Identifier
Created
Classification
Origin
08MONTERREY295
2008-06-24 20:01:00
CONFIDENTIAL
Consulate Monterrey
Cable title:  

MONTERREY FIRMS FIND THAT VENEZUELA IS A TOUGH PLACE TO DO

Tags:  EINV ECON ELAB PGOV MX VE 
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VZCZCXRO2230
PP RUEHCD RUEHGD RUEHHO RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHMC #0295 1762001
ZNY CCCCC ZZH
P 242001Z JUN 08
FM AMCONSUL MONTERREY
TO RUEHC/SECSTATE WASHDC PRIORITY 2993
INFO RUEHME/AMEMBASSY MEXICO PRIORITY 3969
RUEHCV/AMEMBASSY CARACAS PRIORITY 0022
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHMC/AMCONSUL MONTERREY 8455
C O N F I D E N T I A L MONTERREY 000295 

SIPDIS

E.O. 12958: DECL: 6/24/2018
TAGS: EINV ECON ELAB PGOV MX VE
SUBJECT: MONTERREY FIRMS FIND THAT VENEZUELA IS A TOUGH PLACE TO DO
BUSINESS

REF: CARACAS 624

CLASSIFIED BY: Bruce Williamson, Consul General, Consulate
General of Monterrey, State.
REASON: 1.4 (d)
C O N F I D E N T I A L MONTERREY 000295

SIPDIS

E.O. 12958: DECL: 6/24/2018
TAGS: EINV ECON ELAB PGOV MX VE
SUBJECT: MONTERREY FIRMS FIND THAT VENEZUELA IS A TOUGH PLACE TO DO
BUSINESS

REF: CARACAS 624

CLASSIFIED BY: Bruce Williamson, Consul General, Consulate
General of Monterrey, State.
REASON: 1.4 (d)

1. Summary. (C) Two large Monterrey-based multinational
companies are struggling in the toxic Venezuelan business
environment, as one looks for fair compensation to exit and the
other hopes to keep their heads down and hold on. President
Chavez has nationalized the cement holdings of high-level Cemex,
and Femsa faces recurring blockages of its coca cola
distribution plants by former employees of a company Femsa
purchased. Although the challenges are distinct, high-level
Cemex and Femsa executives tell us that they have found that no
Venezuelan institutions are capable of standing up to the Chavez
government, leaving them no protection from arbitrary
governmental decisions. End Summary.


2. (C) According to Javier Trevino, Senior Vice President for
Communications and Public Affairs for Cemex -- the largest
cement company in the world -- the company learned that on June
24 the Government of Venezuela (BRV) has published a decree
nationalizing the cement industry, culminating the process that
began in April to nationalize three foreign cement companies
(see reftel). The BRV initially proposed that the BRV control
60% of the company, while Cemex would retain a 40% minority
share. However, Trevino notes that Cemex is not interested in
maintaining any investment if it has to relinquish its
controlling stake, so Cemex has been negotiating for fair
compensation for complete nationalization. While the BRV is
using the same PDSVA teams used to implement the oil industry
nationalization, Trevino stated that the PDVSA teams know little
about the cement industry. The negotiations have not gone well,
as the BRV is using labor and environmental claims to reduce its
offer below what Cemex considers to be fair compensation. Cemex
continues to negotiate, but eventually expects that it will have
to seek recourse to international arbitration. Cemex is covered
under Spanish and Dutch Bilateral Investment Treaties, and

Trevino expects Cemex to avail itself of the Spanish BIT.


3. (C) Cemex is also embroiled in a separate dispute with
minority shareholders, who claim that Cemex Venezuela
unilaterally sold holdings in third countries below the market
price. Since the BRV was intent on nationalizing Cemex's
holdings in Venezuela, in June the Cemex Venezuela holding
company sold its assets in Panama, the Dominican Republic,
Trinidad and Tobago and Guadalupe for a reported $350 million to
the parent Cemex company. The Cemex Venezuela subsidiary had
25% minority shareholders who claim that Cemex Venezuela did not
obtain full value. According to press reports, PDSVA and a
National Commission on Values have demanded that Cemex justify
this sale, thereby opening another legal quagmire for Cemex.


4. (C) Although its situation is not yet as bad as that of
Cemex, Monterrey beverage giant Femsa -- the largest Coca-Cola
bottler in Latin American and the second largest in the world --
also faces difficult problems operating in Venezuela. When
Femsa acquired the Venezuelan company Panamco in 2003, it
inherited from Panamco an unresolved labor dispute with contract
delivery men. In 2006 local Chavista diputados revived the
labor claim, demanding $150 million with interest. According to
Femsa CEO Jose Antonio Fernandez, the deliverymen
representatives offered to settle the case for $15 million, but
Femsa refused. Fernandez told the Consul General that Femsa
felt that if it begins to pay blackmail, such claims would never
stop. Although the Venezuelan Supreme Court reportedly ruled in
its favor, the deliverymen have blocked some of the Femsa's
distribution centers on three separate occasions, the last time
for two weeks. Fernandez reports that the company is
continually harassed by the BRV and the deliverymen. Even
worse, Femsa has no effective legal recourse since neither the
courts nor the legislature will take a definitive stand for fear
of angering the Chavistas and the populist masses.


5. (C) Femsa's ultimate fear is that its dispute will reach
the attention of President Chavez and thus spin out of control.
Fernandez opined that Venezuela has no effective mechanisms to
prevent second or third level echelon officials from harassing
the company but that if the dispute can be kept small and local,
it can be controlled. However, if President Chavez becomes
interested in the labor dispute then no effective Venezuelan
institutions would oppose his whims. Indeed, business analysts
here note that that a similar situation occurred with the steel
company Sidor, where a labor dispute gradually snowballed until
it gained President Chavez's attention, and BRV is now
nationalizing Sidor. If Femsa runs into major problems, it does
not have recourse to any BIT. Femsa CEO Fernandez noted that,
given its presence in Argentina, it could appeal to Argentine
President Cristina Fernandez de Kirchner to intervene on its
behalf.

WILLIAMSON