VZCZCXYZ0000
RR RUEHWEB

DE RUEHSJ #0406/01 0601849
ZNR UUUUU ZZH
R 011849Z MAR 07
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 7380
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1016

UNCLAS SAN JOSE 000406 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
FOR WHA/CEN, WHA/AND, WHA/EPSC AND EB 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECIN PGOV PREL CS
SUBJECT: TO CLOSE OR NOT TO CLOSE?  VENEZUELA'S ALUMINUM 
         PLANT IN COSTA RICA 
 
¶1.  (SBU) SUMMARY. After two weeks of speculation, it appears that 
Venezuelan President Hugo Chavez has backed away, for now, from his 
planned closure of a Venezuelan state-owned aluminum processing 
plant in Costa Rica.  The GOCR remains concerned, however, about the 
eventual fate of the CVG ALUNASA plant (http://www.alunasa.com), its 
400 employees, and the local community (Esparza, Puntarenas) which 
depends on the plant for its livelihood.  As possible medium- to 
long-term solutions, the GOCR may seek non-Venezuelan sources of raw 
material (ingots) for the plant, buy the plant outright, or help the 
employees convert it to a cooperative.  Despite Chavez' public 
explanation that he had decided to close the plant based on 
"economic analysis", the GOCR sees the move as purely political 
retaliation for allegedly critical comments by President Oscar 
Arias.  END SUMMARY. 
 
------------------------------ 
I'LL TAKE MY PLANT AND GO HOME 
------------------------------ 
 
¶2.  (U) The crisis began on February 14, when a group of ALUNASA 
workers wrote Arias to warn that Chavez had decided to close the 
Esparza plant, piqued by Arias's comments earlier in the month 
critical of the Venezuelan Congress's decision to grant Chavez 
special powers.  Arias called this a "denial of democracy", and 
added that for a dictator "it is important to not have opposition 
and have absolute power."  Chavez retorted that Arias had "offended" 
the Venezuelan people and alleged that Arias's comments were 
motivated to appeal to Washington.  Later, Chavez accused Arias of 
wanting to "meddle in things he should not get into", insinuating 
that Arias should stay out of Venezuela's internal affairs.  At the 
same time, Chavez also insisted to the media that the ALUNASA plant 
was really being closed for economic reasons.  According to 
Bienvenido Venegas, the Legislative Assembly member representing the 
area, the GOV was also rubbing salt in the wound by suggesting that 
some of the plant operations might be moved to Nicaragua. 
 
¶3.  (SBU) Over the next 10 days, the GOCR sought confirmation of 
Chavez's plan, but neither Venezuelan Ambassador Nora Uribe nor 
ALUNASA chief executive Ramon Rosales would comment in public. 
Costa Rican concerns were stoked when Venezuelan media began to 
report the planned closure.  Privately, Venegas told us that 
although the GOV's overall plans were unclear, the flow of aluminum 
ingots from Venezuela had been shut off, which would force the 
Esparza plant to cease operating by the end of March.  On February 
19, Minister of Government Rodrigo Arias met with Venegas, his 
brother (mayor of Esparaza) and ALUNASA employee representatives. 
Minister Arias offered no immediate solution, but meeting 
participants told the media that buying the plant or converting it 
to a co-op were under consideration.  With a large anti-CAFTA rally 
looming for February 26, the GOCR tried to turn public attention to 
the apparent lack of concern about the ALUNASA closing by Costa 
Rican union leaders, who had offered neither a public defense of the 
plant nor criticism of Chavez. 
 
---------------------- 
CRISIS PASSED, FOR NOW 
---------------------- 
 
¶4.  (U) By February 28, the immediate crisis had subsided.  Media 
reported that Chavez had postponed his decision and would restart 
ingot shipments to ALUNASA after meeting with a delegation of 
company employees in Caracas.  In that meeting, Chavez reportedly 
pointed to economic feasibility "studies" which  had sparked the 
idea to move ALUNASA's operations to Panama and Nicaragua.  Chavez 
also reportedly offered to send a committee to Costa Rica to 
evaluate the plant's problems, with an eye to allowing ALUNASA to 
continue operations, but as part of the ALBA, the GOV's alternative 
to CAFTA. 
 
¶5.  (U) For his part, President Arias assured the media that he had 
no intention to "polarize" the ALUNASA issue, while maintaining that 
he had not "intervened" in Venezuelan affairs nor "offended" anyone. 
 In response to the news of the postponed shutdown, Arias termed 
Chavez's decision as "wise" and thanked him, "...in the name of the 
government and people of Costa Rica..." 
 
--------------------- 
BACKGROUND ON ALUNASA 
--------------------- 
 
¶6. (U) ALUNASA was established in 1981 as a GOCR state-owned entity 
to process aluminum ingots produced in Venezuela.  In 1990, the GOV 
purchased the plant outright and has since operated it in one of 
GOCR's tax-free zones.  The plant makes various forms of foils for 
industrial and packaging use.  It processes 9,000 tons of aluminum 
annually of which 80% is exported to the U.S., Canada, and Mexico. 
According to Minister Arias, ALUNASA's exports are up from $26 
 
million in 2000 to almost $47 million in 2006.  The plant's 
accumulated investment went from $12 million in 2001 to $57 million 
in 2005. 
 
¶7.  (U) ALUNASA has 400 employees, who support nearly 2,000 family 
members in one of the poorest regions of Costa Rica.  According to 
company employees, the community -- already feeling marginalized by 
the GOCR -- was greatly concerned by the halt in raw material 
shipments and remains worried about the uncertainty over the plant's 
future.  Neither the employees nor the GOCR believes the plant could 
be moved quickly or inexpensively, however.  The cost of relocation 
is estimated at between $20-$25 million. 
 
----------------- 
SO WHY THE WORRY? 
----------------- 
 
¶8.  (SBU) COMMENT: Why is the Arias administration so concerned 
about the potential loss of these 400 jobs, when the normal ebb and 
flow cycle of business nationwide sees job loss and creation all the 
time?  The primary reason may be timing.  The story broke less than 
two weeks before the anti-CAFTA protest, when the GOCR could not 
afford to appear insensitive to worker concerns, especially in 
communities outside the mainstream that (according to critics) might 
suffer under CAFTA.  The GOCR weathered this well, since the 
protests were peaceful and union leaders' relative quiet on ALANUSA 
helped support the GOCR's argument that some of the loudest 
anti-CAFTA voices are pro-Venezuela.  Concerns about Chavez's 
influence linger here, however, especially after Ortega's election 
in Nicaragua, and as evidenced by Arias's exaggerated (and 
unnecessary in our view) public thanks to Chavez.  In the long run, 
the GOCR may be satisfied with an ALUNASA solution which cuts Costa 
Rican ties with the one and only GOV-owned entity in the country.