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DE RUEHCV #0908/01 1981614
ZNY CCCCC ZZH
P 171614Z JUL 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 3398
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUEAHLC/DHS WASHDC
RULSDMK/DEPT OF TRANSPORTATION
RUEABND/DEA HQ WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RUMIAAA/HQ USSOUTHCOM MIAMI FL

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 000908

SIPDIS

HQ SOUTHCOM ALSO FOR POLAD
COMMERCE FOR 4332/MAC/WH/JLAO
TREASURY FOR RJARPE
NSC FOR RKING
DIA WASHINGTON DC//DHO-F//
COMDT COGARD WASHINGTON DC
SECSTATE PASS AGRICULTURE ELECTRONICALLY

E.O. 12958: DECL: 07/15/2019
TAGS: ECON PGOV PREL ETRD EINV EAGR MARR EAIR VE
SUBJECT: SELECTIVE VENEZUELAN PORT NATIONALIZATIONS BENEFIT
GOVERNMENT OFFICIALS
REF: A. CARACAS 330
¶B. CARACAS 778
¶C. 2008 CARACAS 1754
¶D. CARACAS 615

Classified By: Economic Counselor Darnall Steuart for reasons 1.4
(b) and (d).

¶1. (C) SUMMARY: The Venezuelan government has seized all
port operators in Maracaibo and is threatening to do the same
throughout the country. The seizures have further deprived
an opposition state of tax revenue and sources indicate costs
and opportunities for corruption have already increased at
the Maracaibo port. Close Chavez associate Diosdado Cabello
is reportedly a "shadow partner" in the country's largest
port operations company, which has thus far escaped
nationalization. Private companies operating cargo services
at airports may be next as the political and financial
benefits the government is reaping from wide-spread
nationalizations continue to outweigh the costs. END SUMMARY.

--------------------------------------------
THE ROAD TO NATIONALIZATION - PORT OPERATORS
--------------------------------------------

¶2. (C) Econoffs met July 9 with XXXXXXXXXXXX, who explained
that the road to nationalization for private port operators
began when Government of the Bolivarian Republic of Venezuela
(GBRV) passed the Decentralization Law March 12, which routed
important sources of income away from opposition states to
the central government (ref A). The GBRV sent in the
National Guard to take over the ports and airports operated
by opposition states in March, but had left private company
operations untouched until June.

¶3. (C) Adding fuel to the nationalization fire was President
Chavez's reported unhappiness over port handling charges that
frequently exceeded the value of the government's food
imports. Part of the reason why PDVSA, government-owned
petroleum company and the GBRV's primary food importer, was
experiencing such high port charges, was because PDVSA would
bring in thousands of containers of food and leave them at
Puerto Cabello for seven to eight months at a time. XXXXXXXXXXXX
claimed that PDVSA was the largest culprit in the severe port
congestion Venezuela experienced in 2008. PDVSA's solution
was to bring in the National Guard, seize the containers, and
refuse to pay the outstanding port charges. XXXXXXXXXXXX said
PDVSA then tried to donate some of the months old food to the
Cubans, but the Cubans politely declined.

¶4. (C) XXXXXXXXXXXX reported that by June, repeated statements by
government officials about private companies overcharging at
ports had laid the ground work for the take over of port
operators. In the case of the port at Maracaibo, the
government sent in the National Guard to seize all private
port operators, literally overnight, on June 12. The
operators have received no indication of when or if
compensation will be forthcoming. The seizure of the
Maracaibo port operators was followed by the announcement of
a 30-day GBRV review of port concessions throughout the
country. The deadline for the thirty-day GBRV review of port
concessions has come and gone, however, with no decision on
whether or not the GBRV will seize additional port operators
in other states, or will instead form public/private ventures
called "empresas mixtas," with minority private sector
ownership. XXXXXXXXXXXX commented that if the government forms
"empresas mixtas" in ports such as La Guaira and Puerto
Cabello, the private sector owner will be "responsible for
everything, but in charge of nothing."

--------------------------------------------- ----------
PORTS NEEDED GOVERNMENT OVERSIGHT, NOT NATIONALIZATION
--------------------------------------------- ----------

¶5. (C) Years ago, XXXXXXXXXXXX said, the Venezuelan shipping
CARACAS 00000908 002 OF 003
association asked the government to limit port operators to
two or three companies per port as having too many operators
at one port is costly and inefficient. He opined that any
"reasonable" government would have intervened to stop the
corruption and explosion in costs and inefficiencies.
However, the government's seizure of private operators was
not the answer to the serious issues facing Venezuelan ports.
Instead, the government should have put port operations up
for international bid and selected a maximum of three
operators per port. The government should have then
compensated existing port operators at fair market value and
only then ceded the ports to the new, transparently selected
companies.

