Cablegate: Italian Trade and Investment in Venezuela

VZCZCXRO8281
PP RUEHFL RUEHNP
DE RUEHRO #2281/01 2231546
ZNR UUUUU ZZH
P 111546Z AUG 06
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 5614
INFO RUEHCV/AMEMBASSY CARACAS PRIORITY 0745
RUEHFL/AMCONSUL FLORENCE PRIORITY 1637
RUEHMIL/AMCONSUL MILAN PRIORITY 7509
RUEHNP/AMCONSUL NAPLES PRIORITY 1742
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 ROME 002281

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ENRG ETRD IT VE
SUBJECT: ITALIAN TRADE AND INVESTMENT IN VENEZUELA

Summary
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1. (U) The presence of a large Italian community in Venezuela
has allowed Italian products to occupy a privileged space on
Venezuelan shelves in the past. However, the GOV's
termination of a service contract held by Eni, Italy's oil
and gas parastatal, to operate the Dacion oilfield has now
created some tension between Italy and Venezuela. Eni and
the GOV are currently negotiating towards a solution. We
expect Italian trade and investment in Venezuela to be
relatively unaffected by the dispute. End summary.

Italy-Venezuela Trade and Investment
------------------------------------

2. (U) According to ICE, the Italian National Institute for
Foreign Commerce, Italian exports to Venezuela in the first
ten months of 2005 grew from 352.377 million euro to 412.450
million, compared to the same period in 2004, making Italy
Venezuela's ninth largest source of imports. The large
Italian community in Venezuela and promoting the sale of
"made-in-Italy" products there gives Italian business an edge
over foreign competitors. Major Italian exports to Venezuela
include machine tools, electronics, chemical products,
synthetic fibers, and automobiles.

3. (U) Italy has registered a consistent balance of trade
surplus with Venezuela for the last five years.

Italy's Foreign Trade with Venezuela
(millions of euros)

Exports Imports Balance
2001 849.0 391.0 458.0
2002 637.8 388.4 249.4
2003 268.2 289.0 -20.8
2004 440.5 243.4 197.1
2005 719.0 369.0 350.0

4. (U) According to the Ufficio Italiano dei Cambi, the stock
of Italian foreign direct investment in Venezuela as of
December 31, 2004, was valued at 188 million euros. Actual
investment levels are likely higher, since this figure does
not include investments by Italian companies made under
"service contracts" in the energy sector. Italian businesses
in Venezuela are numerous, concentrated in various sectors,
including the petrochemicals, energy, and defense sectors.
The Fiat Group controls nine percent of Venezuela's
automobile market, while in telecommunications, Telecom
Italia owns 56 percent of Digitel, a Venezuelan cellular
phone company with over one million subscribers.

Eni and the Energy Sector
-------------------------

5. (U) Eni, the 30-percent GOI-owned oil and gas parastatal,
has substantial investments in Venezuela. In April 2005, the
GOV terminated the service contracts of multinational oil
companies operating in Venezuela and forced them to enter
into joint ventures with the Venezuelan national oil company
(PDVSA). The GOV has said that PDVSA will own over 60
percent of the joint ventures, up from 30 to 49 percent under
the service contracts, giving the GOV greater control over
the extraction of Venezuelan oil and the resulting revenue
flow. Eni's contract for the operation of the Dacion field,
which reportedly produces 60,000 barrels per day, was among
those canceled. Eni has invested about 1.5 billion U.S.
dollars in Dacion and is unwilling to give up the investment.
Eni CEO Scaroni has met with Venezuelan President Chavez and
maintains that the "contract (is) effective" and if "they
change the conditions, then I expect to be indemnified."

6. (U) Surprisingly, the relationship between Eni and the GOV
remains good, and both organizations say they are willing to
negotiate. Eni told Poloff June 19 that "the political
signals from Caracas have been very positive. We want to work
this out." Negotiations have reached a standstill, as each
party waits for the other to make an initial compensation
offer. If they do not settle on a compensation amount, Eni
has said it will take legal action. Scaroni states that, no
matter what, "Eni will not quit Venezuela," where it
continues to operate two other oilfields. Eni's main concern
is that the GOV take into account Eni's ten years of
investment in Venezuela, as the two work to reach a
settlement.

Comment
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ROME 00002281 002 OF 002

7. (U) As seen from here, the GOV has reason to make sure Eni
does not "quit" Venezuela. Venezuela's Orinoco oil belt is
filled with heavy oil which Eni has the expertise to recover
and profitably refine. We think it likely that the GOV and
Eni will continue to do business together, working to
negotiate a settlement to their dispute, though it is
unlikely that either party will get everything it wants out
of the deal. End Comment.
SPOGLI

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