CHAVEZ TO NATIONALIZE VENEZUELAN CEMENT INDUSTRY

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000494 SIPDIS SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MMALLOY COMMERCE FOR 4431/MAC/WH/MCAMERON E.O. 12958: DECL: 04/07/2018 TAGS: EAGR ECON PGOV VE SUBJECT: CHAVEZ TO NATIONALIZE VENEZUELAN CEMENT INDUSTRY REF: MEXICO 01019 Classified By: Acting Economic Counselor Shawn Flatt for reasons 1.5 (b). ¶1. (C) Summary: On April 3, President Chavez ordered the nationalization of the cement industry "in the short term," saying the state would pay whatever it costs (an estimated USD 2 billion) to take over the cement companies. In a meeting on April 4 with Cemex, Holcim, and Lafarge, it quickly became clear that BRV officials were as unprepared for the announcement as the companies. Vice President Carrizalez asked the cement executives tGnGCL'jKit would follow the model it used in the petroleum industry and take control of 60 percent of the 3 cement companies. The BRV has already nationalized one cement plant and is constructing another under an agreement with the Iranian government. Chavez justified his decision by saying that private cement companies are causing the domestic cement shortage. End Summary. -------------- -------------- CONFUSION REIGNS OVER CEMENT NATIONALIZATION PLANS -------------- -------------- ¶2. (C) There was considerable confusion regarding Chavez' April 3 cement nationalization announcement. The Mexican Ambassador to Venezuela told Econoff that the Minister of Basic Industries and Mining believed that Chavez only wanted to buy back previously state-owned enterprises. Chavez confirmed this in a statement to the press on April 6. This would have meant that Cemex (Mexico),Holcim (Switzerland), and Lafarge (France),which supply 92 percent of the Venezuelan market, would not have been nationalized. On April 4, Cemex's Senior Vice President for Communications Javier Travino told Econoff he subscribed to the theory that Chavez only meant to nationalize formerly state-owned enterprises. ¶3. (C) However, in a follow-up conversation on April 7, Travino said he is no longer hopeful that Cemex will be spared nationalization. Travino now believes, and the BRV has confirmed, that the government intends to take control of all foreign cement companies in Venezuela. On April 7, the CEO of Holcim Venezuela Louis Beauchemin told Econoff that based on his meeting with the Vice President on April 4, he believes the BRV wants to move very quickly to implement its decision. �A;¶4. (C) Following a meeting with Cemex, Holcim and Lafarge on April 7, Energy Minister and PDVSA President Rafael Ramirez told local press the BRV would take a majority stake in the 3 companies. A commission, headed by Ramirez, will negotiate the stock purchases. Beauchemin told Econoff the BRV will simply force the companies to sell 60 percent. Beauchemin is currently seeking information from executives in the petroleum industry to understand how their companies function now that the BRV owns 60 percent of their firms. (Note: If the BRV follows the petroleum sector model, the cement companies will be forced to migrate their investments to a joint venture in which the BRV holds a 60 percent stake. End note.) -------------- -------------- THE PERENNIAL QUESTION: WHY IS CHAVEZ DOING THIS? -------------- -------------- ¶5. (C) Chavez justified his plans for the cement market by stating that control of basic goods, such as cement, is a priority in constructing a self-sufficient model of economic development. He stated that the cement companies are exporting their products and leaving the internal market with nothing. He argued that this is the cause of delays in the construction industry, particularly with the construction of the public housing he has promised the poor. Statistics do not support these assertions. Thus far in 2008, exports CARACAS 00000494 002 OF 002 represent only eight percent of total cement sales. Lafarge told Econoff that it only produces for the local Venezuelan market. ¶6. (C) Schlumberger Venezuela President Ivan Betancourt offered another explanation for the nationalization announcement in an April 7 meeting with the Petroleum Attache. According to Betancourt, Cemex and other foreign cement producers have been producing cement for the housing sector to the exclusion of specialized cements for the oil sector. Venezuela has been importing almost all of the specialized cement it uses. Betancourt stated the BRV holds a patent on a type of cement that would meet the oil sector's needs and has been pressuring the companies to produce this type of cement. Due to production logistics, the cement companies have refused to do so. ¶7. (C) The BRV already has a small stake in the cement industry. In 2005, the BRV took over a cement plant from the Colombian company Cementos Argos under "forced acquisition" decree 5488. The BRV never compensated the Colombian firm for its plant and the case is still pending civil trial in Venezuela. The BRV is constructing an additional cement plant with the government of Iran in Monagas state. This plant's production will go directly to BRV housing projects. To acquire the rest of the industry the economic consulting firm Sintesis Financiera estimates the BRV will need to pay USD 2 billion. Chavez has given every indication that this time around he intends to compensate the companies. ¶8. (C) In the meantime, cement manufacturers are continuing their operations in Venezuela while they wait for more details. The Mexican Ambassador was hopeful that Cemex, the largest player in the Venezuelan cement market with 52 percent market share, would be able to strike a deal with the BRV to keep them from taking control of the company. He stated that Cemex would have considered any and all BRV requests such as a halt to all exports and a focus on projects suffering from cement shortages. This optimism about the possibility of striking a deal now seems unfounded. It appears that Chavez has solidified his decision on concrete. DUDDY