ARGENTINA: TECHINT CEO ON VENEZUELA

C O N F I D E N T I A L BUENOS AIRES 000068

SIPDIS

E.O. 12958: DECL: 01/21/2019
TAGS: ECON EPET ELAB EINV VZ AR
SUBJECT: ARGENTINA: TECHINT CEO ON VENEZUELA
NATIONALIZATION AND GOA INTERVENTION IN LOCAL GAS PIPELINE
AND STEEL OPERATIONS

Classified By: Ambassador E. Anthony Wayne for reasons (B) and (D).


1. (C) On January 16, Ambassador had breakfast with Paolo
Rocca, CEO of Argentine multinational Techint. The two
reviewed Techint,s current problems with the Government of
Argentina (GoA) over rescheduling debt payments of the
regulated Argentine natural gas pipeline company TGN; over
Techint's plans to postpone future investment in its Buenos
Aires province Siderar steel plant and lay off construction
workers in the face of rapidly declining domestic demand; and
on ongoing Techint negotiations with Venezuela over
nationalization of its Sidor steel plant. Rocca explained
the U.S. connection to the TGN issue: 23% ownership by a
U.S. investmentcompany which also purchased rights to a
successful arbitral award against Argentina for $130 million.


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No Progress on GoV Compensation for Sidor
Nationalization
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2. (SBU) In May 2008 Venezuela nationalized the Ternium steel
plant which employs 21,000 people and had about $8 billion in
revenue in 2007. Rocca said that there had been no progress
in negotiations about the value of compensation Techint is to
receive for its 60% equity stake in Ternium. He said
production at the Sidor plant is now half of what it was when
Techint was in charge and, in contrast to a multiyear record
of no work related deaths at the plant, three workers have
been killed since May. He said that Chavez, for whatever
reason, continues to paint a picture that progress is being
made in the negotiations with Techint, but the reality is
that no progress has been achieved for months. He said the
GoA and President Fernandez de Kirchner had raised the issue
of compensation with the Venezuelans, but it is not clear
what impact the words have had. He said he hoped she would
raise it again while visiting Caracas January 22-23. (Local
media speculates that President Kirchner will again raise the
Techint compensation issue in her state visit to Venezuela
beginning January 22).

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US Connection to GoA Intervention in TGN
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3. (C) TGN distributes natural gas in central and northern
Argentina. Its decision not to pay debts due in December
sent warning signals about the suitability of public service
concessions. Techint owns abut 17%, France,s Total about
17%, and the Bank of America,s Blue Ridge Investment holds
about 24% (bought from U.S. firm CMS as part of a purchase
that included CMS, $130 million contingent asset in a
successful arbitral (ICSID) complaint against the GoA). In
December, TGN said it would default on some $22.5 million in
negotiable bond debt. The GoA sent an official to
co-administer the company and to look for irregularities.
Then, the Government filed a legal complaint about
irregularities discovered. Rocca said that, despite
continued investment by TGN, the GoA had not let it increase
prices charged for natural gas transport since 2001 and it
had short-circuited profitable sales to Chile and Brazil.
Senior GoA officials had told him that TGN would not get
approval to raise prices unless the U.S.-owned CMS settled
its ICSID claim with the GoA. The GoA was also upset with
TGN because it refused to validate prices paid for the
construction of new gas pumping stations and other
construction related to the pipeline network, which the GoA
contracted with Argentine companies (often at questionable
cost). Rocca said that in this case the directors of TGN had
decided that they needed to renegotiate debt payment
schedules of the over US$ 300 million debt outstanding and
thus decided to postpone the December debt payment. He said
the GoA is charging "irregularities" because the minutes of
the board meeting to take the debt decision are supposed to
be approved by all board members and circulated in five days,
but it may have taken longer because of Christmas. He said
he believed it would be shown that the company had proceeded
correctly. Nevertheless, Rocca said Techint was going to
talk with the Bank of America,s Blue Ridge Investments in
New York shortly about settling the ICSID ruling with the GoA


for a value less than the $130 million granted by ICSID. He
said it seems Blue Ridge purchased the liability from CMS for
a good price and might be willing to cut a good deal with
Argentina. This, in turn, could help solve the current TGN
problem. Rocca said that in the past, Planning Minister De
Vido had been very adamant about not paying the ICSID
settlement to CMS. (Note: Embassy is pursuing this issue.)

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Siderar Labor Dispute
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4. (SBU) Techint in 2008 announced a major new investment in
their Argentine steel production capacity including
rebuilding a major blast furnace in St. Nicolas outside of
Buenos Aires. However, steel demand in Argentina dropped 45%
in December and has dropped more in January. Techint now
expects greatly diminished demand in 2009. While deciding to
maintain all of its employees despite the drop in demand,
Techint decided to postpone further work on rehabilitation
and expansion of its local facilities. This threatens to put
out of work over 2000 local construction workers who were on
contract with Techint. When local and union authorities
complained to President Fernandez de Kirchner, she said that
the jobs should be maintained. The Labor Minister then
ordered negotiations between the company and the unions.
Rocca went over with the Ambassador figures of investment,
taxes and profit at Siderar in recent years to show how much
the company contributed and contributes to the local economy
but then showed other charts to demonstrate why it can,t
continue with planned investments given the economic
downturn, which he predicted would worsen in Argentina during

2009. Rocca seemed to be focused on trying to convince the
government to put the contract workers to work on public
infrastructure projects and not try to force Techint to keep
them on the rolls.


5. (C) Comment: Techint, long one of Argentina's few and
most successful multinationals, is clearly facing some very
difficult challenges. It is also having problems with its
operations in Bolivia. Rocca was clearly concerned that the
combination of economic downturn and congressional elections
in Argentina this fall spell a very challenging work
environment for his operations.
WAYNE