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Cablegate: Gob's Entel Take-Over Attempt Vexes Europe

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DE RUEHLP #1245/01 1241830
ZNR UUUUU ZZH
P 041830Z MAY 07
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 3467
INFO RUEHAC/AMEMBASSY ASUNCION 6753
RUEHBO/AMEMBASSY BOGOTA 4084
RUEHBR/AMEMBASSY BRASILIA 7978
RUEHBU/AMEMBASSY BUENOS AIRES 5221
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RUEHPE/AMEMBASSY LIMA 2580
RUEHMD/AMEMBASSY MADRID 3452
RUEHMN/AMEMBASSY MONTEVIDEO 4585
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RUEHSG/AMEMBASSY SANTIAGO 9675
RUEHTC/AMEMBASSY THE HAGUE 0749
RUEHBS/USEU BRUSSELS
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUMIAAA/USCINCSO MIAMI FL
RUEHUB/USINT HAVANA 0301
RHEHNSC/NSC WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS LA PAZ 001245

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 PREL BL
SUBJECT: GOB'S ENTEL TAKE-OVER ATTEMPT VEXES EUROPE

REF: LA PAZ 1144

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

1. (SBU) The parent company of Telecom Italia, which owns 50
percent of Bolivia's largest telephone company Entel, is
threatening arbitration under the Bolivian-Dutch bilateral
investment treaty. The arbitration threat arose following
the GOB's announcement that it would take over majority
ownership of Entel (reftel). This row regarding
telecommunications "nationalization" is the latest in a
string of events that threaten to sour EU-Bolivian relations.
End Summary.

-----------------------------------
Dutch Company Threatens Arbitration
-----------------------------------

2. (SBU) The press announced on May 4 that the Dutch
telecommunications company, Euro Telecom International (ETI),
the parent company of Telecom Italia, sent a letter to the
Bolivian Government on April 30 notifying the GOB of a
dispute under the Dutch-Bolivian bilateral investment treaty
and requesting consultations regarding the GOB's plan to take
over majority ownership of Bolivia's largest telecoms
operator, Entel. Entel is 50 percent-owned by Telecom
Italia, a subsidiary of the Dutch ETI, which was
partially-acquired by the Spanish company, Telefonica S.A. in
April.

--------------------------------
GOB Seeks to "Nationalize" Entel
--------------------------------

3. (SBU) Following partial privatization in the 1990s,
Telecom Italia acquired its 50 percent ownership in Entel,
while 47 percent was held in trust to pay pensions for the
Bolivian public. The GOB announced in early April that it
aimed to acquire majority ownership of Entel by May 1, and
issued two decrees on April 23 taking over the 47 percent
held by the pension fund administrators and declaring that
Telecom Italia had not fulfilled its investment commitments
made under contract (reftel). Telecom Italia claims that it
surpassed such commitments with investments of USD 720
million.

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

4. (SBU) Vice President of the European Commission Frattini
reportedly told the press that if Bolivia does not respect
its commitments made to investors, it would be sending a very
negative signal regarding the relationship between the
European Union and Bolivia. This row regarding
telecommunications "nationalization" is the latest in a
string of events that threaten to sour EU-Bolivian relations.
In May 2006, the GOB angered the Spanish with threats to
"nationalize" the partially Spanish-owned hydrocarbons
company Repsol; in January 2007, the EU issued a request that
the GOB stop fomenting violence in Cochabamba; in February
2007 the GOB nationalized the smelter operated by the Swiss
company Glencore; and in April, Spain imposed tremendously
unpopular visa requirements on Bolivians. These events have
already strained relations, and this latest "nationalization"
may signal the end of the European honeymoon with the Morales


government. End comment.
GOLDBERG

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