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

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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.

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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