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

VZCZCXRO9481
RR RUEHRN
DE RUEHMD #1801/01 2601557
ZNR UUUUU ZZH
R 171557Z SEP 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3433
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3051

UNCLAS SECTION 01 OF 03 MADRID 001801

SIPDIS

SIPDIS

EUR/WE, EEB/EFD/OMA

E.O. 12958: N/A
TAGS: ECON EFIN EIND ENRG ETRD SP EINV EAGR SOCI
ELAB
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -
SEPTEMBER 10-14


MADRID 00001801 001.2 OF 003


Table of Contents:

EINV: Growth forecasts for Spain in 2007 and 2008 strong but
somewhat lower for 2008
EFIN/PGOV: First VP and Finance Minister Pedro Solbes
publicly overruled on spending by President Zapatero once
again
EPET: Major oil reserve reportedly found by Repsol in Cuenca
de Santos, Brazil
EINV: Spanish engineering company Typsa wins engineering
contract for expanding Panama Canal
ELAB/SOCI: Fewer jobs being created
EINV: Abertis wins two airport contracts in Georgia, USA
EFIN: Santander sets its sights on Italy's biggest fortunes
EAGR/TBIO: New record for biotechnology corn plantings in 2007
ENRG/EINV: Solar power subsidies attract investors
ECON/ELTN: Madrid makes a play for more infrastructure
funding
PGOV/ENRG: Election year economics: GOS to freeze electricity
rates
ENRG/EINV: Proposed French merger may result in unfair
competition on the Spanish energy market
EINV/ENRG: Iberdrola to purchase electric plant in Klamath,
Oregon

GROWTH FORECASTS FOR SPAIN IN 2007 AND 2008 STRONG BUT
SOMEWHAT LOWER FOR 2008

1. (U) The European Commission released growth forecasts on
9/11/07. The Commission maintained its 3.7% GDP growth
forecast for Spain in 2007 compared with 2.5% for the
eurozone and 2.9% for the UK. Fourteen private sector
entities also maintained an average growth forecast of 3.8%
for Spain in 2007, but they recently lowered their average
2008 growth forecast from 3.3% to 3%. More generally, while
there has been a lot of talk in the Spanish press about the
possible impact in Spain of the subprime mortgage problem in
the U.S., leading business daily Expansion surveyed Ibex-35
companies and found them still to be relatively bullish about
prospects for their companies. Telefonicas's CEO, Cesar
Alierta, and BBVA's CEO, Francisco Gonzalez, publicly agreed
with Santander CEO Emilio Botin's statements last week that
Spain was well positioned to withstand international
financial market turbulence. (El Pais 9/9/07; El Pais
9/11/07; Expansion 9/13/07)

FIRST VP AND FINANCE MINISTER PEDRO SOLBES PUBLICLY OVERRULED
ON SPENDING BY PRESIDENT ZAPATERO ONCE AGAIN

2. (U) This week, Finance Minister Solbes publicly expressed
doubts about Health Minister Bernat Soria's proposal to
provide free dental care to children between the ages of 7
and 15. However, President Zapatero subsequently supported
the idea. This comes on the heels of a number of ideas that
Solbes has expressed doubts about, including exempting books
and CDs from turnover taxes; indexing the minimum wage;
extending to all working mothers a monthly 100 euro payment;
tax deductions for renting housing; payment of euros 2,500 to
the parents of every newborn child; early retirement for
civil servants; guaranteed housing in Andalucia for anybody
earning euros 3,100 or less; and the free dental plan for
children between the ages of 7 and 15. (Comment: Solbes has
won a few of these battles, but he has tended to lose more as
the elections get closer, notably the euro 2,500 payment for
newborns. It is somewhat surprising that these spending
disagreements seem to get discussed in public consistently, a
fact not unnoticed by the opposition conservative PP party,
which made some hay out of this latest spending spat at the
9/12/07 parliamentary debate.) (Expansion, 9/12/07)

