MADRID WEEKLY ECON/COMMERCIAL UPDATE AUGUST 11-14

UNCLAS SECTION 01 OF 02 MADRID 000895 SIPDIS STATE FOR EUR/WE, EEB/IFD/OMA; TREASURY FOR IA:W.LINDQUIST E.O. 12958: N/A TAGS: EC ECON EFIN EINV ENRG EPET PGOV SP SUBJECT: MADRID WEEKLY ECON/COMMERCIAL UPDATE AUGUST 11-14 REF: A. MADRID 879 ¶B. MADRID 641 ¶C. QUITO 691 MADRID 00000895 001.2 OF 002 Contents: ECON/PGOV: Ministers Return from Vacation to Tackle Economic Woes ECON: Tourism Begins to Show Downturn ECON/EFIN: Residential Home Prices Continue to Fall EPET/EINV: Repsol to Agree to Ecuador,s New Petroleum Contract EINV/ENRG: Florida Power and Light Plans Solar Investment Ministers Return from Vacation to Tackle Economic Woes ¶1. (U) President Zapatero and economic ministers met on August 13 in a special session to discuss the economy and the impact of previous GOS stimulus measures and to propose new measures to address the slowdown. During the meeting, Second Vice President and Minister of Economy Pedro Solbes presented a report that indicated that Spain's economic woes would continue through 2009. During the media's presence at the meeting, President Zapatero indicated that while 2008 and 2009 would be "complicated", the economy would become strong once more in 2010. As follow-up to this session, the Council of Ministers is expected to approve on August 14 a set of 24 stimulus measures, the details of which have not been released publicly. The session prompted criticism from opposition party representatives who accused the government of holding this extraordinary session as a media stunt. Comment: This is the first time that the Council of Ministers has ever met in the middle of August vacations. The measures that will be announced are not likely to have much immediate impact, but the meetings - which have been planned for a month - seem to be aimed at sending a message that the government is working to address the economic slowdown. (All Media, 8/13-8/14) Tourism Begins to Show Downturn ¶2. (U) In conjunction with the downturn in the economy, tourism in Spain is also beginning to suffer. According to a Ministry of Industry, Tourism, and Commerce survey, spending by foreign tourists in June decreased by 0.5% from June of the year before. Indications are that Spanish tourists in Spain are reducing their spending as well. Representatives from Spain,s biggest hotel group, Sol Melia, predict that summer demand will be below expectations, a slowdown they believe will continue until the last quarter of 2008 and potentially into all of 2009. The economic downturn is having more of an effect on mid-range tourism, while luxury travel has not suffered as much. Spaniards and the British represent the two largest-spending tourist segments in Spain. (ABC, 8/11) Residential Home Prices Continue to Fall ¶3. (U) According to TINSA, Spain,s largest real estate appraisal company, housing prices in the month of June 2008 were 3.9 percent below their level of June 2007. Price drops were most severe in coastal areas as well as urban centers with a population of more than 50,000. (Comment: Residential real estate price falls are becoming more pronounced. In the first quarter of 2008, the average year-on-year price fall was 0.3%; in May TINSA estimated a 2.5 percent y-o-y price drop. Since many experts believe that homes in Spain are overvalued by up to 20-30%, prices are expected to fall a lot further.) (All Media, 8/13) Repsol to Agree to Ecuador,s New Petroleum Contract ¶4. (U) Repsol, Spain,s largest crude oil company, has decided to accept the revised contract terms offered by Ecuador,s President Correa to foreign petroleum companies. The new contract will change Repsol's role from production for its own sale to that of a service provider, delivering to the GOE on a fee basis all of the petroleum it extracts. Repsol currently has rights through 2012 to three blocks in Ecuador. In exchange for signing the new contract, Repsol will receive an extension to 2018 of its rights. A press report suggests that it could take a year for Repsol and the GOE to complete negotiations on details of the new contract. MADRID 00000895 002.2 OF 002 Repsol will also be able to keep a greater share of its "extraordinary profits" on petroleum sales until the new contract comes into effect. It also has decided to withdraw its suit against Ecuador in the International Center for Settlement of Investment Disputes (ICSID) (reftels B-C). In 2007, Repsol,s production in Ecuador totaled 6.6 million barrels of crude per year, less than 4 percent of Repsol,s production worldwide. (Cinco Dias, 8/12) Florida Power and Light Plans Solar Investment ¶5. (U) Florida Power and Light (FPL) plans to invest over $1.2 billion (800 million euros) to develop four solar thermal power plants in the region of Extremadura. FPL has created an alliance with Spain-based Grupo Hernando to develop the plants near the cities of Caceres and Badajoz. Each of the four plants will have capacity to generate 50 megawatts (MW) of electricity. The first two plants are expected to be operating by the end of 2010. According to the company, FPL has already secured all of the financing required for the project. Two of FPL,s largest competitors, Spain-based Iberdrola and Acciona, also operate solar power plants in the region. Iberdrola, which attempted to acquire FPL several years ago, is a rival of the company in the U.S. in the installation of new wind power, especially over the past three years. Since 2006, the two companies combined have installed an additional 8,000 MW of wind power. They are two of the world's three largest wind power generators. (Expansion, 8/11; Extremadura 24, 8/11) Aguirre