VZCZCXRO5684
RR RUEHAG RUEHROV RUEHSR
DE RUEHUB #0345/01 1611913
ZNY CCCCC ZZH
R 101913Z JUN 09
FM USINT HAVANA
TO RUEHC/SECSTATE WASHDC 4476
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUEHBS/USEU BRUSSELS
RUCOWCV/CCGDSEVEN MIAMI FL
RUEAIIA/CIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCOGCA/COMNAVBASE GUANTANAMO BAY CU
RHMFISS/HQ USSOUTHCOM MIAMI FL
RHMFISS/JOINT STAFF WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 HAVANA 000345 
 
SIPDIS 
 
DEPT FOR WHA/CCA 
 
E.O. 12958: DECL: 06/09/2019 
TAGS: ECON PGOV PREL PINR PBIO CU
SUBJECT: CUBA BREAKS UP CONGLOMERATE CUBALSE 
 
HAVANA 00000345  001.2 OF 002 
 
 
Classified By: COM Jonathan Farrar for reasons 1.4 (b) and (d) 
 
¶1.  (C) The Cuban Council of Ministers decided on May 26 to 
"extinguish" Cubalse, the second largest conglomerate in 
Cuba, and transfer its assets within 90 days to seven other 
entities.  Cubalse was originally created to serve the 
diplomatic community with local employees and housing.  The 
entity has grown over the past 35 years to include many other 
activities including retail stores, gas stations, car rental 
agencies, restaurants, a shipping company, and even pest 
control.  Cubalse's diplomatic responsibilities will transfer 
to the Palace of Conventions (Palco).  The official reason 
for this move, although the Cuban press is yet to publish the 
news, is to reduce costs, increase negotiation power, and 
concentrate management in order to improve efficiency.  Our 
contacts at Cubalse know little more than we do and many fear 
for their jobs.  Despite talk of decentralization, Cubalse's 
break-up will further consolidate power within a few, mostly 
military hands.  End Summary 
 
------------- 
ABOUT CUBALSE 
------------- 
 
¶2.  (SBU) The original structure of the state company now 
known as Cubalse was created in 1962 with the purpose of 
serving the diplomatic community and to recuperate and 
protect Cuba's national patrimony, including management of 
assets seized from Cubans who departed in the early years of 
the regime.  In 1974, the name was officially changed to 
Cubalse or Cuba al Servicio del Extranjero, and its mission 
defined as providing the broad range of services required by 
the diplomatic community and foreign businesses located in 
Cuba.  Cubalse operations expanded in the 1980s and 1990s to 
include over 200 retail stores (supermarkets, boutiques, 
etc.); more than 80 Oro Negro fuel service stations; ice 
cream plants and shops; Fiat and Peugeot dealerships; well 
known state restaurants; construction and maintenance 
services; photo and video services; a shipping company with 
regular lines to Panama, Mexico, and the Dominican Republic; 
Arandia custom and cargo services; and Biocontrol pest 
control.  Cubalse is one of the most important holders of 
Cuban real estate.  It also participates in joint ventures 
and has offices in Panama, Venezuela, and China.  Cubalse 
generated an estimated USD 400 million in revenue in 2007. 
Cubalse is not under the supervision of any ministry, but 
rather answers directly to the Council of State.  (Note: The 
Council of State is the decision making executive body of the 
National Assembly that operates in between the very 
infrequent formal National Assembly sessions. End Note) 
 
¶3.  (SBU) The U.S. Interests Section (USINT) works closely 
with Cubalse as the landlords for our diplomatic housing, 
management for an annex building used for refugee processing, 
and as the compulsory intermediary for hiring Cuban personnel 
by diplomatic missions.  All diplomatic officials in Cuba are 
required to hire not only local contract nationals through 
Cubalse, but also domestic employees such as personal 
nannies, maids, and gardeners.  The process is long and 
bureaucratic.  For example, it can take three to six months 
for Cubalse to approve a new personal maid.  At USINT, around 
15 LCN positions remain vacant at any given time as we wait 
for Cubalse to send us qualified candidates.  According to 
our diplomatic colleagues at other missions, these delays are 
not unique to USINT. 
 
