Venezuela Concludes Price Negotiations for Cement Nationalizations

Mérida, August 19, 2008 (venezuelanalysis.com)– As the deadline for negotiations of indemnity for Venezuela’s nationalized cement industry passed Monday, the Venezuelan government announced that it had come to agreements with the French cement company Lafarge and Switzerland’s Holcim, but will unilaterally set the price for Mexico’s CEMEX, with which an agreement was not reached.
 
“With this action the state takes control of 90% of the national cement market, which will increase our production capacity, reduce costs, and in the end will mean better prices to boost the national development plan,” declared Venezuelan Energy and Oil Minister Rafael Ramírez at a rally outside CEMEX facilities in the state of Anzoátegui Monday night.

According to Ramírez, the Venezuelan government held at least ten meetings with the three firms since the nationalizations were signed in to law June 18th by presidential decree, a power granted to President Hugo Chávez for 18-months by the National Assembly. The decree stipulated a 60-day period for price negotiations.

Venezuela agreed to purchase 89% of Lafarge for $267 million, and 85% of Holcim for $552 million. Combined, these two firms produce 5 million metric tons of cement per year, which is approximately half of Venezuela’s cement production.

CEMEX, which produces the other half of Venezuela’s cement, had asked the government to pay $1.3 billion for its operations, a sum unacceptably greater than that paid for Lafarge and Holcim combined, according to Venezuelan Vice President Ramón Carrizalez.

When the government originally announced its intention to nationalize the industry last April, private consulting firms estimated proper indemnity for CEMEX to be between $350 million and $950 million, depending on what percentage of the operations the government sought to acquire.

The Mexican Ambassador to Venezuela, Jesús Mario Chacón, asked the Chávez administration to extend the negotiations with CEMEX, and said the agreements signed with the European firms were “more favorable than what was offered to CEMEX.”

“We are interested in continuing conversations…we have to be vigilant that this process be fair,” Chacón wrote in a note to President Chávez.
 
The government says it nationalized the companies because they were not producing enough cement to satisfy Venezuelan demand, which has drastically increased as the government has invested heavily in the nation’s infrastructure and housing over the past few years.

“CEMEX had stopped making very important investments to improve the company, the technology it possessed is very outdated, which damages the environment… they did not make the necessary investments to provide for the demand in our country,” said Ramírez Monday.

According to Ramírez, the government plans to “adapt the technology to world standards… we are going to rationalize the operations to lower the cost of production.”

The president of the Venezuelan Chamber of Construction, Fernando Azpúrua, specified that last year 7.4 million tons of cement were sold in the country, and this year monthly sales have grown to a record 700,000 tons.

Azpurúa also expressed confidence that production of the crucial material will not be disrupted by the nationalization. “There exists total tranquility in the sector,” he stated Monday.

Repeating past promises, Ramírez guaranteed the job security of the 4,600 cement workers in the nationalized companies. He also said the new state management will work to incorporate contracted workers, who are non-unionized, into a collective contract, as the government did after nationalizing the SIDOR steel plant earlier this year.  

“The first thing we are going to do is re-establish what should be the labor relationship between the Venezuelan state and its workers, where the workers become the fundamental axis of our activity and our company,” said the minister.

CEMEX stocks, which have already taken a hard hit from the mortgage crisis in the United States, fell by 2.83% in the Mexican Stock Market and 2.78% in New York Tuesday, while the Venezuelan government ordered a 24-hour freeze on CEMEX stocks in the Caracas stock market.

Venezuela has also moved to build new cement plants in cooperation with its allies. In 2006, Venezuela and Iran signed accords to build a cement factory in Venezuela, and last week the two countries pledged to finance the construction of a cement company in Bolivia to support their ally, Bolivian President Evo Morales.