CUBA BREAKS UP CONGLOMERATE CUBALSE

C O N F I D E N T I A L SECTION 01 OF 02 HAVANA 000345 SIPDIS DEPT FOR WHA/CCA E.O. 12958: DECL: 06/09/2019 TAGS: ECON PGOV PREL PINR PBIO CU SUBJECT: CUBA BREAKS UP CONGLOMERATE CUBALSE HAVANA 00000345 001.2 OF 002 Classified By: COM Jonathan Farrar for reasons 1.4 (b) and (d) ¶1. (C) The Cuban Council of Ministers decided on May 26 to "extinguish" Cubalse, the second largest conglomerate in Cuba, and transfer its assets within 90 days to seven other entities. Cubalse was originally created to serve the diplomatic community with local employees and housing. The entity has grown over the past 35 years to include many other activities including retail stores, gas stations, car rental agencies, restaurants, a shipping company, and even pest control. Cubalse's diplomatic responsibilities will transfer to the Palace of Conventions (Palco). The official reason for this move, although the Cuban press is yet to publish the news, is to reduce costs, increase negotiation power, and concentrate management in order to improve efficiency. Our contacts at Cubalse know little more than we do and many fear for their jobs. Despite talk of decentralization, Cubalse's break-up will further consolidate power within a few, mostly military hands. End Summary -------------- ABOUT CUBALSE -------------- ¶2. (SBU) The original structure of the state company now known as Cubalse was created in 1962 with the purpose of serving the diplomatic community and to recuperate and protect Cuba's national patrimony, including management of assets seized from Cubans who departed in the early years of the regime. In 1974, the name was officially changed to Cubalse or Cuba al Servicio del Extranjero, and its mission defined as providing the broad range of services required by the diplomatic community and foreign businesses located in Cuba. Cubalse operations expanded in the 1980s and 1990s to include over 200 retail stores (supermarkets, boutiques, etc.); more than 80 Oro Negro fuel service stations; ice cream plants and shops; Fiat and Peugeot dealerships; well known state restaurants; construction and maintenance services; photo and video services; a shipping company with regular lines to Panama, Mexico, and the Dominican Republic; Arandia custom and cargo services; and Biocontrol pest control. Cubalse is one of the most important holders of Cuban real estate. It also participates in joint ventures and has offices in Panama, Venezuela, and China. Cubalse generated an estimated USD 400 million in revenue in 2007. Cubalse is not under the supervision of any ministry, but rather answers directly to the Council of State. (Note: The Council of State is the decision making executive body of the National Assembly that operates in between the very infrequent formal National Assembly sessions. End Note) ¶3. (SBU) The U.S. Interests Section (USINT) works closely with Cubalse as the landlords for our diplomatic housing, management for an annex building used for refugee processing, and as the compulsory intermediary for hiring Cuban personnel by diplomatic missions. All diplomatic officials in Cuba are required to hire not only local contract nationals through Cubalse, but also domestic employees such as personal nannies, maids, and gardeners. The process is long and bureaucratic. For example, it can take three to six months for Cubalse to approve a new personal maid. At USINT, around 15 LCN positions remain vacant at any given time as we wait for Cubalse to send us qualified candidates. According to our diplomatic colleagues at other missions, these delays are not unique to USINT. -------------- WHO IS TAKING OVER -------------- ¶4. (SBU) According to a document produced by the Council of Ministers but not yet published in the official media, the Executive Committee of the Council of Ministers decided on May 26, 2009 to "extinguish" Cubalse and transfer its activities to other entities. (Note: The Council of Ministers is similar to an expanded Cabinet. End Note) Vice President Ricardo Cabrisas Ruiz will lead a commission created to organize the process of splitting up Cubalse within 90 days as directed in the document (see below). In HAVANA 00000345 002.2 OF 002 the meantime, Cubalse is not permitted to do anything related to the movement of goods, assets, or properties. (Comment: USINT was in the final stages of negotiating all our leases with Cubalse. This last provision may delay those negotiations at least three months. End Comment.) ¶5. (SBU) The Palace of Conventions will take over real estate and personnel services for the diplomatic community, along with the management of the Focsa building in Havana. Palco currently runs the main convention centers in Havana, the Karl Marx and Sala Atril cultural complexes, three well known state restaurants located near the convention centers, a graphic arts business, a shopping center, and the Havana Club. The Havana Club is a country club (minus the golf course) and residential center for diplomats and foreign businessmen. A few diplomatic missions, including the Canadians and British, currently rent some residential properties from Palco at the Havana Club and report better and more timely customer service than that provided by Cubalse. Abraham Maciques has been the Director General at Palco for more than ten years. Maciques was reportedly involved in the creation of Cubalse in the 1970s. He was considered by the international press in 1989 as the man charged with improving tourism services in Cuba and co-founded the state company Cubanacan, which started many of Cuba's first hotel joint ventures. Like Cubalse, Palco is not under any ministry but answers directly to the Council of State. ¶6. (SBU) The Oro Negro gas stations will transfer to state oil company Cupet (Union Cubapetroleo). Cubalse was the second largest holder of gas stations in Cuba. The widest network of gas stations Servi-Cupet belongs to Cuba's largest conglomerate Cimex, which stands for Comercio Interior, Mercado External (Domestic Business, External Market). Cimex will also profit from the Cubalse break-up by picking up restaurants, car dealerships, ice cream plants, laundromats, and animal clinics. Cimex will take over Cubalse's properties in the former resort town of Tarara, now known as Ciudad Milagro since the GOC has used several of the abandoned buildings to house Ukrainian children affected by the Chernobyl nuclear disaster, recovering eye surgery patients from Venezuela and other Latin American countries, and now Chinese students learning Spanish. Cimex also answers directly to the Council of State and is headed by former Fidel Castro physician Dr. Eduardo Bencomo Zurdo. ¶7. (SBU) Other than the auto part and repair shops, which will go to Servicios Automotores, the rest of Cubalse will transfer to the control of the Cuban Armed Forces. The military conglomerate GAESA (Grupo de Administracion Empresarial or Business Administration Group) will directly control all of Cubalse's foreign offices. GAESA subsidiary TRD-Caribe will take over transportation and logistics operations and Cubalse's greatest source of revenue through its retail stores. TRD-Caribe already operates close to 1,000 retail stores selling a wide range of goods in convertible currency. GAESA subsidiary Almancenes Universales will assume all the warehouse and wholesale operations. Armed Forces Minister General Julio Casas Regueiro is the president of GAESA and Raul Castro's son-in-law, Luis Alberto Rodriguez, is the General Director. -------------- COMMENTS -------------- ¶8. (C) Several USINT contacts see the end of Cubalse as part of Raul Castro's attempt to improve his control over the large parastatal structures created outside of formal ministries by Fidel Castro. If true, then we should eventually expect further decisions regarding the future of Cimex and Palco. While some of the recent moves could bring efficiencies (i.e. transferring retail operations to TRD-Caribe),the Cubalse break-up clearly consolidates the Cuban government's monopoly power in even fewer hands. FARRAR