US embassy cable - 06MONTEVIDEO259 (original version)

VAZQUEZ'S DEALS IN CARACAS: A GOOD FIRESALE (original version)

Identifier: 06MONTEVIDEO259
Wikileaks: View 06MONTEVIDEO259 at Wikileaks.org
Origin: Embassy Montevideo
Created: 2006-03-16 20:51:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: EFIN ECON EINV VZ UY
Redacted: This cable was redacted by Wikileaks. [Show redacted version] [Compare redacted and unredacted version]
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DE RUEHMN #0259/01 0752051
ZNR UUUUU ZZH
R 162051Z MAR 06
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 5551
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 0397
RUEHSG/AMEMBASSY SANTIAGO 2813
RUEHLP/AMEMBASSY LA PAZ MAR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
UNCLAS MONTEVIDEO 000259 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/BSC AND EB 
DEPT PASS USTR 
NSC FOR CRONIN 
TREASURY FOR OASIA FOR DOUGLASS 
USDOC FOR ITA/MAC/WBASTIAN 
SOUTHCOM FOR POLAD 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, EINV, VZ, UY 
SUBJECT:  VAZQUEZ'S DEALS IN CARACAS: A GOOD FIRESALE 
 
1. (SBU) Summary: On March 14-15, President Vazquez 
visited Venezuela as part of a six-day Latin American 
tour.  Out of eleven bilateral agreements signed on a 
variety of issues, two stand out, with the remainder of a 
mostly cultural or technical nature.  The GOU managed to 
dump on the GOV unprofitable or problematic businesses, as 
Venezuela agreed to buy half of Petrolera del Cono Sur, an 
unprofitable chain of gas stations owned by Uruguayan 
state oil monopoly ANCAP, and took further steps to buy 
COFAC, a troubled financial cooperative.  The GOV also 
reportedly showed interest in buying half of Uruguay's 
unprofitable airline Pluna, currently in the hands of 
Brazilian airline Varig.  All in all, there was one 
finalized deal for $15 million, another agreement in the 
making for $10 million, and a possible future deal for $13 
million.  Meanwhile, Venezuelan investment of hundreds of 
millions of dollars in an Uruguayan refinery and a much 
touted barter agreement of oil for goods, promised several 
months ago, have yet to materialize.  The Uruguayans 
dumped on Chavez what they could this time around, knowing 
full well that much of his promises of largesse amount to 
much ado about nothing.  End Summary. 
 
A two-day visit to Caracas 
-------------------------- 
 
2. (U) On March 14-15, President Vazquez visited Venezuela 
as part of his six-day tour through Bolivia, Chile, 
Venezuela, Brazil and Paraguay.  The tour was initially 
designed to garner support for Uruguay's position in its 
dispute with Argentina over paper mills.  Chavez and 
Vazquez endorsed a joint document on the strengthening of 
Mercosur, entitled "The Giant is the South", and GOU and 
GOV officials signed eleven agreements.  The agreements 
dealt with a wide variety of issues --from education to 
energy-- and have different scope, from business deals to 
letters of intent.  The most relevant news was progress 
towards a deal in the purchase of troubled Uruguayan 
financial cooperative COFAC and the purchase of ANCAP's 
gas stations in Argentina by PDVSA.  The visit also fueled 
press reports about the possible purchase of part of 
Uruguay's airline Pluna by Venezuela's Conviasa. 
 
GOV and GOU become partners in Argentinean Sol Petroleo 
--------------------------------------------- ---------- 
 
3. (U) During Vazquez's visit, PDVSA and ANCAP sealed 
the purchase of half of ANCAP's shares in Petrolera del 
Cono Sur, an Argentinean oil company, for $15 million. 
The deal allowed ANCAP to partially divest itself of a 
money-losing business hemorrhaging at the rate of $2 
million a month.  Accumulated losses since ANCAP's 
purchase of Petrolera in 1998 amount to $80 million, as 
Petrolera had to buy its oil at international prices 
but faced arbitrarily capped gasoline prices.  This 
will not be the case now with PDVSA.  For PDVSA, the 
deal provides the Venezuelan oil company access to an 
established network of gas stations within Argentina. 
 
