. Concerns about Chavez's influence linger here, however, especially after Ortega's election in Nicaragua, and as evidenced by Arias's exaggerated (and unnecessary in our view) public thanks to Chavez. In the long run, the GOCR may be satisfied with an ALUNASA solution which cuts Costa Rican ties with the one and only GOV-owned entity in the country.