VZCZCXRO7590
RR RUEHLMC
DE RUEHMU #1437/01 3381527
ZNY CCCCC ZZH
R 031527Z DEC 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3456
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1332
RUEHLP/AMEMBASSY LA PAZ 0221
RUEHOT/AMEMBASSY OTTAWA 0262
RUEHQT/AMEMBASSY QUITO 0485
RUMIAAA/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHBS/USEU BRUSSELS
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RHEHNSC/NSC WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 04 MANAGUA 001437 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: DECL: 12/03/2028 
TAGS: EFIN ECON PREL NU
SUBJECT: NICARAGUA: GOVERNMENT CLAIMS ALBA FUNDS AS MUCH AS 
$368 MILLION FOR 2008 
 
Classified By: CDA Richard M. Sanders, reasons 1.4 b and d. 
 
Summary 
------- 
¶1. (C) FSLN officials claim that from January to September 
2008, Nicaragua imported $600 million worth of petroleum 
products through Venezuelan - Nicaraguan joint venture 
ALBANISA, providing $300 million for development funds. 
During the last quarter of 2008, the scheme may have earned 
Nicaragua an additional $68 million, bringing potential total 
funding to $368 for the year.  Funds have purportedly been 
directed to FSLN programs such as "Houses for the People," 
"Zero Hunger," "Zero Usury," and "Roads for the People."  All 
told, government officials and state media claim ALBANISA has 
provided $247 million in funds to these and other programs. 
Some part of the $121 million balance likely goes toward 
administrative costs, freight, and insurance.  Other 
discretionary uses of these off-budget funds are likely to be 
billboards featuring President Ortega, wages and other 
support for "Prayer" groups in traffic circles, buses to 
mobilize FSLN supporters following municipal elections, real 
estate investment, support for FSLN candidates in the 
elections, and other political machinations. 
 
¶2. (C) Venezuelan funds come with no stated conditions, 
permitting President Ortega to distribute them at his 
discretion.  That makes these funds far more useful from a 
political point of view than traditional donor funds that 
come with conditions, oversight, and review.  Ortega can pay 
patronage to his followers and bribes to his detractors as he 
moves to consolidate political power.  In 2009, Ortega is 
likely to have less to work with -- perhaps less than $200 
million as a result of lower oil prices.  At the same time, 
the demand on theses funds is likely to be greater, as donors 
continue to pull out one at a time as a consequence of 
Ortega's autocratic policies and extensive electoral fraud 
surrounding municipal elections held November 9.  End summary. 
 
The ALBA Energy Agreement 
------------------------- 
¶3. (SBU) When Nicaragua joined Venezuela's Bolivarian 
Alternative for the Americas (ALBA) on January 11, 2007, 
President Ortega also signed on to Venezuela's Petrocaribe 
initiative, which provides concessional financing for 
petroleum products purchased from Venezuela.  Initially, 
state-owned oil company PETRONIC handled imports from 
Petroleos de Venezuela, S.A. (PDVSA) on an ad hoc basis.  On 
April 29, 2007, at the Fifth ALBA Summit, President Ortega 
and President Chavez went a step further and signed the 
"Nicaragua - Venezuela ALBA Energy Agreement" to replace 
Petrocaribe. 
 
¶4. (SBU) In June 2007, Nicaragua and Venezuela established a 
joint venture, ALBA Nicaragua, S.A. (ALBANISA), giving 
PETRONIC a 45% share and PDVSA a 55% share.  This arrangement 
allows FSLN officials to import and monetize Venezuelan 
petroleum products, off-budget, under the firm control of the 
FSLN, and without legislative oversight.  Essentially, 
ALBANISA buys oil from Venezuela's PDVSA and pays 50% of the 
bill within 90 days to PDVSA.  Of the balance, ALBANISA pays 
25% into a local development fund and 25% into the Venezuelan 
Government's ALBA Fund.  PETRONIC sells the imported 
petroleum products through its distribution network to 
wholesalers and final consumers but makes most of its money 
by being the go-between for PDVSA crude oil and ExxonMobil's 
Nicaraguan refinery. 
 
