Cablegate: Madrid Economic Weekly, September 14-18

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UNCLAS SECTION 01 OF 03 MADRID 000936

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STATE FOR EUR/WE, EEB/IFD/OMA
COMMERCE FOR 4212/D.CALVERT
TREASURY FOR OIA/OEE: R.JOHNSTON
ENERGY FOR PIA:K.BALLOU

E.O. 12958: N/A
TAGS: ECON EIND EINV ELAB ENRG EPET KIPR SP
SUBJECT: MADRID ECONOMIC WEEKLY, SEPTEMBER 14-18

REF: A. CARACAS 01208
B. MADRID 913
C. MADRID 901

MADRID 00000936 001.2 OF 003

Contents:

EPET: Chavez Plays Up Repsol's Major Natural Gas Find
EIND/EINV/ELAB: Industry Minister Blasts Opel Deal
KIPR: Internet Piracy Blamed for Music Sales Decline
KIPR: Judge Temporarily Shuts Down Alleged Pirate Website
ECON: Balearic Government Proposes Cumbersome New Business
Rules
ENRG: GOS Urges Electric Companies to Keep Buying Spanish Coal
EPET: Spain and France Move Forward with Gas Interconnection
Project
EINV: Spain is Sixth-Largest Recipient of FDI Worldwide

Chavez Plays Up Repsol's Major Natural Gas Find

1.(U) Venezuelan President Hugo Chavez played up Repsol's
major natural gas discovery off the coast of Venezuela during
his one-day trip to Spain on September 11 (ref A). The
deposit, estimated at 7 to 8 trillion cubic feet, could
convert Venezuela into the fourth- or fifth-largest gas
supplier in the world. Repsol said further testing was
required to confirm the extent of the natural gas find, which
would be the energy company's largest. Repsol's President
Antonio Brufau prominently accompanied Chavez throughout his
visit to Spain. During an informal interview with El Pais,
Chavez asked Brufau, "What are we going to do with so much
gas?" Repsol and Italian company ENI have invested 50% of
the exploration costs, and each stands to earn 32.5% of the
proceeds from the find. (El Pais, 9/11; Repsol Press
Release)

Industry Minister Blasts Opel Deal

2.(U) After a meeting in Berlin, Ministry of Industry,
Tourism, and Trade Miguel Sebastian criticized GM's decision
to sell a controlling stake in Opel to the Canadian/Russian
consortium led by Magna (ref B). The GOS is unhappy with
Magna's announcement of planned layoffs, which include 1,642
of the 7,500 workers at the Opel plant in Figueruelas near
Zaragoza. While decrying the lack of transparency
surrounding the transaction and the fact that the GOS still
had not been apprised of the details of the deal and the
company's plans for its Spanish operation, Sebastian
complained that "the more we know about the Magna choice, the
less we like it." Labor union leaders, after meeting with
Sebastian and representatives of the Aragon regional
government, announced a series of demonstrations against the
deal to begin September 19 in Zaragoza. (All Media, 9/16-17)

Internet Piracy Blamed for Music Sales Decline

3.(U) The Music Producers of Spain association Promusicae
released a study showing that music sales fell 30.5% in the
first six months of 2009 compared to the same period in 2008.
According to the industry group, sales declined in each of
the eight previous years for a cumulative revenue loss of
64%. While an impressive 68% increase in legal music
downloads this year is seen as an encouraging trend, it is
from such a small base that it is still dwarfed by the sharp
decline in CD and DVD sales. Promusicae has had to lower its
sales thresholds for awarding gold and platinum records to
reflect the new reality. The group's president, Antonio
Guisasola, blamed unchecked Internet piracy for the trend,
noting that while other EU countries had taken measures to
prevent the Internet from being ruled by "the law of the wild
west," Promusicae had spent the past six years warning the
government about digital piracy and witnessing "the
systematic and unpunished destruction of the entire system of
cultural creation in our country." (El Pais, 9/17)

Judge Temporarily Shuts Down Alleged Pirate Website

4.(U) In a possibly unprecedented act, an investigating judge
in Malaga has ordered the provisional closure of website
mundofutboll.com, which has been accused by cable TV company
Sogecable of violating its intellectual property rights by
uploading the signals of two of Sogecable,s subsidiaries and
broadcasting soccer games via streaming. Mundofutboll.com
allegedly profited from the pirate broadcasts by selling
advertising on its site. The judge ruled that the risk that

