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Cablegate: Madrid Weekly Econ/Ag/Commercial Update Report -

VZCZCXRO8536
RR RUEHRN
DE RUEHMD #1555/01 2250853
ZNR UUUUU ZZH
R 130853Z AUG 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3185
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 3956
RUEHLA/AMCONSUL BARCELONA 2978

UNCLAS SECTION 01 OF 03 MADRID 001555

SIPDIS

SIPDIS

EUR/WE

E.O. 12958: N/A
TAGS: EAGR ECON EFIN EIND ELAB ENRG ETRD KIPR PTER
SENV, SP, EINV, UK
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -
AUGUST 6

MADRID 00001555 001.2 OF 003


Table of Contents:

EFIN: Madrid stock market suffers fifth biggest loss in its
history on Friday, August 10
EFIN: Spanish economy up by 4.1%
ECON/ENRG Abengoa buys Brazilian Dedinia Agro
ELAB/ECON Salaries' share of GDP declining
ECON: Telefonica (Vivo) acquires Brazil's Telemig and
Amazonia Cellular
KIPR: Editorial supports Indian court judgment against
Novartis
EIND/ECPS: Telefonica to face populist opposition to
expansion in Latin America
ENRG: New GOS law will allow offshore construction of wind
farms
ENRG/EIND: Gamesa reports strong financial results
ECPS: Post office to be fully integrated by 2008
EAIR: Madrid Barajas airport increasing in international
prominence
EAGR: EC requirement will cause higher grain and oilseed
prices
TSPA: NASA receives positive coverage

SIPDIS

MADRID STOCK MARKET SUFFERS FIFTH BIGGEST LOSS IN ITS HISTORY
ON FRIDAY, AUGUST 10

1. (U) The Madrid exchange lost 2.59% of its value on Friday.
Banks and real estate groups lost most value. What is
happening in Spain is similar to what is happening in other
major equities markets. The major Spanish banks continue to
say they are not overly exposed to the American subprime
market, but analysts are not sure. Local commentators
overwhelmingly approve of the European Central Bank,s
injection of liquidity into the system. Next week is likely
to be volatile as well for the Madrid stock market. (Cinco
Dias, 8/10/07)

SPANISH ECONOMY UP BY 4%

2. (U) The Bank of Spain says Spanish economy grew by 4.1%
during the second quarter of 2007. The Bank also highlights
the 11% increase in investment in capital goods -
construction accounted for a comparatively modest 5%. This
is important because the GOS is looking to change the Spanish
"growth model" from one dependent on construction and
internal demand to one more reliant on investment in capital
goods/R&D and exports. (El Pais, 8/7/07)

ABENGOA BUYS BRAZILIAN DEDINIA AGRO FOR USD 684 MILLION

3. (U) Dedinia is a major ethanol and sugar producer. This
acquisition is part of Abengoa's strategy to become a global
leader in renewable energy. The Andalucia-based firm is
already the fifth largest bioethanol producer in the U.S.
(Expansion, 8/7/07)

SALARIES' SHARE OF GDP DECLINED BY 13%

4. (U) Bank of Spain releases study showing that salaries'
share of GDP has declined by 13% in the eurozone since 1980
as a result of increased labor market flexibility and
technological change. In Spain the decline has been a
relatively modest 4% since 1980. (El Pais, 8/7/07)

TELEFONICA (VIVO) ACQUIRES BRAZIL'S TELEMIG AND AMAZONIA
CELLULAR

5. (U) Telefonica-controlled Vivo beat Carlos Slim's Claro in
acquiring Brazil's Telemig and Amazonia Celular for euros 469
million: This acquisition is being characterized as a
Telefonica win by the national and international press.
Comment: Telefonica appears to believe there is still some
merit in the acquisitions route even though the company said
recently it planned more "organic", i.e. internal, growth.
(Expansion, August 4, 2007; Financial Times, August 4, 2007)


EL PAIS EDITORIAL SUPPORTS INDIAN COURT JUDGMENT AGAINST
NOVARTIS

6. (U) Spain's leading daily says it supports robust patent
protection for innovative drugs, but that some companies have
gone too far in submitting incrementally improved drugs for
new patent terms. (El Pais, 8/8/07)

TELEFONICA FACES POPULIST OPPOSITION TO EXPANSION IN LATIN
AMERICA

MADRID 00001555 002.2 OF 003

7. (U) Telefonica is said to face "populist" opposition to
expansion in Brazil, Ecuador, Venezuela and Argentina. The
company is especially worried about overly restrictive final
prices imposed by the local regulators. (Expansion, 8/8/07)