CARUNA: The Administrator 
------------------------- 
¶5. (SBU) The National Rural Fund (Caja Rural Nacional, 
CARUNA), a private financial cooperative whose board of 
directors is composed of prominent FSLN officials, functions 
as the primary administrator for both the local development 
fund and the ALBA Fund.  Until 2006, CARUNA functioned as 
medium-sized, national credit union, lending to small farmers 
and accepting deposits at 17 branch offices throughout the 
country.  In 2006, the last year for which CARUNA published 
an annual report, the cooperative's total lending portfolio 
 
MANAGUA 00001437  002 OF 004 
 
 
was $5.7 million. 
 
¶6. (SBU) CARUNA President Jorge Martinez has told 
FSLN-friendly media that his financial cooperative manages 
the 25% set aside by ALBANISA for the local development fund 
and has an agreement with PDVSA to repay these funds over 25 
years, including a 2-year grace period and at an interest 
rate of 2%.  According to Martinez, CARUNA also manages the 
25% that is paid to the ALBA Fund.  Reportedly, this amount 
is treated as a grant rather than a loan, although the ALBA 
Energy Agreement stipulates that it should be treated as a 
long-term loan from PDVSA, also payable in 25 years at an 
interest rate of 2%. 
 
Patronage for the People: $247 Million in 2008 
--------------------------------------------- - 
¶7. (SBU) In a November 2008 interview published in the 
recently launched FSLN tabloid "El 19," PETRONIC General 
Manager and FSLN Treasurer Francisco "Chico" Lopez reported 
that Venezuelan assistance for the year through the ALBA 
Energy Agreement, including the local development fund and 
the ALBA Fund, "easily surpassed $210 million."  As mentioned 
above, CARUNA serves as the administrator for both these 
funds, but program implementation appears ad hoc, carried out 
by various government agencies, directly by CARUNA, or by 
FSLN-favored businesses.  Further confusing lines of 
authority and responsibility, local Citizens, Power Councils 
(CPCs) participate in many of the programs to identify 
beneficiaries.  According to government sources and post 
estimates, funding is an estimated $247 million for 2008, 
which breaks down as follows: 
 
--$84 million (post estimate) in diesel and bunker power 
generation units with a total output of 60 megawatts (post 
estimate) in 2008. 
 
--$50 million for the Ministry of Agriculture's "Zero 
Hunger," which provides livestock, seeds, and farm tools to 
rural poor. 
 
--$30 million to ENABAS, the government-owned agricultural 
commodity company, to subsidize the sale of basic grains at 
CPC-designated stores. 
 
--$25 million for &Streets for the People," which has 
reportedly paved 100 kilometers of local roads. 
 
--$22.8 million in fuel subsidies for bus operators and taxi 
drivers, implemented in May 2008 to quell a transportation 
strike. 
 
--$20 million for "Zero Usury," a program administered 
directly by CARUNA that provides loans with 5% annual 
interest. 
 
--$6 million for "Houses for the People," which seeks to 
construct 6,000 low income houses.  (Comment: About 400 
houses have been built, many of them along the geological 
fault line that crosses Managua from east to west.  End 
comment.) 
 
--$5.5 million in subsidies for the importation of 60,000 
tons of urea through the Rural Development Institute's 
"Fertilizer for the People" program, providing a subsidy of 
$0.20/pound. 
 
--$3 million (post estimate) for 200,000 cooktops and gas 
tanks. 
 
--$1 million in new tires and other vehicle parts for buses. 
 
Patronage for the Party 
----------------------- 
¶8. (C) In the same "El 19" interview, Lopez claimed that from 
January to September 2008, ALBANISA had imported 6 million 
barrels of petroleum products, valued at around $600 million. 
 According to the ALBA Energy Agreement, $150 million should 
have gone toward the local development fund and $150 million 
 
MANAGUA 00001437  003 OF 004 
 
 
toward the ALBA Fund -- $300 million total -- of which $247 
million is accounted for publicly.  That leaves $53 million 
for discretional or possibly political purposes. 
 
