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Cablegate: Railroad Nationalization On the Horizon?

VZCZCXYZ0011
PP RUEHWEB

DE RUEHLP #1975 1990549
ZNR UUUUU ZZH
P 180549Z JUL 07
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 4344
INFO RUEHAC/AMEMBASSY ASUNCION 6931
RUEHBO/AMEMBASSY BOGOTA 4279
RUEHBR/AMEMBASSY BRASILIA 8167
RUEHBU/AMEMBASSY BUENOS AIRES 5412
RUEHCV/AMEMBASSY CARACAS 2642
RUEHPE/AMEMBASSY LIMA 2802
RUEHMD/AMEMBASSY MADRID 3535
RUEHMN/AMEMBASSY MONTEVIDEO 4724
RUEHQT/AMEMBASSY QUITO 5273
RUEHSG/AMEMBASSY SANTIAGO 9880
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUMIAAA/USCINCSO MIAMI FL
RUEHUB/USINT HAVANA 0412
RHEHNSC/NSC WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS LA PAZ 001975

SIPDIS

SIPDIS

STATE FOR WHA/AND

E.O. 12958: N/A
TAGS: ECON EINV BL
SUBJECT: RAILROAD NATIONALIZATION ON THE HORIZON?

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Summary
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1. (SBU) President Morales announced at a public event on
July 15 that the GOB would begin the nationalization of ENFE,
the partially-privatized national railroad company, soon.
The GOB's interest seems focused on the Chilean-invested
western railway, but may implicate the partially U.S.-owned
(Genesee and Wyoming) eastern branch as well. End summary.

--------------------------------------------- -
GOB's "Nationalization" Plan Targets Railroads
--------------------------------------------- -

2. (SBU) The GOB announced in its national development plan
of June 2006 that it would nationalize nine of the ten
state-owned companies that were partially privatized in the
1990s. It began with hydrocarbons and then attempted (to
date unsuccessfully) to regain control of Bolivia's largest
telecoms operator Entel. With growing public concern over
rising inflation, President Morales has again raised the
popular banner of nationalization to distract attention away
from other problems. This time, the target is ENFE -- the
national railroad company that was partially privatized in
1996.

----------------------------------------
Chileans More at Risk than US Investors?
----------------------------------------

3. (SBU) In 1996, ENFE was split into two companies:
Ferroviaria Andina, which is 50 percent owned by Chilean
investors, and Ferroviaria Oriental, which is 50 percent
owned by the U.S. company Genesee and Wyoming. According to
prior conversations with Ferroviaria Oriental Manager Jaime
Valencia, the GOB was focusing its nationalization
aspirations on the unsuccessful Ferroviaria Andina in western
Bolivia. The government had indicated to Valencia that it
did not plan to take over the successful eastern branch of
the railroad, in which Genesee and Wyoming has invested USD
90 million. However, in a public event on July 15, President
Morales announced that the GOB is beginning the take-over of
ENFE.

--------------------------------------------- -
GOB's Announcement: More Noise than Substance?
--------------------------------------------- -

4. (SBU) Ferroviaria Oriental (FO) Commercial Manager Enrique
Rioja told Econoff on July 17 that the president's
announcement took the company by surprise, as FO has not had
any discussions with the GOB regarding a potential take-over.
He suspects that the GOB will not take any action regarding
the announcement soon. He is hopeful that the GOB's actions
will focus on the western, Chilean-owned Ferroviaria Andina,
but worried about the possibility that the government's
intentions may include FO, as well.

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Comment
-------

5. (SBU) If the GOB does move to "nationalize" the railroads,
it will likely focus on the Chilean-owned western branch,
rather than the U.S.-owned eastern line. If this
nationalization is analogous to "nationalizations" in the
hydrocarbons and telecommunications fields, the GOB will not
expropriate property, but seek to coerce private investors to
sell it enough shares to enable it to gain control of the
companies. However, the Vinto smelter expropriation without
compensation represents a harsher example that cannot be
ruled out as a possibility. Post will continue to monitor
the situation as it unfolds. End comment.
GOLDBERG

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