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DE RUEHMD #1801/01 2601557
ZNR UUUUU ZZH
R 171557Z SEP 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3433
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3051

UNCLAS SECTION 01 OF 03 MADRID 001801 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE, EEB/EFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ENRG ETRD SP EINV EAGR SOCI
ELAB 
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
SEPTEMBER 10-14 
 
 
MADRID 00001801  001.2 OF 003 
 
 
Table of Contents: 
 
EINV: Growth forecasts for Spain in 2007 and 2008 strong but 
somewhat lower for 2008 
EFIN/PGOV: First VP and Finance Minister Pedro Solbes 
publicly overruled on spending by President Zapatero once 
again 
EPET: Major oil reserve reportedly found by Repsol in Cuenca 
de Santos, Brazil 
EINV: Spanish engineering company Typsa wins engineering 
contract for expanding Panama Canal 
ELAB/SOCI: Fewer jobs being created 
EINV: Abertis wins two airport contracts in Georgia, USA 
EFIN: Santander sets its sights on Italy's biggest fortunes 
EAGR/TBIO: New record for biotechnology corn plantings in 2007 
ENRG/EINV: Solar power subsidies attract investors 
ECON/ELTN: Madrid makes a play for more infrastructure 
funding 
PGOV/ENRG: Election year economics: GOS to freeze electricity 
rates 
ENRG/EINV: Proposed French merger may result in unfair 
competition on the Spanish energy market 
EINV/ENRG: Iberdrola to purchase electric plant in Klamath, 
Oregon 
 
GROWTH FORECASTS FOR SPAIN IN 2007 AND 2008 STRONG BUT 
SOMEWHAT LOWER FOR 2008 
 
¶1. (U) The European Commission released growth forecasts on 
9/11/07.  The Commission maintained its 3.7% GDP growth 
forecast for Spain in 2007 compared with 2.5% for the 
eurozone and 2.9% for the UK.  Fourteen private sector 
entities also maintained an average growth forecast of 3.8% 
for Spain in 2007, but they recently lowered their average 
2008 growth forecast from 3.3% to 3%.  More generally, while 
there has been a lot of talk in the Spanish press about the 
possible impact in Spain of the subprime mortgage problem in 
the U.S., leading business daily Expansion surveyed Ibex-35 
companies and found them still to be relatively bullish about 
prospects for their companies.  Telefonicas's CEO, Cesar 
Alierta, and BBVA's CEO, Francisco Gonzalez, publicly agreed 
with Santander CEO Emilio Botin's statements last week that 
Spain was well positioned to withstand international 
financial market turbulence. (El Pais 9/9/07; El Pais 
9/11/07; Expansion 9/13/07) 
 
FIRST VP AND FINANCE MINISTER PEDRO SOLBES PUBLICLY OVERRULED 
ON SPENDING BY PRESIDENT ZAPATERO ONCE AGAIN 
 
¶2. (U) This week, Finance Minister Solbes publicly expressed 
doubts about Health Minister Bernat Soria's proposal to 
provide free dental care to children between the ages of 7 
and 15.  However, President Zapatero subsequently supported 
the idea.  This comes on the heels of a number of ideas that 
Solbes has expressed doubts about, including exempting books 
and CDs from turnover taxes; indexing the minimum wage; 
extending to all working mothers a monthly 100 euro payment; 
tax deductions for renting housing; payment of euros 2,500 to 
the parents of every newborn child; early retirement for 
civil servants; guaranteed housing in Andalucia for anybody 
earning euros 3,100 or less; and the free dental plan for 
children between the ages of 7 and 15. (Comment: Solbes has 
won a few of these battles, but he has tended to lose more as 
the elections get closer, notably the euro 2,500 payment for 
newborns.  It is somewhat surprising that these spending 
disagreements seem to get discussed in public consistently, a 
fact not unnoticed by the opposition conservative PP party, 
which made some hay out of this latest spending spat at the 
9/12/07 parliamentary debate.) (Expansion, 9/12/07) 
 
