MADRID WEEKLY ECON/COMMERCIAL UPDATE MAY 19 - MAY

UNCLAS SECTION 01 OF 02 MADRID 000583 SIPDIS STATE FOR EUR/WE AND EEB/IFD/OMA E.O. 12958: N/A TAGS: EAGR ECON EFIN EINV KGHG SENV SP SUBJECT: MADRID WEEKLY ECON/COMMERCIAL UPDATE MAY 19 - MAY 23 REF: MADRID 00566 MADRID 00000583 001.2 OF 002 Table of Contents: ECON/ETRD/KIPR/ENRG/TBIO:DCM Pays Courtesy Call on new Secretary of State for Trade EFIN: GOS announces "twin peaks" financial regulatory system for Spain ECON/EINV: Securities and Exchange Commission (SEC) letter to Repsol EINV/ELTN: Abertis wins big Pennsylvania road project EFIN: Delinquency rate rises, although it is still below the European average ECON/EINV: Minister of Industry prioritizes the U.S. ENRG: Abengoa CEO says Spain is failing on biofuels use DCM PAYS COURTESY CALL ON NEW SECRETARY OF STATE FOR TRADE 1.(U) DCM met with the new Secretary of State for Trade, Silvia Iranzo Gutierrez, on May 19, 2008. DCM used the opportunity to deliver the Iran critical needs equipment demarche (reftel) and to reiterate our interest in working with Spain on copyright-related intellectual property rights issues. DCM reviewed current priorities: Doha, agricultural biotechnology, food security, and renewable energy. Iranzo thanked the DCM for the call and said she was interested in working with us. She is still forming her personal staff so she took the DCM,s call with no staff present. (Bio Note: Iranzo is a senior career civil servant economist. Prior to assuming her current position, she worked at the Bank of Spain as the head of Country Risk Division. Iranzo was born in San Sebastian in 1958, is married and has four children. Her father was a career Ministry of Industry employee who was posted for a number of years in San Francisco. As a result, Iranzo speaks excellent American accented English.) GOS ANNOUNCES "TWIN PEAKS" FINANCIAL REGULATORY SYSTEM FOR SPAIN ¶2. (U) On 5/22/08, Second Vice President and Finance Minister Pedro Solbes announced that that the National Commmission for Securities Markets (CNMV) will be abolished and that a National Commission for Financial Services (CNSF) will be created in its place. Under the new regulatory architecture, the Bank of Spain will assume the responsibility for monitoring solvency for insurance companies and investment companies, as well as continue to monitor solvency in banks and savings and loan associations. The new CNSF will ensure that investors, savers and insurance consumers are protected. In the past, the CNMV was only responsible for protecting investors, rights. This reform has been received quite well by market observers, although as Expansion pointed out in an editorial, the success of the new regulatory scheme will depend in large measure on the independence afforded the CNSF and the resources afforded the new regulatory entity. Expansion considers the Bank of Spain to be independent and adequately staffed. (Note: Under the so-called twin peaks financial regulatory system, one regulator protects consumers and another regulator monitors and regulates the financial entities, solvency. Australia and a number of other European countries already have such regulatory systems. The UK combines all these functions under one regulator. Some observers believe that the Northern Rock banking failure demonstrated a fatal flaw in such a system as the regulator could not separate its solvency and consumer protection mandates in such a way as to ensure the bank,s solvency.) SECURITIES AND EXCHANGE COMMISSION (SEC) LETTER TO REPSOL ¶3. (U) El Pais reports that on August 28, 2007, the SEC sent a letter to Repsol asking for information on Repsol,s investments in Iran and Cuba. El Pais characterizes the letter as having an "inquisitorial tone." Repsol reportedly responded by saying that it had not made a final investment decision with respect to Iran. (Note: Repsol,s response was presumably sent prior to the company,s reported decision to desist from investing in phase 13 of the South Pars gas project.) With respect to Cuba, the company told the SEC that in 2000 it signed an agreement with Cuba to explore for oil&gas in seven blocks in Cuban territorial waters, but that so far nothing had been found. (El Pais, 5/18/08) ALBERTIS WINS BIG PENNSYLVANIA ROAD PROJECT ¶4. (U) Abertis, together with Citigroup and Criteria, will pay USD 12.8 billion to manage for 75 years the Pennsylvania Turnpike between Philadelphia and Pittsburgh. This is an 801 MADRID 00000583 002.2 OF 002 km stretch of road. Abertis beat Goldman Sachs/Transurban and Macquarie/Cintra to win the contract. (El Pais, 5/20/08) DELINQUENCY RATE RISES, ALTHOUGH IT IS STILL BELOW THE EUROPEAN AVERAGE ¶5. (U) At this time, roughly 1.2% of borrowers are behind on their payments, compared with 0.66% in March 2007. This is still better than the average EU rate of 2.5%. And it is still very low compared with the 8% delinquency rate Spain had in 1993 at the height of a financial crisis then. Still, it is one more piece of bad economic news. (El Pais, 5/20/08) MINISTER OF INDUSTRY PRIORITIZES THE U.S. ¶6. (U) Speaking before the Senate on May 19, Minister of Industry, Tourism and Trade Miguel Sebastian said that given the current exchange rate, it was beneficial for Spanish companies to invest in the U.S., and that he would encourage this. The Minister emphasized especially small and medium sized businesses. The article mentions the April 24 meeting that Ambassador Aguirre had with Minister Sebastian, and that Sebastian wants to strengthen U.S.-Spain ties. (Expansion, 5/20/08) ABENGOA PRESIDENT STATES SPAIN HAS FAILING MARKS ON BIOFUELS USE ¶7. (U) Sustainable solutions in the transportation industry are lacking according to Abengoa Bioenergy President Javier Salgado. He believes that the central government should set mandatory blending requirements through a ministerial order/decree. (Note: Recently, the GOS did announce modest mandatory blending requirements. However, they will only take effect in 2009.) Aguirre