Cablegate: Steel Strike Raises Issues of Power And

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS CARACAS 001549

SIPDIS

NSC FOR BARTON/SHANNON
SOUTHCOM ALSO FOR POLAD
STATE PASS AID FOR DCHA/OTI

E.O. 12958: N/A
TAGS: ELAB ECON PGOV VE
SUBJECT: STEEL STRIKE RAISES ISSUES OF POWER AND
PRIVATIZATION

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Summary
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1. (SBU) A strike at the partially privatized SIDOR steel
complex in Puerto Ordaz (Bolivar state) by a pro-government
union has gone on for two weeks. Company sources express
fear that the strike, allegedly over failure to share profits
with workers, may be a prelude to an effort to undo the
privatization, and suspect GOV connivance. If further
prolonged, a shutdown at SIDOR could affect a wide range of
Venezuelan businesses at a time when the economy remains very
fragile. Some employees, however, have returned to work, and
the GOV now may be looking for a face-saving way out for the
union. If a negotiated solution is not found, the SIDOR
strike could force the GOV to choose between a union that
supports it and multinationals that it has largely left alone
until now. End summary.

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The Players
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2. (SBU) Since April 23, SIDOR (Orinoco Steel Works),
Venezuela's principal steel producer, has been hit by a
strike by its main union, SUTISS. SIDOR, which employs 5,700
workers at its Puerto Ordaz (Bolivar state) mill and wharf
complex, producing a wide variety of steel products, was
originally a wholly-owned component of the giant state
enterprise "Corporacion Venezolana de Guayana" (CVG). It was
largely privatized in 1998, with the sale of 70 pct to a
consortium led by Argentine interests, but also including
Brazilian, Mexican, and private Venezuelan firms. The GOV,
through CVG, retained a 10 pct interest. When the firm was
partially privatized, the GOV was committed to selling the
remaining 20 pct to employees on preferential terms under a
"Labor Participation Program." However, it has not done so,
and it is generally believed that the Chavez government
prefers to keep as much as possible of the firm in state
hands (see below). SIDOR faced hard times after its partial
privatization, in face of over-production in the world steel
market and an over-valued bolivar. Ultimately, it underwent
a reorganization in which in exchange for a cash infusion,
the GOV (through CVG) took back an additional 10 pct, giving
it a 40 share, including the undistributed Labor
Participation Program stock, and leaving the consortium with
60 pct.

3. (SBU) SUTISS, the main SIDOR union (representing 4000
workers), is run by elements in sympathy with the Chavez
government, and is linked to the pro-Chavez UNT labor
confederation, which has supported the strike. The
pro-Chavez union gained strength following privatization,
when the workforce was chopped back from 13,000 in an abrupt
manner, and has organized a number of short-term walk-outs
since then. Its leader, Ramon Machuca, campaigned for the
union presidency as an opponent of privatization. During the
December 2002-February 2003, SUTISS led a large march on
state oil enterprise PDVSA's Anaco natural gas processing
plant in support of keeping it open. Had the Anaco plant
closed, all of the Guayana basic industries complex (SIDOR
and CVG's Venalum and Bauxilum aluminum mills) would have had
to just down. In fact, they stayed open through the strike.

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The Issues - Money and Politics
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4. (SBU) Superficially at least, this is a strike about
money. With SIDOR enjoying a more favorable economic
climate, as a result of increased world demand for steel and
a cheaper bolivar, SUTISS is demanding that the workers
receive 90 days pay worth of "profit-sharing." SIDOR insists
that the 15 days which it paid them as a Christmas bonus is
all that the law requires. The union also alleges that
SIDOR, which has made significant payments to CVG recently,
should be giving some of this money to the workers. SIDOR's
response is that any money it is transferring to CVG is
repayment of debt incurred during the restructuring, and not
any kind of dividend. It asserts that the workers should
look to CVG to hand over to the workers their Labor

Participation Program shares, if they expect to benefit from
the firm's improving position.