MAJOR OIL RESERVE REPORTEDLY FOUND BY REPSOL IN CUENCA DE
SANTOS, BRAZIL

3. (U) Repsol reportedly has found a major oil reserve in
Cuenca de Santos, 120 km off the Brazilian coast near Rio de
Janeiro. This could turn out to be the second largest oil
field in Brazil. However, it will be a year before reserve
levels are finally confirmed. (Comment: Given the fact that
Repsol recently had to lower estimated reserves and pay a
number of American investors compensation for allegedly
overestimating reserves, the company will likely be cautious
before coming out with more definitive figures on the
dimensions of its find, which is 2000 meters under water.)
(Expansion, 9/10/07)

SPANISH ENGINEERING COMPANY TYPSA WINS ENGINEERING CONTRACT
FOR EXPANDING PANAMA CANAL


MADRID 00001801 002.2 OF 003


4. (U) The lead contractor is the American company, CH2M
Hill, but Typsa and the Dutch DHV firm have been chosen to
work with CH2M Hill on this contract, which is estimated to
be worth USD 5.25 billion. (Comment: It appears that
President Zapatero's recent trip to Panama paid commercial
dividends for Spain.) (Expansion, 9/11/07)

FEWER JOBS BEING CREATED

5. (U) The autonomous community of Madrid is the most
affected by the decelerating creation of new jobs in the last
months according to a study by Adecco. The study concludes
that employment in the Madrid autonomous community will
increase by only 2% this year, the lowest rate of increase in
the last decade. (20 minutos)

ABERTIS WINS AIRPORT CONTRACT IN GEORGIA, USA

6. (U) Spain's leading toll-road operator Abertis, jointly
owned by La Caixa and construction firm ACS, won a 10 year
contract to manage two airports in the U.S. state of Georgia
for an undisclosed amount. Abertis will manage the U.S.
airports of Middle Regional Georgia and Herbert Smart Town,
both located close to the transportation hub of Atlanta. (EL
Pais)

SANTANDER SETS ITS SIGHTS ON ITALY'S BIGGEST FORTUNES

7. (U) Emilio Botin, head of Santander, inaugurated Friday
the entity's first private banking branch in Milan, Italy's
financial capital. This represents Santander's first effort
to export its private banking business and part of a wider
strategy to open 20 private banking branches in Italy in
three years to develop business from wealthy customers. (El
Pais)

NEW RECORD FOR BIOTECHNOLOGY CORN PLANTINGS IN 2007

8. (U) Spanish corn farmers set a new record for
biotechnology corn plantings this year, marketing year (MY)
2007. According to the Spanish Ministry of Agriculture, the
number of biotechnology corn hectares planted, and
soon-to-be-harvested, reached another record this year
surging to over 75 thousand hectares, up from about 54
thousand planted last year. This is the biggest year-on-year
increase in the last three years and one of the most
impressive increases in the entire history of agriculture
biotechnology in Spain.

9. (U) We noted in a previous report that farmers in the
western part of Spain (Extremadura) were going to add
additional plantings, but the real surprise came in the
eastern corn-growing region of Aragon. Corn farmers in
Extremadura increased their planting threefold. However, in
Aragon, where biotechnology corn has been relatively strong
since its meager beginnings in 1998, corn farmers increased
biotechnology corn plantings from about 24 thousand in 2006,
to about 36 thousand this year, a new record for the region.

SOLAR POWER SUBSIDIES ATTRACT INVESTORS

10. (U) GOS subsidies for solar power continue to attract
investors, raising some concerns from industry leaders and
the GOS. The solar industry expects to reach no later than
next year the GOS' 2010 goal of solar representing one
percent of Spain's total energy production (400 megawatts).
Due to generous subsidies from the GOS Ministry of Industry,
Tourism and Commerce that began in May, Spanish solar
companies are considering expanding solar capacity by as much
as 6,000 to 18,000 megawatts. The GOS' Renewable Energy Plan
provides a 25 year subsidy for solar plants with annual
capacity of 0.1 to 10 megawatts, guaranteeing investors
returns of eight to twelve percent. A spokesperson for
Abengoa, one of Spain's original solar energy providers,
expressed concern over the number of new solar plants being
constructed. The Association of Renewable Energy Producers
told El Pais that officials from the Ministry met in July
with Acciona Energy and several banks to request a "slow
down" in the number of planned solar projects. (El Pais,
10/10/2007)

