VZCZCXRO2230
PP RUEHCD RUEHGD RUEHHO RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHMC #0295 1762001
ZNY CCCCC ZZH
P 242001Z JUN 08
FM AMCONSUL MONTERREY
TO RUEHC/SECSTATE WASHDC PRIORITY 2993
INFO RUEHME/AMEMBASSY MEXICO PRIORITY 3969
RUEHCV/AMEMBASSY CARACAS PRIORITY 0022
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHMC/AMCONSUL MONTERREY 8455

C O N F I D E N T I A L MONTERREY 000295 
 
SIPDIS 
 
E.O. 12958: DECL:  6/24/2018 
TAGS: EINV ECON ELAB PGOV MX VE
SUBJECT: MONTERREY FIRMS FIND THAT VENEZUELA IS A TOUGH PLACE TO DO 
BUSINESS 
 
REF: CARACAS 624 
 
CLASSIFIED BY: Bruce Williamson, Consul General, Consulate 
General of Monterrey, State. 
REASON: 1.4 (d) 
¶1.  Summary. (C)  Two large Monterrey-based multinational 
companies are struggling in the toxic Venezuelan business 
environment, as one looks for fair compensation to exit and the 
other hopes to keep their heads down and hold on.   President 
Chavez has nationalized the cement holdings of high-level Cemex, 
and Femsa faces recurring blockages of its coca cola 
distribution plants by former employees of a company Femsa 
purchased.  Although the challenges are distinct, high-level 
Cemex and Femsa executives tell us that they have found that no 
Venezuelan institutions are capable of standing up to the Chavez 
government, leaving them no protection from arbitrary 
governmental decisions.  End Summary. 
 
¶2.  (C)  According to Javier Trevino, Senior Vice President for 
Communications and Public Affairs for Cemex -- the largest 
cement company in the world -- the company learned that on June 
24 the Government of Venezuela (BRV) has published a decree 
nationalizing the cement industry, culminating the process that 
began in April to nationalize three foreign cement companies 
(see reftel).  The BRV initially proposed that the BRV control 
60% of the company, while Cemex would retain a 40% minority 
share.  However, Trevino notes that Cemex is not interested in 
maintaining any investment if it has to relinquish its 
controlling stake, so Cemex has been negotiating for fair 
compensation for complete nationalization.  While the BRV is 
using the same PDSVA teams used to implement the oil industry 
nationalization, Trevino stated that the PDVSA teams know little 
about the cement industry.  The negotiations have not gone well, 
as the BRV is using labor and environmental claims to reduce its 
offer below what Cemex considers to be fair compensation.  Cemex 
continues to negotiate, but eventually expects that it will have 
to seek recourse to international arbitration.  Cemex is covered 
under Spanish and Dutch Bilateral Investment Treaties, and 
Trevino expects Cemex to avail itself of the Spanish BIT. 
 
¶3.  (C)  Cemex is also embroiled in a separate dispute with 
minority shareholders, who claim that Cemex Venezuela 
unilaterally sold holdings in third countries below the market 
price.  Since the BRV was intent on nationalizing Cemex's 
holdings in Venezuela, in June the Cemex Venezuela holding 
company sold its assets in Panama, the Dominican Republic, 
Trinidad and Tobago and Guadalupe for a reported $350 million to 
the parent Cemex company.  The Cemex Venezuela subsidiary had 
25% minority shareholders who claim that Cemex Venezuela did not 
obtain full value.  According to press reports, PDSVA and a 
National Commission on Values have demanded that Cemex justify 
this sale, thereby opening another legal quagmire for Cemex. 
 
¶4.  (C)  Although its situation is not yet as bad as that of 
Cemex, Monterrey beverage giant Femsa -- the largest Coca-Cola 
bottler in Latin American and the second largest in the world -- 
also faces difficult problems operating in Venezuela.  When 
Femsa acquired the Venezuelan company Panamco in 2003, it 
inherited from Panamco an unresolved labor dispute with contract 
delivery men.  In 2006 local Chavista diputados revived the 
labor claim, demanding $150 million with interest.  According to 
Femsa CEO Jose Antonio Fernandez, the deliverymen 
representatives offered to settle the case for $15 million, but 
Femsa refused.  Fernandez told the Consul General that Femsa 
felt that if it begins to pay blackmail, such claims would never 
stop.  Although the Venezuelan Supreme Court reportedly ruled in 
its favor, the deliverymen have blocked some of the Femsa's 
distribution centers on three separate occasions, the last time 
for two weeks.  Fernandez reports that the company is 
continually harassed by the BRV and the deliverymen.  Even 
worse, Femsa has no effective legal recourse since neither the 
courts nor the legislature will take a definitive stand for fear 
of angering the Chavistas and the populist masses. 
 
¶5.  (C)  Femsa's ultimate fear is that its dispute will reach 
the attention of President Chavez and thus spin out of control. 
 Fernandez opined that Venezuela has no effective mechanisms to 
prevent second or third level echelon officials from harassing 
the company but that if the dispute can be kept small and local, 
it can be controlled.   However, if President Chavez becomes 
interested in the labor dispute then no effective Venezuelan 
institutions would oppose his whims. Indeed, business analysts 
here note that that a similar situation occurred with the steel 
company Sidor, where a labor dispute gradually snowballed until 
it gained President Chavez's attention, and BRV is now 
nationalizing Sidor.  If Femsa runs into major problems, it does 
not have recourse to any BIT.   Femsa CEO Fernandez noted that, 
given its presence in Argentina, it could appeal to Argentine 
President Cristina Fernandez de Kirchner to intervene on its 
behalf. 
 
WILLIAMSON