5. (SBU) However, company sources tell us that they see a
larger agenda here. They suggest that union leader Machuca
wants to create chaos with an ultimate goal of getting the
GOV to intervene and roll back SIDOR's privatization.
Connivance with the GOV is suspected here. They note that
upon taking office Chavez froze planned partial
privatizations of other CVG firms. They also suggest that
the GOV dragged its feet on the distribution of the Labor
Participation Program shares to individual workers to keep
its own existing interest as high as possible to prepare for
such a move. There is also speculation that Machuca is
interested in using a labor battle at SIDOR to either promote
the candidacy of former CVG President Francisco Rangel, the
pro-Chavez Fifth Republic Movement candidate for governor of
Bolivar state (or in another version, to promote himself as
an alternative to Rangel).

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Economic Consequences
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6. (SBU) As the strike drags on concern is rising about its
impact. SIDOR has announced it will stop paying the
strikers, a move which the union denounces as unfair. The
lost income will have an immediate effect on the economy in
Bolivar. But beyond that, the businesses which rely on
SIDOR's steel are getting nervous. (SIDOR has kept up
intermittent deliveries from inventories thus far, but cannot
do so indefinitely. It has also faced union demonstrations
and roadblocks which have turned violent, adding to its
difficulties.) Leaders of business associations ranging from
the strongly anti-Chavez Venezuelan Industrial Confederation
(CONINDUSTRIA) to the more pro-Chavez Confederation of Small
and Medium (FEDEINDUSTRIA) have weighed in, noting that SIDOR
supplies raw material for a wide range of businesses, and
that some are on the verge of shutting down. An
advertisement placed by the steel industry's trade
association noted that SIDOR's steel is used in everything
from auto parts and food packaging to petroleum tubes.
SIDOR's steel is also used by CVG for production processes at
its aluminum smelting plants, and it too has called for a
rapid end to the conflict.

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Finding a Way Out
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7. (SBU) The GOV has been largely silent on the SIDOR
strike. SIDOR management has demanded that the strike be
declared illegal, which the GOV has thus far not done. Only
on May 3 did the Labor Ministry become engaged, hosting a
meeting between labor and management, which has not
apparently moved the parties any closer. State-owned CVG has
published an advertisement saying that it is moving forward
on the distribution of the Labor Participation Program shares
to SIDOR workers (although it is not clear at all that this
is what the union is seeking). Thus far Chavez has made no
comments on the strike. News reports on May 10 and 11 stated
that several hundred workers had voluntarily returned to
their jobs, and implied that the return of the Labor
Participation Program shares, plus some additional bonus
money could be the basis for a settlement.

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Comment
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8. (SBU) We cannot say whether the GOV has actively been
involved with the union in setting up this crisis or whether
it has stumbled into it as a result of the union's acting on
its own. But it now faces difficult choices. Letting the
strike continue hurts an economy which the GOV has sought to
pump up as it deals with the challenge presented by the
political opposition's referendum drive. Supporting SIDOR
management and declaring the strike illegal would be
tantamount to disavowing the new pro-Chavez labor movement it
has spent so much effort in promoting. Intervening to undo
SIDOR's privatization, while attractive ideologically, would
set the GOV up with a direct confrontation with foreign

multinationals, including ones from two countries it is
trying hard to cultivate, Brazil and Argentina. If the
strike is indeed beginning to crumble (good jobs are hard to
come by and many workers may not want to follow the union
over a cliff), then the distribution of the Labor
Participaton Program shares, plus some more money (either
from SIDOR itself or from the GOV) may allow the union to
declare victory. That would probably be the best short-term
outcome from the GOV's point of view, unless it really does
want to use this as a chance to "deepen the revolution,"
albeit at a high political and economic cost.

SHAPIRO

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2004CARACA01549 - UNCLASSIFIED

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