MADRID 00000936 002.2 OF 003

the website would continue to violate the cable channels'
rights justified a temporary shutdown while the court
investigates further. Comment: While Spanish law provides
for blocking or shutting down websites with a judicial order,
it is exceedingly rare for Spanish judges to issue such
orders in IPR cases. While Internet piracy of movies, music,
and video games in Spain gets most of the attention, cable
signal piracy is also gaining some prominence due in part to
Sogecable's strategy of aggressively denouncing such
activity. End Comment. (El Pais, 9/17)

Balearics Government Proposes Cumbersome New Business Rules

5.(U) The Government of the Balearic Islands (one of Spain,s
17 autonomous communities) has proposed a draft law that
would make it more difficult to open new small businesses and
to expand existing ones. The President of the Balearics
(which comprise Mallorca, Menorca, Ibiza, and several smaller
islands), Francesc Antich, views the EU Directive on Services
as a threat to the &Mediterranean business model.8 In
contrast to deregulation efforts proposed by Spanish Minister
of Industry Miguel Sebastian to stimulate competition, the
proposed Balearic law would impose new regulations limiting
the size of stores and would require start-ups to provide
copious paperwork and run a bureaucratic obstacle course to
obtain permits and licenses from municipal and autonomous
community governments. Comment: The Balearic draft law is
illustrative of the kind of disputes that arise in the
economic sphere between Spain,s central government and the
autonomous communities. In the interest of protecting
existing companies, the community government is attempting to
buck the EU-backed trend of making it easier to do business.
End Comment. (Expansion, 9/16)

GOS Urges Electric Companies to Keep Buying Spanish Coal

6.(U) The Ministry of Industry, Tourism and Commerce met with
electric company officials to urge them to continue
purchasing Spanish coal. Declining electricity demand
because of the recession, displacement by renewables, the low
quality of nationally produced coal, and rising costs -- from
70 to 220 dollars per ton over the last year -- are
threatening Spain's traditionally important coal industry.
The sector currently employs around 4,000 workers, and the
GOS is concerned about labor unrest as unemployment
approaches 20%. Through September 15 of this year,
electricity production using coal decreased by 19% from the
2008 level, on top of a nearly 40% drop in 2008. Between
January and August 2009, renewables had risen to 26% of the
electricity mix compared to 16% for coal. Before the summer
holidays, the GOS had proposed a plan to buy exces$@YQQyffline and
companies have considerable stockpiles -- up to 18 months'
worth for Endesa -- they have decided to stop buying. They
considered the Ministry's demand to continue purchasing coal
inconsistent with the current energy situation and the
government's emphatic support of renewables. (Expansion,
9/15, 9/18; Europa Press, 9/17)

Spain and France Move Forward with Gas Interconnection
Project

7.(U) The National Energy Commission (CNE) began an open
season to allocate capacity from a planned increase in gas
interconnection with France. The neighboring countries aim
to enable the flow of up to 7 billion cubic meters (bcm) of
gas per year in both directions by 2013. This would mark an
increase in capacity of 4,400% for Spain (which currently has
negligible exports to France) and 125% for France (currently
3bcm). The plan calls for infrastructure investments of over
3.3 billion euros (1.8 from France and 1.3 from Spain) and
would augment the existing connection points at Larrau and
Biriatou in the Basque region. The CNE has already received
considerable interest from shippers, despite the economic
crisis. A second phase of the project calls for an
additional 7 bcm of capacity to be on line by 2015 via a new
point in the Catalan region. The plan is part of an
initiative of the European Group of Gas and Electricity
Regulators (Ergeg) to form a single energy market in Europe.
(Finanzas.com, 9/16; Cinco Dias, 9/18)

MADRID 00000936 003.2 OF 003

Spain is Sixth-Largest Recipient of FDI Worldwide

8.(U) According to UNCTAD,s World Investment Report 2009,
Spain received $65.5 billion in foreign direct investment
(FDI) in 2008, placing it 6th in the world and 3rd in the
European Union. FDI in Spain rose by 2% despite a 14%
worldwide contraction in investment flows and significant
declines in France and the UK. Two large transactions -- the
purchase of Altadis by Imperial Tobacco and Enel,s initial
investment in Endesa -- contributed to the increase. Almost
half the new investment was in the commercial sector, with
energy (including renewables) also showing impressive gains.
The report also showed Spain as the world's eighth largest
foreign investor in 2008. (Moncloa Press Release, 9/18)
CHACON

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