Despite trumpeting, sale of COFAC is not effective yet 
--------------------------------------------- --------- 
 
4. (U) Chavez announced with fanfare his decision to buy 
Uruguay's largest financial cooperative COFAC, whose 
operations were suspended on February 1 due to lack of 
liquidity to meet growing withdrawals.  COFAC is a large 
player in the rural interior, which owns, entirely or 
partially, another four financial businesses.  The 
February suspension was the final blow to the cooperative, 
which had been previously suspended in March 2004 and had 
frozen a major share of its deposits.  While local press 
reports reported that COFAC had been effectively purchased 
by Venezuelan Development Bank BANDES, this is apparently 
not yet the case.  The signed agreement merely prompts 
BANDES to deposit $10 million in a trust fund to somehow 
guarantee the fulfillment of the operation.  In a recent 
press release, the president of BANDES stated that it will 
buy COFAC to create a non-profit "firm of social 
production".  BANDES highlighted that this is a way to 
strengthen the bilateral relationship of both countries, 
help the small and medium businesses that cannot operate 
with traditional banks and maybe increase bilateral trade 
flows.  Comment: While Chavez's announcement certainly 
gives impetus to the purchase, the deal has not been 
finalized, as BANDES and COFAC must still negotiate over 
numerous issues, including the price of the possible sale. 
End Comment. 
 
Venezuela's airline shows interest in Uruguay's 
--------------------------------------------- -- 
 
5. (U) According to press reports, Venezuelan airline 
Conviasa, which was founded by Chavez two-and-a-half 
years ago, has shown interest in purchasing Varig's 
shares in Pluna. (Note: Pluna is Uruguay's national 
flag airline, owned 49% by the GOU, 2% by the private 
sector and 49% by Brazilian airline Varig.  End Note.) 
Conviasa would reportedly pay $12.4 million and inject 
$5 million in fresh capital.  Uruguay's Ambassador to 
Venezuela reportedly stated that the strategic alliance 
would enable Pluna to strengthen Conviasa's operations 
in South America and Pluna's operations to the U.S. and 
Europe.  However, on March 15 GOU Minister of 
Transportation Rossi brought down expectations by 
stating that both parties still needed to work out 
various issues.  Conviasa and Pluna are said to have 
only signed a letter of intent so far. 
 
Eleven agreements of different scope on various issues 
--------------------------------------------- --------- 
 
6. (U) On the sidelines of the Chavez-Vazquez meetings, 
GOU and GOV officers signed eleven bilateral agreements 
of different scope on various issues including: 
cooperation on science, technology and basic and mining 
industries; cooperation on housing, health and 
medicine; a MOU between the ministries of industry; 
letters of intention concerning technical cooperation 
on communication and information technology; and a 
commercial contract for supplying housing materials and 
technical assistance.  Finally, Vazquez and Chavez 
committed to strengthening instruments for regional 
integration such as Petrosur and Petroamerica. 
 
GOU confirms commitment to Telesur 
---------------------------------- 
 
7. (U) Rebuffing previous press reports that announced 
that the GOU would leave Telesur, President Vazquez 
confirmed the GOU's participation in Telesur, the Latin 
American TV channel co-owned by Venezuela (51%), 
Argentina (20%), Cuba (19%) and Uruguay (10%).  On 
March 13 --a day before Vazquez landed in Venezuela-- 
the Executive sent the bill to Parliament for 
ratification. 
 
Pending promises still unfulfilled 
---------------------------------- 
 
8. (U) While the GOU and the GOV could/could close 
three agreements in the near future for about $40 
million (ranging from more to less certain: PDVESA-PCS 
$15 million; BANDES-COFAC $10 million; and Conviasa- 
Pluna $13 million), the GOV has so far failed to 
deliver on its largest promises relating to oil supply 
and the $600 million upgrading of Uruguay's oil 
refinery.  Over a year after trumpeting the "oil for 
goods program", a key program for Uruguay which imports 
100% of its oil, the initiative has hardly taken off. 
In turn, the private sector is disappointed about the 
convenience and seriousness of doing business with 
Venezuela. 
 
Comment:  Not much more than business deals 
------------------------------------------- 
 
9. (SBU) Comment:  In spite of the media circus that 
surrounded the visit, and the expected announcements of 
Latin American brotherhood, the concrete results of 
Vazquez's visit to Venezuela ended up being plain business 
deals.  The GOU managed to "unload" at least one and 
perhaps as many as three unprofitable businesses on 
Chavez.  Little else of substance seems to have emerged 
from the visit.  End Comment. 
 
NEALON 

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