¶9. (C) During October to November 2008, oil prices have 
fallen -- on November 28 Venezuelan crude averaged less than 
$40/barrel.  Unlike PetroCaribe, however, assistance funneled 
through ALBANISA does phase out should oil prices fall below 
certain trigger prices.  Assuming that the volume of oil 
imports from Venezuela remained similar to what they were 
from January to September 2008, ALBANISA may have passed an 
additional $68 million to Nicaragua during the last three 
months of the year (2 million barrels at an average price of 
$68/barrel, with 50% of proceeds remaining in Nicaragua). 
 
¶10. (C) This amount, plus $53 million identified in paragraph 
8, means that the difference between ALBANISA funding and 
programs announced by the government could be as much as $118 
million.  Some percentage of this sum would go to pay for 
administrative, insurance, and freight costs.  In addition, 
some may be committed to other projects, such as power 
generation units or the feasibility study for "Bolivar's 
Supreme Dream," Hugo Chavez' promised oil refinery that is on 
hold.  Other expenses likely paid for with off-budget FSLN 
funds are: 
 
--Hundreds of billboards throughout Nicaragua featuring 
President Ortega with slogans such as "Fulfilling the 
People's Will is God's Will" and extolling the achievements 
of the party.  (Comment: Now that municipal elections have 
passed and Venezuelan crude is less than $50/barrel, many of 
these billboards are rapidly disappearing.  End comment.) 
 
--Thousands of FSLN red and black flags that dot the 
countryside. 
 
--"Prayer" groups in traffic circles throughout Managua at a 
cost of $180,000 a month (post estimate) to block access to 
these rallying points for opposition groups. 
 
--The rental of hundreds of buses to mobilize FSLN supporters 
following municipal elections. 
 
--Other election expenses associated with funding local 
candidates and elections officials who participated in 
widespread fraud. 
 
--The purchase of the Seminole Tribe's assets in Nicaragua, 
including a three-star hotel, Brahman cattle ranch, and 
cattle breeding facility.  This acquisition has advanced to 
the "due diligence" stage. 
 
--Concessional financing to public electricity generators for 
fuel purchases.  Under this scheme, CARUNA lent funds to 
state-owned National Electricity Company (ENEL) for the 
purchase of fuel from Petronic for its generating units.  One 
transaction in particular, in which CARUNA provided ENEL $20 
million in financing to pay its full bill, came under public 
scrutiny in October 2008.  Opposition legislators complained 
that ENEL used public funds to pay CARUNA the principal and 
$400,000 in interest on the loan. 
 
Comment 
------- 
¶11. (C) We rely on information provided by FSLN officials for 
these estimates of Venezuelan assistance, so it is possible 
that they are exaggerated in some instances and understated 
in others.  Whatever the actual amount, Venezuelan funds come 
with no stated conditions, permitting President Ortega to 
distribute them at his discretion.  That makes these funds 
far more useful from a political point of view than 
traditional donor funds that come with conditions, oversight, 
and review.  With this discretionary spending, the line 
between state and party is blurred.  Ortega can pay patronage 
to his followers and bribes to his detractors as he moves to 
consolidate political power.  In 2009, Ortega is likely to 
have less to work with -- perhaps less than $200 million due 
to lower oil prices -- unless Chavez is prepared to top off 
 
MANAGUA 00001437  004 OF 004 
 
 
the funding by adjusting the terms of the agreement or 
creating some other vehicle to subsidize Nicaragua.  At the 
same time, the demand on theses funds is likely to be 
greater, as donors continue to pull out one at a time as a 
consequence of Ortega's autocratic policies and extensive 
electoral fraud surrounding municipal elections held November 
¶9. 
SANDERS