------------------ 
WHO IS TAKING OVER 
------------------ 
 
¶4.  (SBU) According to a document produced by the Council of 
Ministers but not yet published in the official media, the 
Executive Committee of the Council of Ministers decided on 
May 26, 2009 to "extinguish" Cubalse and transfer its 
activities to other entities.  (Note:  The Council of 
Ministers is similar to an expanded Cabinet. End Note)  Vice 
President Ricardo Cabrisas Ruiz will lead a commission 
created to organize the process of splitting up Cubalse 
within 90 days as directed in the document (see below).  In 
 
HAVANA 00000345  002.2 OF 002 
 
 
the meantime, Cubalse is not permitted to do anything related 
to the movement of goods, assets, or properties.  (Comment: 
USINT was in the final stages of negotiating all our leases 
with Cubalse.  This last provision may delay those 
negotiations at least three months. End Comment.) 
 
¶5.  (SBU) The Palace of Conventions will take over real 
estate and personnel services for the diplomatic community, 
along with the management of the Focsa building in Havana. 
Palco currently runs the main convention centers in Havana, 
the Karl Marx and Sala Atril cultural complexes, three well 
known state restaurants located near the convention centers, 
a graphic arts business, a shopping center, and the Havana 
Club.  The Havana Club is a country club (minus the golf 
course) and residential center for diplomats and foreign 
businessmen.  A few diplomatic missions, including the 
Canadians and British, currently rent some residential 
properties from Palco at the Havana Club and report better 
and more timely customer service than that provided by 
Cubalse.  Abraham Maciques has been the Director General at 
Palco for more than ten years.  Maciques was reportedly 
involved in the creation of Cubalse in the 1970s.  He was 
considered by the international press in 1989 as the man 
charged with improving tourism services in Cuba and 
co-founded the state company Cubanacan, which started many of 
Cuba's first hotel joint ventures.  Like Cubalse, Palco is 
not under any ministry but answers directly to the Council of 
State. 
 
¶6.  (SBU) The Oro Negro gas stations will transfer to state 
oil company Cupet (Union Cubapetroleo).  Cubalse was the 
second largest holder of gas stations in Cuba.  The widest 
network of gas stations Servi-Cupet belongs to Cuba's largest 
conglomerate Cimex, which stands for Comercio Interior, 
Mercado External (Domestic Business, External Market).  Cimex 
will also profit from the Cubalse break-up by picking up 
restaurants, car dealerships, ice cream plants, laundromats, 
and animal clinics.  Cimex will take over Cubalse's 
properties in the former resort town of Tarara, now known as 
Ciudad Milagro since the GOC has used several of the 
abandoned buildings to house Ukrainian children affected by 
the Chernobyl nuclear disaster, recovering eye surgery 
patients from Venezuela and other Latin American countries, 
and now Chinese students learning Spanish.  Cimex also 
answers directly to the Council of State and is headed by 
former Fidel Castro physician Dr. Eduardo Bencomo Zurdo. 
 
¶7.  (SBU) Other than the auto part and repair shops, which 
will go to Servicios Automotores, the rest of Cubalse will 
transfer to the control of the Cuban Armed Forces.  The 
military conglomerate GAESA (Grupo de Administracion 
Empresarial or Business Administration Group) will directly 
control all of Cubalse's foreign offices.  GAESA subsidiary 
TRD-Caribe will take over transportation and logistics 
operations and Cubalse's greatest source of revenue through 
its retail stores.  TRD-Caribe already operates close to 
1,000 retail stores selling a wide range of goods in 
convertible currency.  GAESA subsidiary Almancenes 
Universales will assume all the warehouse and wholesale 
operations.  Armed Forces Minister General Julio Casas 
Regueiro is the president of GAESA and Raul Castro's 
son-in-law, Luis Alberto Rodriguez, is the General Director. 
 
-------- 
COMMENTS 
-------- 
 
¶8.  (C) Several USINT contacts see the end of Cubalse as part 
of Raul Castro's attempt to improve his control over the 
large parastatal structures created outside of formal 
ministries by Fidel Castro.  If true, then we should 
eventually expect further decisions regarding the future of 
Cimex and Palco.  While some of the recent moves could bring 
efficiencies (i.e. transferring retail operations to 
TRD-Caribe), the Cubalse break-up clearly consolidates the 
Cuban government's monopoly power in even fewer hands. 
FARRAR