GBRV MINISTER LIKENS PFIZER TO THE DEVIL, BUT

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001154

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E.O. 12958: DECL: 09/03/2019
TAGS: ECIN ECON EFIN EIND EINV ELAB EMIN ENRG EPET
ETRD, KCOR, VE
SUBJECT: GBRV MINISTER LIKENS PFIZER TO THE DEVIL, BUT
COMPANY IS STILL OPTIMISTIC

REF: CARACAS 902

Classified By: Economic Counselor Darnall Steuart for reasons
1.4 (b) and (d).


1. (C) SUMMARY: On August 27, Pfizer representatives told
EconOffs that negotiations with the Ministry of Health for
the sale of a pharmaceutical plant in Valencia have stalled
following the July 31 appointment of Carlos Rotondaro as
Health Minister. Pfizer has been unable to meet with
Ministry officials to finalize the sale. Meanwhile, the
company faces a public backlash, abetted by Commerce Minister
Eduardo Saman, for shutting down the plant and laying off
workers. On August 25, Pfizer paid 36.59 million bolivars
(approximately USD 17 million at the official exchange rate)
in back taxes after a GBRV audit alleged that the company had
engaged in illegal price transfers in 2003. Despite these
setbacks, Pfizer remains optimistic about selling the plant
and opportunities for cooperation with the GBRV. Company
representatives said that they plan to offer Commerce
Minister Saman legal advice to help draft new legislation on
patents and trademarks. END SUMMARY.

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NEGOTIATIONS STALLED
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2. (C) The Embassy requested a meeting with Pfizer following
a spate of press reports that a company plant might be
seized. In a meeting on August 27, Public Affairs Director
Jesus Del Vecchio and Legal Director Beatriz Linares (protect
throughout) told EconOffs that negotiations over the sale of
one of Pfizer's two pharmaceutical plants in Valencia have
stalled. According to Linares, Pfizer decided to sell the
plant, valued at USD 20 million, three or four years ago.
Negotiations with the government began in April 2009. In
July 2009, Pfizer reached a tentative agreement with
then-Health Minister Jesus Mantilla to lay off or transfer
the plant's remaining workers and to sign a 12 month
technical cooperation agreement to help the GBRV establish
good manufacturing and quality control processes.


3. (C) Linares said that the GBRV's decision to purchase the
plant may have been related to Commerce Minister Eduardo
Saman's public statements that the GBRV would substitute for
drug imports by increasing domestic production. She noted
that the GBRV had acquired a large plot of land near the
Valencia plant, which will reportedly be used to develop a
pharmaceutical complex, and speculated that the acquisition
of the Valencia plant could be the cornerstone for the
development of a state-owned pharmaceutical industry.


4. (C) According to Linares, Mantilla was eager to finalize
the agreement before August 1 because he was not sure how
much longer he would remain as Health Minister. On July 30,
in accordance with the tentative agreement, Pfizer reassigned
or laid off the plant's remaining 170 employees. Linares
said that the employees had two options: transfer to Pfizer's
West Valencia plant with the same compensation and benefits
or accept a generous severance package. Most employees chose
the severance package, she said.

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IN A DIFFICULT POSITION
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5. (C) On July 31, the GBRV announced that Carlos Rotondaro
had replaced Mantilla as Health Minister. Rotondaro, a
former military officer, previously served as President of
the Board of Directors for the Venezuelan Social Security
Institute. Since Rotondaro's appointment, Pfizer has been
unable to speak with the Health Minister to finalize the sale
of the plant, Linares said. Ministry officials have told
Linares that the Minister is currently occupied with other
pressing health issues, but indicated that Rotondaro would
like to meet with Pfizer representatives in early September
to discuss the deal.


6. (C) Linares said that Pfizer is in a difficult position.
The public perception is that Pfizer closed the plant and
left the workers on the street. Now the plant is not

CARACAS 00001154 002 OF 002


operational and Pfizer cannot meet with the GBRV to finalize
the sale. Meanwhile, Commerce Minister Eduardo Saman has
publicly claimed that Pfizer never had any intention to sell
the plant. On August 12, Saman told reporters that the GBRV
could temporarily occupy the plant to resume production. "If
the negotiations fail, our Ministry is going to proceed with
the occupation of the plant to make it function," he said.
"They closed the plant after saying that they would not halt
production, deceiving not only the government, but also the
workers. That is how the devil and the transnationals pay
the people," Saman added. Nevertheless, Linares was
optimistic that Pfizer would ultimately reach a deal with the
GBRV. She expressed doubt that the GBRV would try to
expropriate the plant.

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THE DEVIL IS IN THE DETAILS
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7. (C) Linares informed EmbOffs that Saman has reportedly
already produced a draft for new intellectual property
legislation. This project may have slowed down because of
Saman's stated goal to develop ALBA-wide legislation, and the
press reports that ALBA members have agreed to develop a
joint pharmaceutical laboratory. Linares, however, said that
Pfizer's lawyers had requested a meeting with Saman to offer
to help the government draft its legislation on patents and
trademarks. "We wish to be to be pioneers in helping out a
socialist government with health issues," Linares said.

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AN ILLEGAL AUDIT?
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8. (C) According to Del Vecchio, in the last quarter of
2008, Venezuela's tax service (SENIAT) began a review of a
merger between Pfizer and another pharmaceutical company in

2003. In May 2009, SENIAT claimed that Pfizer owed 36.59
million bolivars (approximately USD 17 million at the
official exchange rate) citing Pfizer's accounting practices
and omissions of operational revenue. Del Vecchio said the
review of the 2003 merger was not legal under Venezuela's
statute of limitations, but Pfizer paid the fine in order to
avoid a legal battle that might jeopardize Pfizer's business
in Venezuela. Del Vecchio speculated that labor issues in
the plant may have motivated the audit.

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COMMENT
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9. (C) Post does not share Pfizer's optimism about the
outcome of future negotiations with the GBRV. In Post's
experience, GBRV audits and smear campaigns are part of a
familiar pattern of harassment--and sometimes
expropriation--of foreign companies. While the eventual
outcome of negotiations is unclear, Saman's remarks do
suggest that the GBRV's acquisition of the East Valencia
plant, either through purchase or expropriation, is part of a
concerted strategy to replace generic drug imports by
increasing domestic production. Given the GBRV's limited
technical expertise in pharmaceutical manufacturing, and its
poor track record for managing state-owned enterprises, this
strategy has uncertain prospects for success.
DUDDY