VZCZCXRO8281
PP RUEHFL RUEHNP
DE RUEHRO #2281/01 2231546
ZNR UUUUU ZZH
P 111546Z AUG 06
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 5614
INFO RUEHCV/AMEMBASSY CARACAS PRIORITY 0745
RUEHFL/AMCONSUL FLORENCE PRIORITY 1637
RUEHMIL/AMCONSUL MILAN PRIORITY 7509
RUEHNP/AMCONSUL NAPLES PRIORITY 1742
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 ROME 002281 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG ETRD IT VE
SUBJECT: ITALIAN TRADE AND INVESTMENT IN VENEZUELA 
 
Summary 
------- 
 
¶1. (U) The presence of a large Italian community in Venezuela 
has allowed Italian products to occupy a privileged space on 
Venezuelan shelves in the past.  However, the GOV's 
termination of a service contract held by Eni, Italy's oil 
and gas parastatal, to operate the Dacion oilfield has now 
created some tension between Italy and Venezuela.  Eni and 
the GOV are currently negotiating towards a solution.  We 
expect Italian trade and investment in Venezuela to be 
relatively unaffected by the dispute.  End summary. 
 
Italy-Venezuela Trade and Investment 
------------------------------------ 
 
¶2. (U) According to ICE, the Italian National Institute for 
Foreign Commerce, Italian exports to Venezuela in the first 
ten months of 2005 grew from 352.377 million euro to 412.450 
million, compared to the same period in 2004, making Italy 
Venezuela's ninth largest source of imports.  The large 
Italian community in Venezuela and promoting the sale of 
"made-in-Italy" products there gives Italian business an edge 
over foreign competitors. Major Italian exports to Venezuela 
include machine tools, electronics, chemical products, 
synthetic fibers, and automobiles. 
 
¶3. (U) Italy has registered a consistent balance of trade 
surplus with Venezuela for the last five years. 
 
Italy's Foreign Trade with Venezuela 
(millions of euros) 
 
      Exports   Imports  Balance 
2001   849.0       391.0      458.0 
2002   637.8       388.4      249.4 
2003   268.2       289.0      -20.8 
2004   440.5       243.4      197.1 
2005   719.0       369.0      350.0 
 
¶4. (U) According to the Ufficio Italiano dei Cambi, the stock 
of Italian foreign direct investment in Venezuela as of 
December 31, 2004, was valued at 188 million euros.  Actual 
investment levels are likely higher, since this figure does 
not include investments by Italian companies made under 
"service contracts" in the energy sector.  Italian businesses 
in Venezuela are numerous, concentrated in various sectors, 
including the petrochemicals, energy, and defense sectors. 
The Fiat Group controls nine percent of Venezuela's 
automobile market, while in telecommunications, Telecom 
Italia owns 56 percent of Digitel, a Venezuelan cellular 
phone company with over one million subscribers. 
 
Eni and the Energy Sector 
------------------------- 
 
¶5. (U) Eni, the 30-percent GOI-owned oil and gas parastatal, 
has substantial investments in Venezuela.  In April 2005, the 
GOV terminated the service contracts of multinational oil 
companies operating in Venezuela and forced them to enter 
into joint ventures with the Venezuelan national oil company 
(PDVSA).  The GOV has said that PDVSA will own over 60 
percent of the joint ventures, up from 30 to 49 percent under 
the service contracts, giving the GOV greater control over 
the extraction of Venezuelan oil and the resulting revenue 
flow.  Eni's contract for the operation of the Dacion field, 
which reportedly produces 60,000 barrels per day, was among 
those canceled.  Eni has invested about 1.5 billion U.S. 
dollars in Dacion and is unwilling to give up the investment. 
 Eni CEO Scaroni has met with Venezuelan President Chavez and 
maintains that the "contract (is) effective" and if "they 
change the conditions, then I expect to be indemnified." 
 
¶6. (U) Surprisingly, the relationship between Eni and the GOV 
remains good, and both organizations say they are willing to 
negotiate.  Eni told Poloff June 19 that "the political 
signals from Caracas have been very positive. We want to work 
this out."  Negotiations have reached a standstill, as each 
party waits for the other to make an initial compensation 
offer.  If they do not settle on a compensation amount, Eni 
has said it will take legal action.  Scaroni states that, no 
matter what, "Eni will not quit Venezuela," where it 
continues to operate two other oilfields. Eni's main concern 
is that the GOV take into account Eni's ten years of 
investment in Venezuela, as the two work to reach a 
settlement. 
 
Comment 
------- 
 
ROME 00002281  002 OF 002 
 
 
 
¶7. (U) As seen from here, the GOV has reason to make sure Eni 
does not "quit" Venezuela.  Venezuela's Orinoco oil belt is 
filled with heavy oil which Eni has the expertise to recover 
and profitably refine.  We think it likely that the GOV and 
Eni will continue to do business together, working to 
negotiate a settlement to their dispute, though it is 
unlikely that either party will get everything it wants out 
of the deal.  End Comment. 
SPOGLI