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Cablegate: Partial Gob Take-Over of Bolivia's Largest

VZCZCXYZ0013
PP RUEHWEB

DE RUEHLP #1144/01 1141952
ZNR UUUUU ZZH
P 241952Z APR 07
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 3337
INFO RUEHAC/AMEMBASSY ASUNCION 6725
RUEHBO/AMEMBASSY BOGOTA 4054
RUEHBR/AMEMBASSY BRASILIA 7943
RUEHBU/AMEMBASSY BUENOS AIRES 5192
RUEHCV/AMEMBASSY CARACAS 2422
RUEHPE/AMEMBASSY LIMA 2548
RUEHMD/AMEMBASSY MADRID 3432
RUEHMN/AMEMBASSY MONTEVIDEO 4561
RUEHQT/AMEMBASSY QUITO 5061
RUEHRO/AMEMBASSY ROME 0286
RUEHSG/AMEMBASSY SANTIAGO 9644
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUMIAAA/USCINCSO MIAMI FL
RUEHUB/USINT HAVANA 0277
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS LA PAZ 001144

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
TREASURY FOR SGOOCH
STATE FOR EB/CIP/BA/NFETCHKO

E.O. 12958: N/A
TAGS: ECON ECPS EINV BL
SUBJECT: PARTIAL GOB TAKE-OVER OF BOLIVIA'S LARGEST
TELEPHONE COMPANY

REF: 2006 LA PAZ 2770

-------
Summary
-------

1. (SBU) On April 23, the GOB reportedly issued a decree
taking over 47 percent of the nation's largest telephone
company, Entel, from the Bolivian Pension Fund
Administrators, who previously held the shares in trust to
pay pensions to the Bolivian public. GOB negotiations with
Telecom Italia, who owns 50 percent of Entel, are ongoing to
acquire the remaining 3 percent plus one share that the
government needs to gain majority ownership of the company.
The GOB aims to complete the take-over by May 1. According
to Entel contacts, the negotiations have progressed minimally
to date. End summary.

-----------------------------
GOB Gains 47 Percent of Entel
-----------------------------

2. (U) On April 23, in a first step towards its goal of
majority ownership of the country's largest telephone company
Entel, the GOB reportedly issued a decree to gain 47 percent
of the shares of the company. (Note: The press did not
indicate the decree number, and Emboffs have been unable to
verify that the decree was actually issued yet. End note.)
These shares were held by the Bolivian Pension Funds
Administrators (AFPs) in trust for the Bolivian people, to be
used to pay a pension, "Bonosol," to the elderly, following
Entel's partial privatization (capitalization) in 1995.
(Comment: Although the GOB has pledged to continue paying
the "Bonosol" pension, it seems that such payments will not
be feasible. The GOB plans to use the earnings from these
shares, and previously confiscated hydrocarbons shares, to
revamp formerly state-owned companies, expand rural
telephony, and implement other social programs, which implies
that they will not be available for the Bonosol. End
comment.) Fifty percent of Entel's shares are privately held
by Telecom Italia, while the remaining three present are
owned by former state company workers.

3. (SBU) On April 23, the GOB also reportedly issued a decree
abrogating a decree issued in 2005 related to the
certification that Telecom Italia had completed the
investments that it promised to undertake as part of its
purchase agreement for Entel in 1995. The GOB's action is
likely an attempt to pressure the company in negotiations for
majority control by claiming that the company did not fulfill
its contract and is thus subject to GOB intervention.

--------------------------------------------- --
Entel Take-Over Mirrors Hydrocarbons Take-Overs
--------------------------------------------- --

4. (U) The GOB stated in its national development plan,
released in June 2006, that it intended to gain majority
ownership of nine companies that were capitalized in the
1990s. Thus far, in addition to Entel, it has recouped the
shares formerly held by the AFPs for three hydrocarbons
companies (Chaco, Andina, and Transredes), but has not yet
negotiated with the private investors the sale of the
additional shares necessary to control 50 percent plus one
share of those three companies.

--------------------------------------------- -------------
GOB Plans Uncertain -- 50 Percent Plus One or 100 Percent?

--------------------------------------------- -------------

5. (SBU) GOB telecoms officials told Econoff previously that
the government would seek to gain majority control of Entel,
but not operating control (reftel). They said that the
government would allow a private company to continue running
Entel, but wanted access to Entel's profits to expand rural
telephone services and school internet access. However,
recent press reports indicate that the GOB may be seeking
total ownership. According to such reports, the GOB began
negotiations with Telecom Italia on April 2 to either gain
majority or total ownership of the company by May 1.

--------------------------------------------- -------
Telecom Italia Wants to Sell All of its Entel Assets
--------------------------------------------- -------

6. (SBU) Entel's president previously told Econoff that
Telecom Italia was seeking to sell its 50 percent ownership
of Entel (reftel). Telecom Italia has already begun
negotiations with other private companies regarding such a
sale. According to recent conversations with Entel contacts,
the negotiations with the GOB have not progressed. The
delegation that came to Bolivia from Italy in mid-April was
low-level and lacked the authority to strike a deal with the
GOB on Telecom Italia's Entel assets. The delegation was
sent to listen to the GOB's points and report back to the
board, but not to negotiate. Telecom Italia would rather
sell its entire interest in Entel, rather than the three
percent and one share to the GOB that would grant the
government majority ownership. If the GOB obtained operating
control of the company, Entel would likely decline and
Telecom Italia would suffer profit losses. According to
press reports, the Italian foreign minister sent a note to
the GOB requesting it to respect prior agreements regarding
the company and has requested the intervention of the
European Commission.

-------
Comment
-------

7. (SBU) Based on the failed, delayed hydrocarbons sector
negotiations as an example, it is unlikely that the GOB will
reach its May 1 deadline for negotiating majority ownership
of Entel. Post will continue to monitor the progress of the
so-called telecommunications "nationalization," which seems
to be the government's next big political deliverable,
symbolically scheduled for May Day -- the one year
anniversary of hydrocarbons "nationalization." End comment.

GOLDBERG

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