MAJOR OIL RESERVE REPORTEDLY FOUND BY REPSOL IN CUENCA DE 
SANTOS, BRAZIL 
 
¶3. (U) Repsol reportedly has found a major oil reserve in 
Cuenca de Santos, 120 km off the Brazilian coast near Rio de 
Janeiro.  This could turn out to be the second largest oil 
field in Brazil.  However, it will be a year before reserve 
levels are finally confirmed. (Comment: Given the fact that 
Repsol recently had to lower estimated reserves and pay a 
number of American investors compensation for allegedly 
overestimating reserves, the company will likely be cautious 
before coming out with more definitive figures on the 
dimensions of its find, which is 2000 meters under water.) 
(Expansion, 9/10/07) 
 
SPANISH ENGINEERING COMPANY TYPSA WINS ENGINEERING CONTRACT 
FOR EXPANDING PANAMA CANAL 
 
 
MADRID 00001801  002.2 OF 003 
 
 
¶4. (U) The lead contractor is the American company, CH2M 
Hill, but Typsa and the Dutch DHV firm have been chosen to 
work with CH2M Hill on this contract, which is estimated to 
be worth USD 5.25 billion. (Comment: It appears that 
President Zapatero's recent trip to Panama paid commercial 
dividends for Spain.) (Expansion, 9/11/07) 
 
FEWER JOBS BEING CREATED 
 
¶5. (U) The autonomous community of Madrid is the most 
affected by the decelerating creation of new jobs in the last 
months according to a study by Adecco.  The study concludes 
that employment in the Madrid autonomous community will 
increase by only 2% this year, the lowest rate of increase in 
the last decade. (20 minutos) 
 
ABERTIS WINS AIRPORT CONTRACT IN GEORGIA, USA 
 
¶6. (U) Spain's leading toll-road operator Abertis, jointly 
owned by La Caixa and construction firm ACS, won a 10 year 
contract to manage two airports in the U.S. state of Georgia 
for an undisclosed amount.  Abertis will manage the U.S. 
airports of Middle Regional Georgia and Herbert Smart Town, 
both located close to the transportation hub of Atlanta. (EL 
Pais) 
 
SANTANDER SETS ITS SIGHTS ON ITALY'S BIGGEST FORTUNES 
 
¶7. (U) Emilio Botin, head of Santander, inaugurated Friday 
the entity's first private banking branch in Milan, Italy's 
financial capital.  This represents Santander's first effort 
to export its private banking business and part of a wider 
strategy to open 20 private banking branches in Italy in 
three years to develop business from wealthy customers. (El 
Pais) 
 
NEW RECORD FOR BIOTECHNOLOGY CORN PLANTINGS IN 2007 
 
¶8. (U) Spanish corn farmers set a new record for 
biotechnology corn plantings this year, marketing year (MY) 
¶2007.  According to the Spanish Ministry of Agriculture, the 
number of biotechnology corn hectares planted, and 
soon-to-be-harvested, reached another record this year 
surging to over 75 thousand hectares, up from about 54 
thousand planted last year.  This is the biggest year-on-year 
increase in the last three years and one of the most 
impressive increases in the entire history of agriculture 
biotechnology in Spain. 
 
¶9. (U) We noted in a previous report that farmers in the 
western part of Spain (Extremadura) were going to add 
additional plantings, but the real surprise came in the 
eastern corn-growing region of Aragon.  Corn farmers in 
Extremadura increased their planting threefold.  However, in 
Aragon, where biotechnology corn has been relatively strong 
since its meager beginnings in 1998, corn farmers increased 
biotechnology corn plantings from about 24 thousand in 2006, 
to about 36 thousand this year, a new record for the region. 
 
SOLAR POWER SUBSIDIES ATTRACT INVESTORS 
 
¶10. (U) GOS subsidies for solar power continue to attract 
investors, raising some concerns from industry leaders and 
the GOS.  The solar industry expects to reach no later than 
next year the GOS' 2010 goal of solar representing one 
percent of Spain's total energy production (400 megawatts). 
Due to generous subsidies from the GOS Ministry of Industry, 
Tourism and Commerce that began in May, Spanish solar 
companies are considering expanding solar capacity by as much 
as 6,000 to 18,000 megawatts.  The GOS' Renewable Energy Plan 
provides a 25 year subsidy for solar plants with annual 
capacity of 0.1 to 10 megawatts, guaranteeing investors 
returns of eight to twelve percent.  A spokesperson for 
Abengoa, one of Spain's original solar energy providers, 
expressed concern over the number of new solar plants being 
constructed.  The Association of Renewable Energy Producers 
told El Pais that officials from the Ministry met in July 
with Acciona Energy and several banks to request a "slow 
down" in the number of planned solar projects.  (El Pais, 
10/10/2007) 
 