MADRID MAKES A PLAY FOR MORE INFRASTRUCTURE FUNDING

11. (U) In a September 10 meeting between President Zapatero
and Governor of the Autonomous Community of Madrid Esperanza
Aguirre, Zapatero agreed to devote more infrastructure
funding to Madrid's roadways and airports. According to
Aguirre (from the opposition Partido Popular), the GOS has

MADRID 00001801 003.2 OF 003


not made any significant investments in Madrid's
infrastructure over the past 3 years. Zapatero also agreed
to allow Madrid to participate in the management of Madrid's
commuter train system and Barajas airport, Spain's preeminent
airport ranked 10th worldwide for passenger volume.
(Comment: Madrid brings in a large portion of revenues to
the central budget. It is one of the Autonomous Communities
that has felt neglected by recent announcements that the GOS
will increase infrastructure spending for Catalonia and
Andalusia. However, some experts do assert that Madrid,s
infrastructure is advanced compared with other areas of
Spain, and hence does have the same level of infrastructure
investment as other localities.)

ELECTION YEAR ECONOMICS: GOS TO FREEZE ELECTRICITY RATES

12. (U) The GOS will attempt to freeze electricity prices for
this upcoming election year despite concerns that the rates
may be insufficient to cover electric company costs.
Electricity rates, reviewed and set quarterly by the Ministry
of Industry with input with electric companies, have
consistently increased since 2002. In 2006, the Ministry
increased rates by a surprising 4.5 percent, largely in an
effort to pay down the GOS "electric budget deficit." (The
GOS subsidizes electric companies for any amount the rates
are unable to cover.) The new proposal, currently under
review at the National Commission on Energy (CNE), modifies
the cost calculation formula, and projects a "cost savings"
of approximately $900 million euros. This new formula would
allow the GOS to freeze rates for the average customer during
an election year, but has inflamed electric companies who are
preparing their rebuttal to the CNE.

PROPOSED FRENCH MERGER MAY RESULT IN UNFAIR COMPETITION ON
THE SPANISH ENERGY MARKET

13. (U) The GOS is preparing an objection to the proposed
merger between French energy companies Suez and Gaz de
France. According to press reports, the GOS is planning to
argue to the EU that the merger would enable the combined
company to illegally leverage indirect state subsidies - the
result of high electricity and gas tariff set by the French
government - to compete unfairly in the liberalized energy
market in Spain. The GOS' efforts reflect its fear that the
merger would result in aggressive expansion into the Spanish
energy market. The GOS' fear is being fueled by Suez'
existing presence in Spain, with ownership of nearly ten
percent of Gas Natural and investments in a Barcelona-based
water company, as well as the strategic intentions of Suez's
largest single shareholder, Belgian billionaire Albert Frere.
In addition to his holdings in Suez, Frere is one of Spanish
energy giant Iberdrola's largest shareholders, causing
speculation that he intends to drive consolidation in the
industry. Reminiscent of the GOS' failed attempt last year
to block the takeover bid of Spain's Endesa by German utility
company EoN, the GOS' efforts are being criticized by some in
the press as protectionist. (El Pais, Financial Times,
9/11/2007)

IBERDROLA TO PURCHASE ELECTRIC PLANT IN KLAMATH, OREGON

14. (U) Iberdrola has agreed to purchase a combined cycle
electricity generation plant in Klamath, Oregon for 290
million dollars. (NOTE: Combined cycle electricity
generation is a cleaner, more efficient method that uses
exhaust gases from burning fossil fuel to power steam
turbines. END NOTE.) The plant has production capacity of
506 megawatts and provides electricity to customers in Oregon
and California. The acquisition is being managed through PPM
Energy, Iberdrola's U.S. subsidiary. (El Pais, 9/14/2007)
AGUIRRE

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