¶6. (C) As it stands now in Maracaibo, XXXXXXXXXXXX continued,
companies are still legally liable for lost cargo even though
they are no longer in charge of their warehouses. The
government-owned insurance company "Horizonte" will be the
new insurer once the properties formally change hands but
XXXXXXXXXXXX does not believe Horizonte has the capacity to insure
multi million dollar port assets and operations. One
industry expert said companies will charge 15 to 20 percent
more due to increased risk of asset seizure as indicated by
Venezuela's addition to the Lloyd's of London "Hull War,
Strikes, Terrorism and Related Perils" list (ref B). Some
companies were already avoiding Venezuelan ports due to
exorbitant charges and long delays. However, XXXXXXXXXXXX
stated, transit times to Venezuelan destinations from popular
alternative ports such as Cartagena and Kingston average 70
days. There is no real alternative to Venezuelan ports, he
said.

¶7. (C) Additionally, XXXXXXXXXXXX stated that operational problems
have already arisen within the first thirty days of
government ownership at Puerto Maracaibo. He explained that
the Government fired numerous highly skilled employees and
does not have the sophisticated software needed to manage
port operations. As a good will gesture, XXXXXXXXXXXX is
allowing the GBRV to use a "blank copy" of its proprietary
port operations software for Maracaibo. If port operators
such as XXXXXXXXXXXX do not allow the GBRV to use their software
for operations such as pinpointing the location of one
container among 20,000, the GBRV will be "operating blind"
and the result will quickly be chaos, he said.

--------------------------------------------- -------------
VENEZUELAN PORT OPERATIONS "STRAIGHT OUT OF THE GODFATHER"
--------------------------------------------- -------------

¶8. (C) XXXXXXXXXXXX contended that there is a large amount of money
to be made from the port services business. Often port fees
in Venezuela amount to more than the merchandise itself is
worth, he said. The March decentralization law re-routed
this revenue from opposition states, to the central
government. This punishes the states and translates into
more control for key officials such as close Chavez confidant
Diosdado Cabello (ref C), who heads the Ministry responsible
for ports. However, XXXXXXXXXXXX claims that even Diosdado
Cabello's brother, Jose David Cabello, Superintendent of the
Venezuelan tax authority, is trying to distance his agency
from the impending "port mess." It is only a matter of time
before it becomes apparent that government seizures have only
made things worse at the ports, XXXXXXXXXXXX opined.

¶9. (C) At the same time, in a situation resembling "The
Godfather", XXXXXXXXXXXX claimed that Diosdado Cabello is a major
"shadow associate" in several of the port operators that his
ministry oversees. In addition to his interests in firms at
the port in La Guaira, he is also the real owner of the
largest port operator in Puerto Cabello, Braperca.
Interestingly, he noted, private port operators at La Guaira
and Puerto Cabello have not yet been taken by the central
government. By contrast, operators have been seized in
Maracaibo where Cabello does not seem to have a personal
stake in port operations.

¶10. (C) In another example of corruption at the ports, XXXXXXXXXXXX
CARACAS 00000908 003 OF 003
added that the Makled family (ref D) owned the second largest
port operator in Puerto Cabello. The National Anti-Drug
Office seized the company when several Makled family members
were jailed on drug charges. (Note: The U.S. Office of
Foreign Assets Control designated Walid Makled a Drug Kingpin
in May. End Note.) In 2009, Venezuelan courts ordered the
Makled's to return their port operations company to its
original owners. However, the Anti-Drug Office has thus far
ignored the Venezuelan court order as it is "making so much
money" from running the company, said Oronoz.

--------------
AIRPORTS NEXT?
--------------

¶11. (C) XXXXXXXXXXXX also claimed that the government has private
operators in the country's airports in its sights as well.
Private air cargo companies and commercial airlines with
cargo operations, such as American Airlines, will be next on
the chopping block, he argued. However, he believes the GBRV
will finish taking over private companies at the ports,
including customs brokers and stevedoring services, before
targeting airports.

-------
COMMENT
-------

¶12. (C) There is indeed method to the GBRV's seeming madness
when it comes to its disregard for private property. Not
only do the nationalizations deprive opposition states of
valuable sources of tax revenue, the selective seizures also
personally benefit key Chavez officials such as Diosdado
Cabello if the allegation of his interests in port service
companies is true. There has been no real opposition to the
on-going nationalizations either domestically or
internationally, which has allowed the political and
financial benefits of the nationalizations for the government
overwhelmingly to outweigh the short and long term costs.
CAULFIELD