MADRID MAKES A PLAY FOR MORE INFRASTRUCTURE FUNDING 
 
¶11. (U) In a September 10 meeting between President Zapatero 
and Governor of the Autonomous Community of Madrid Esperanza 
Aguirre, Zapatero agreed to devote more infrastructure 
funding to Madrid's roadways and airports.  According to 
Aguirre (from the opposition Partido Popular), the GOS has 
 
MADRID 00001801  003.2 OF 003 
 
 
not made any significant investments in Madrid's 
infrastructure over the past 3 years.  Zapatero also agreed 
to allow Madrid to participate in the management of Madrid's 
commuter train system and Barajas airport, Spain's preeminent 
airport ranked 10th worldwide for passenger volume. 
(Comment:  Madrid brings in a large portion of revenues to 
the central budget.  It is one of the Autonomous Communities 
that has felt neglected by recent announcements that the GOS 
will increase infrastructure spending for Catalonia and 
Andalusia.  However, some experts do assert that Madrid,s 
infrastructure is advanced compared with other areas of 
Spain, and hence does have the same level of infrastructure 
investment as other localities.) 
 
ELECTION YEAR ECONOMICS: GOS TO FREEZE ELECTRICITY RATES 
 
¶12. (U) The GOS will attempt to freeze electricity prices for 
this upcoming election year despite concerns that the rates 
may be insufficient to cover electric company costs. 
Electricity rates, reviewed and set quarterly by the Ministry 
of Industry with input with electric companies, have 
consistently increased since 2002.   In 2006, the Ministry 
increased rates by a surprising 4.5 percent, largely in an 
effort to pay down the GOS "electric budget deficit."  (The 
GOS subsidizes electric companies for any amount the rates 
are unable to cover.)  The new proposal, currently under 
review at the National Commission on Energy (CNE), modifies 
the cost calculation formula, and projects a "cost savings" 
of approximately $900 million euros.  This new formula would 
allow the GOS to freeze rates for the average customer during 
an election year, but has inflamed electric companies who are 
preparing their rebuttal to the CNE. 
 
PROPOSED FRENCH MERGER MAY RESULT IN UNFAIR COMPETITION ON 
THE SPANISH ENERGY MARKET 
 
¶13. (U) The GOS is preparing an objection to the proposed 
merger between French energy companies Suez and Gaz de 
France.  According to press reports, the GOS is planning to 
argue to the EU that the merger would enable the combined 
company to illegally leverage indirect state subsidies - the 
result of high electricity and gas tariff set by the French 
government - to compete unfairly in the liberalized energy 
market in Spain.  The GOS' efforts reflect its fear that the 
merger would result in aggressive expansion into the Spanish 
energy market.  The GOS' fear is being fueled by Suez' 
existing presence in Spain, with ownership of nearly ten 
percent of Gas Natural and investments in a Barcelona-based 
water company, as well as the strategic intentions of Suez's 
largest single shareholder, Belgian billionaire Albert Frere. 
 In addition to his holdings in Suez, Frere is one of Spanish 
energy giant Iberdrola's largest shareholders, causing 
speculation that he intends to drive consolidation in the 
industry.  Reminiscent of the GOS' failed attempt last year 
to block the takeover bid of Spain's Endesa by German utility 
company EoN, the GOS' efforts are being criticized by some in 
the press as protectionist.  (El Pais, Financial Times, 
9/11/2007) 
 
IBERDROLA TO PURCHASE ELECTRIC PLANT IN KLAMATH, OREGON 
 
¶14. (U) Iberdrola has agreed to purchase a combined cycle 
electricity generation plant in Klamath, Oregon for 290 
million dollars.  (NOTE:  Combined cycle electricity 
generation is a cleaner, more efficient method that uses 
exhaust gases from burning fossil fuel to power steam 
turbines.  END NOTE.)  The plant has production capacity of 
506 megawatts and provides electricity to customers in Oregon 
and California.  The acquisition is being managed through PPM 
Energy, Iberdrola's U.S. subsidiary.  (El Pais, 9/14/2007) 
AGUIRRE