Venezuela To Control at Least 60% of Nationalized Cement Companies

Mérida, April 8, 2008 (venezuelanalysis.com)– Venezuela will arrange mixed enterprises with Venezuela’s main cement producers, in which the state will control at least a 60% share, similar to the setup with several transnational oil companies, the Venezuelan Oil and Energy Minister Rafael Ramírez clarified Tuesday.

A special commission that includes the ministries of light commerce, basic industries and mining, and housing, held a “very cordial” first meeting Monday to initiate “bilateral negotiations” of indemnity with representatives from the Mexican firm CEMEX, France`s Lafarge, and the Swiss cement company Holcim, said Ramírez, who heads up the commission.

“We are sure that it will be possible to come to an agreement with the companies,” Ramírez declared. He added that the gaining the controlling share of the three companies, which combined comprise nearly all cement production in Venezuela, “will permit us to have effective control” over cement, which he called “fundamental” and “crucial for our national development plan.”

CEMEX, by far the largest cement company in Venezuela with 32 factories and approximately 50% of the market, announced its “willingness to dialogue with the authorities in order to find mutually acceptable solutions” in a communiqué Monday, and expressed confidence that Venezuela will secure company facilities and personnel, the Venezuelan newspaper El Nacional reported.

Mexican officials echoed this sentiment, but reiterated intentions to defend the “legitimate interests” of Mexican companies “by all means within reach.”

Mexico’s Finance Minister Agustín Carstens, a former IMF sub-director, called the nationalization “inappropriate” for not respecting Mexican property rights and was backed up by Guillermo Ortiz Martínez, the director of the Bank of Mexico, according to Mexican news reports.

The Venezuelan Ambassador to Mexico, Roy Chaderton, assured the Mexican government that “This is not intended as a compulsive, violent, or aggressive takeover of installations, but rather a process within constitutional boundaries and negotiated with the companies involved.”

Nonetheless, Valentín Díaz Morodo, President of the Mexican Foreign Commerce Council, urgently requested that the Mexican government “clarify exactly what will be the position in which this Mexican firm will maintain in Venezuela,” and how indemnity will be assured.

Since Venezuela withdrew from a previous trilateral free trade agreement with Mexico and Colombia in 2006, private investors are without legal guarantees to secure their investments in Venezuela, according to Mexican Economy Minister Eduardo Sojo Garza-Aldape, who says government mediation is essential.

The Chávez administration successfully negotiated indemnity earlier this year with companies such as ConocoPhillips and ENI, whose Orinoco Oil Belt projects were nationalized, and there are no signs that compensation in this case will be jeopardized, The Economist reported Tuesday.

No official compensation estimates have been announced, but private analysts told Reuters that all three companies could cost Venezuela $1.8 billion, and CEMEX Venezuela alone could be worth $1 billion, according to BBO Financial Services, a private consulting firm with an affiliate in Caracas.

Confusion has arisen over Chávez’s announcement on Monday that nationalization would apply only to “that which was privatized…the giant cement makers who took away, were practically gifted, the plants that are property of the state.” According to several international news agencies, CEMEX arrived in Venezuela in 1994 and has always been a private firm, as has Lafarge, and only Holcim acquired Venezuelan infrastructure through the nearly 40 year-old Caribe Cement Group in the 1990s.

CEMEX announced Tuesday it will continue its Venezuela operations, which constituted approximately 3% of total sales in 2007, until negotiations conclude. Analysts concur that the nationalization will not severely affect the company, which produces cement in 50 nations across the globe, but could still be a significant loss considering the consistent double-digit growth of the Venezuelan economy.

CEMEX-Venezuela trimester reports show that operations had grown for 13 consecutive trimesters due to increased government investment in construction.

The reason for the nationalizations, according to Light Industries Minister Rodolfo Sanz, is that international companies had created a “price cartel” that artificially limits their production capacity, to keep prices down, and tends to favor exports while “leaving in some cases shortages in internal markets.”

CEMEX insisted in public statements Monday that it has always followed Venezuelan law and been staunchly committed to the public good. Reports from its Venezuela branch indicate that exports were reduced by 47% in 2006 and 51% in 2007 “in order to attend to the national market as a first priority.”

Several news reports indicated rising CEMEX stock prices in the wake of the nationalizations Monday, including a 3.7% hike in the Mexican market and 4.1% in New York, with smaller increments in Holcim and Lafarge stocks. As of Tuesday morning, however, the Venezuelan daily El Universal reported that CEMEX stocks had fallen over 2% in New York.