NEW GOS LAW WILL ALLOW OFFSHORE CONSTRUCTION OF WIND FARMS

8. (U) The GOS passed a new law that will allow offshore
construction of wind farms. With over 400 wind farms and
12,000 turbines generating 8 percent of Spain's energy, wind
farm construction is nothing new to the world's second
largest producer of wind energy. However, although
experimental offshore wind farms have been built, this will
be the first time that larger scale commercial development
will be allowed. Under the new law, a committee of five GOS
ministries will review all proposals and have the authority
to grant operating licenses within government designated
zones. The law is consistent with the GOS target of having
12.1% of its total energy consumption from renewable sources
by 2010. (GOS Official Bulletin, 8/1/07; El Pais, 8/2/07)

GAMESA REPORTS STRONG FINANCIAL RESULTS

9. (U) Spain-based Gamesa, the world's second largest wind
turbine manufacturer, reported strong financial results for
the first half of 2007 with 67 percent revenue growth and 20
percent operating profit growth (adjusted EBITDA). With four
new production facilities in Pennsylvania, 30 percent of
Gamesa's global wind energy sales are now U.S. generated.
Year to date, Gamesa's share price has increased over 45
percent. However, the company reported that the lack of
critical component availability (blades and towers) - a
constraint experienced across the industry - is slowing
revenue growth. (Gamesa Quarterly Earnings Statement,
7/31/07)

POST OFFICE TO BE FULLY INTEGRATED BY 2008

10. (U) The state-owned Spanish Post Office expects to
complete operational and commercial integration with Kahala
Posts Group (KPG) by early 2008. KPG, a collaborative
network of nine national postal administrations, was created
in 2005 to compete more effectively against multi-national
carriers TNT, UPS, FedEx and DHL. Spain's Post Office, whose
participation in the alliance has lagged other partners, said
it is accelerating its integration effort to improve the
competitiveness of its export service. Export volumes among
all alliance members have grown 40% annually. (Expansion,
8/7/07)

MADRID BARAJAS AIRPORT INCREASING IN INTERNATIONAL PROMINENCE

11. (U) The investment that GoS has made to expand Madrid's
Barajas airport over the past several years is beginning to
bear fruit. Over the past four months, this airport
experienced one of the largest increases in the number of
passengers served, increasing the airport's ranking to 10th
worldwide. AENA, Spain's airport management authority,
predicts that Barajas, capacity will continue to grow, and
that it will soon surpass airports such as Frankfort and
Peking, currently ranked at 9th and 8th respectively. AENA
estimates that Barajas-Madrid will service a total of 51
million passengers by the end of 2007, six million more than
in 2006.

NEW EC REQUIREMENT WILL CAUSE HIGHER GRAIN AND OILSEED PRICES

12. (U) The European Commission's (EC), agriculture
directorate just published an impact statement estimating
that the EC's new ten percent (by 2020) renewable fuels
mixing requirement will result in higher grains and oilseeds
prices. The EC's report indicates that to meet the new
mixing requirement, European Union (EU) farmers will need to
dedicate about 15 percent of currently available agricultural
land to the production of renewable fuels feedstock. They
forecast price increases (from today's historically high
prices) of from 3 to 6 percent for cereals and 8 to 10
percent for oilseeds prices.

13. (U) The EC's new forecasts are sure not to please those
who argue against the diversion of farmland from the
production of food to the production of fuels, but, as with
all such forecasts, it is clear that with time and experience
the EC will submit revised projections. For instance, if the
EC were to modernize its agriculture biotechnology evaluation

MADRID 00001555 003.2 OF 003


policy before 2020, new biotechnology seed varieties would
likely help EU farmers produce increased yields far in excess
of those needed under current projections to meet the
increased demand for renewable fuels feed stock.

NASA RECEIVES POSITIVE COVERAGE

14. (U) The August 8 launch of Space Shuttle Endeavour
received positive, accurate press coverage in Spain. The
websites of both El Pais and El Mundo carried the launch as
lead stories the morning of August 9, and provided accurate
descriptions of the mission and its objectives. The El Pais
coverage was positive and included the story of
teacher-turned-astronaut Barbara Morgan's more than twenty
year journey to fly in space, as well as the role that
Zaragoza plays in case of an emergency. El Mundo's coverage
mentioned scientific experiments being conducted by
Endeavour's crew in coordination with the Spanish national
Research Council (CSIC). El Mundo's report did reference
"various scandals" that have "seriously damaged" NASA's
professional image, including a subcontractor's recent
attempted sabotage, allegations of astronauts consuming
alcohol before missions, and the attempted kidnapping charges
against former astronaut Lisa Nowak. (El Pais.com
8/9/07;elmundo.es, 8/9/07)
AGUIRRE

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