VZCZCXRO4781
RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHHA RUEHHO RUEHMC RUEHNG RUEHNL
RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #0132/01 0221908
ZNY EEEEE ZZH
R 221908Z JAN 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 7542
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY

UNCLAS E F T O SECTION 01 OF 02 CARACAS 000132 
 
SIPDIS 
 
NOFORN 
SENSITIVE 
SIPDIS 
 
TREASURY FOR KLINGENSMITH AND NGRANT 
COMMERCE FOR 4431/MAC/WH/MCAMERON 
NSC FOR DTOMLINSON 
HQ SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: EINV ECON VE
SUBJECT: MEETING WITH ELECTRICIDAD DE CARACAS ON 
NATIONALIZATION ANNOUNCEMENT 
 
REF: A. CARACAS 59 
 
     ¶B. CARACAS 84 
 
This message is Sensitive but Unclassified(NOFORN), please 
treat accordingly. 
 
¶1. (SBU/NF) Summary: EconCouns met with Electricidad de 
Caracas (82 pct owned by AES a U.S. company) President 
Nebreda January 16 regarding BRV intentions to nationalize 
the electricity sector (refs).  Nebreda said that AES always 
considered nationalization in their scenario planning, but 
the announcement caught them by surprise (AES owns 
approximately 82 percent of EDC).  He added that they had not 
yet heard from the BRV, and that the company's book-value, 
around USD 2.2 billion, would be the rough order of 
compensation expected.  He noted that in conversations with 
individuals close to the BRV (read: diputados) there had been 
no indication that EDC had been singled-out because it was a 
U.S. company, but he did not discount it either. End Summary. 
 
¶2.  (SBU/NF) EconCouns, accompanied by Econ Specialist, met 
with EDC President Julian Nebreda and EDC Vice President 
Scarlett Alvarez on January 16 to get their take on Chavez' 
January 8 announcement that he would nationalize the 
electricity sector (refs), and specifically Electricidad de 
Caracas, of which AES owns approximately 82 percent. 
Nebreda, who was out of the country with AES management when 
the announcement was made, said they had not expected the 
announcement, although they had always considered 
nationalization in their scenario planning since the sector 
was considered "strategic" in Chavez' mind.  If 
nationalization were to occur, AES (like others) had expected 
the BRV to announce candidates in other sectors first, before 
getting to electricity, which would have given them some 
lead-time. 
 
¶3.  (SBU/NF) Nebreda said that he had not yet heard directly 
from the Ministry of Energy and Petroleum or any other BRV 
officials, beyond press and public announcements by BRV 
officials, although Nebreda said some government officials 
(most likely diputados) had told them the nationalization 
might not go through.  (Comment: We seriously doubt this, as 
Chavez and other senior BRV officials have been unequivocal 
in their declarations.  BRV officials have publicly stated 
that the nationalization would likely take place via the 
broad enabling law process and the rights of minority 
shareholders would be protected.  End Comment.)  Nebreda 
thought that if shareholder rights were respected (read: the 
idea of adequate and effective compensation respected) then 
the parties would begin a negotiating process which could 
easily take six or more months.  (Note: six months appears to 
be the government's timetable according to BRV public 
statements.  End Note.)  On the issue of compensation, 
Nebreda indicated that the book-value of AES's investment was 
around USD 2.2 billion and that would be the rough magnitude 
of compensation AES would expect.  Nebreda noted that AES' 
EDC investment was held through a Dutch holding company which 
benefited from a bilateral investment treaty the two 
countries. 
 
 
¶4.  (SBU/NF)  EconCouns asked Nebreda if he thought the BRV 
action stemmed from AES being an American company.  Nebreda 
replied that in their conversations with "people close to the 
government" (read: diputados) there had been no indication 
the action was taken because the company was American-owned; 
however, he could not rule out the possibility (ref b). 
Although EDC was a profitable operation, Nebreda did not see 
this as a primary motivation for the BRV's decision.  Nebreda 
reiterated that he thought Chavez simply saw the sector as a 
strategic one (read: I don't want anyone turning off the 
lights).  Nebreda noted that AES was not pleased and 
disagreed with some of the snide remarks Chavez has made 
regarding AES history in the Dominican Republic (note: 
Nebreda previously ran AES's operation in the DR), and that 
AES was not supporting the BRV's energy savings plan. 
 
¶5.  (SBU)  Comment:  Ironically, unlike the 
telecommunications sector, which was privatized in the 1990s, 
EDC has been a private company for over a century.  AES 
bought their interest in EDC in 2000 for approximately USD 
1.7 billion -- when Chavez was president.  EDC traded shares 
fell around 40 percent a week after the announcement and 
 
CARACAS 00000132  002 OF 002 
 
 
currently stand 28 percent below the preannouncement value. 
The recovery seems to stem from BRV statements that minority 
investors will be fairly compensated.  Chavez' more recent 
lame quips to the press to justify his nationalization moves 
center around the claim that the companies were not meeting 
their social obligations.  We will stay in close contact with 
EDC as the process moves forward. 
 
BROWNFIELD