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DE RUEHMD #1179/01 1660723
ZNY CCCCC ZZH
P 150723Z JUN 07
FM AMEMBASSY MADRID
TO SECSTATE WASHDC PRIORITY 2790

C O N F I D E N T I A L MADRID 001179

SIPDIS

SIPDIS

EUR/WE FOR ALLEGRONE, CLEMENTS, AND CERVETTI
WHA/CCA FOR RIOS

E.O. 12958: DECL: 06/14/2017
TAGS: PREL SP CU
SUBJECT: SPAIN/CUBA: LIBERTAD ACT, TITLE III

REF: STATE 65523

Classified By: DCM Hugo Llorens for reason 1.4(d).

¶1. (C) Spain is believed to be the largest foreign investor
in Cuba, though Spanish companies avoid publishing precise
data out of concern that such information will be used to
further U.S. enforcement actions under the Libertad Act.
Cuba is the third-largest market for Spain in Latin America,
after Mexico and Brazil, and Spanish exports to Cuba in 2006
were valued at 692 million euros, up from 489 million euros
in 2005. Spain is also Cuba's second-largest supplier of
non-petroleum goods, accounting for approximately 13 percent
of Cuban imports. However, the Zapatero government has not
reinstated the provision of risk insurance through the
"Spanish Credit Insurance Company" (CESCE) for sales to and
investments in Cuba; CESCE suspended insurance for Cuba due
to delays in Cuba's repayment of $600 million in debts.
Spanish analysts believe two-way trade between Spain and Cuba
would increase by $200 million if CESCE resumed insurance
coverage for business deals with Cuba.

¶2. (C) Although there is no indication that CESCE insurance
will be resumed in the near future, both Spanish businesses
and the Spanish government believe Spain has important
long-term commercial interests in Cuba. This perception,
combined with strong cultural and family bonds between Spain
and Cuba, limits Spain's readiness to confront the Castro
regime. There is also broad-based Spanish antagonism towards
the Libertad Act and other Cuba sanctions. This antagonism
cuts across party lines; both the ruling Socialist Party and
the opposition Popular Party would likely seek retaliatory
action by the EU in the event of an enforcement action
against a Spanish Company under the Libertad Act.

//MEDIA COVERAGE OF EFFECTS OF U.S. CUBA SANCTIONS//

¶3. (C) Spanish media have covered the complications resulting
from the purchase by U.S. companies of Spanish tourism
ventures with significant involvement in Cuba. Spanish
companies send about 250,000 travelers to Cuba on an annual
basis, of whom approximately 192,000 are Spanish citizens.
Affected Spanish companies include "Iberostar" (now
"Orizonia"), in which the Carlyle Group purchased a 60
percent stake. Orizonia controls several travel agencies
that, prior to U.S. investment, offered many travel packages
to Cuban destinations. The Spanish cruise company
"Pullmantur" reportedly shifted its base of Caribbean
operations from Havana to Puerto La Romana in the Dominican
Republic after being purchased by Royal Caribbean. Also,
Boston-based TA Associates recently acquired the Spanish
company "eDreams," Spain's country's largest internet-based
travel agency, which will presumably make it impossible for
eDreams to continue booking travel to Cuba.

//RESPONSES TO NSC TASKING//

¶4. (C) Responses below are keyed to questions posed in
reftel, paragraph 5:

What is the nature of Spanish investments in Cuba?:

- The "Association of Spanish Companies in Cuba" (AEEC)
represents over 170 Spanish businesses that trade with or
invest in Cuba. Spanish companies, mostly small and medium
sized businesses, account for approximately 25 percent of
foreign investment in Cuba. These companies are well aware
of the potential for U.S. legal action against them under the
Libertad Act and are careful to obscure information related
to their investments in Cuba. Spanish companies are
particularly active in tobacco, hotels and tourism,
foodstuffs, construction, and light manufacturing. The
following information describes the major Spanish investments
in Cuba:

-- Grupo Altadis: Tobacco. Unspecified location. Investment
amount unknown, but believed to represent the single largest
Spanish investment in Cuba. According to news reports, Cuba
sold 160 million cigars in 2005 through Altadis, mostly to
Spain and other EU countries, accounting for approximately
$350 million in sales.

-- Grupo Sol Melia: Hotel/Tourism. Sol Melia has 21
locations in Cuba, including in Havana, Varadero, Cayo Largo,
Cayo Santa Maria, Ciego de Avila, Cayo Largo del Sur, Cayo
Guillermo, Playa Esmeralda, and Santiago de Cuba. The
company announced plans to open a new 925-room hotel Cayo
Santa Maria in 2006. The total investment amount is unknown,
but Sol Melia invested at least $50 million in Cuba during
2004-2005. Sol Melia is the largest foreign hotel chain in
Cuba, managing nearly 6,000 rooms.

-- Repsol YPF: Energy. Investments in Cuban territorial
waters. According to press reports, total Repsol investment
is $25-40 million.

-- Barcelo: Hotel/Tourism. Investments in Varadero, Cayo
Largo del Sur, and Cayo Coco. Investment amount unknown.

-- Inversiones Ibersuiza: Commercial investment. Investments
in Cienfuegos and Santiago de Cuba. According to press
reports, Inversiones Ibersuiza has invested a total of $150
million in various Cuban projects.

-- Occidental Hotels and Resorts: Hotel/Tourism. Investments
in Havana and Playa Yuraguanal. Investment amount unknown.

-- Grupo Pinero: Hotel/Tourism. Investment in Varadero.
Investment of at least $2 million according to press reports.

-- Iberostar: Hotel/Tourism. Investments in Varadero, Cayo
Coco, and Trinidad. Investment amount unknown.

-- NH Hoteles: Hotel/Tourism. Investments in Havana.
Investment amount unknown.

-- Grupo Riu: Hotel/Tourism. Location in Varadero.
Investment amount unknown.

-- Hotetur: Hotel/Tourism. Investments in Varadero and
Havana. Investment amount unknown.

-- Aguas de Barcelona: Utility. Investment in Havana in
joint venture with Aguas de La Habana. Initial investment of
$2 million in 2002, subsequent investment amounts unknown.
Press reports indicate that Aguas de Barcelona is considering
selling its Cuba operations as part of the company's general
withdrawal from small markets in Latin America.

-- Grupo Freixenet: Alcoholic Beverages. Unspecified
location.

-- Iberia Airlines: Transportation. Investment in Varadero.
Investment amount unknown.

In addition, Spanish energy company Iberdrola has previously
undertaken projects in Cuba to refurbish power plants. Also
Spanish banks Banesto and BBVA have financed construction of
hotels and other investments in Cuba. We have no information
regarding current operations in Cuba by these companies.

¶5. (C) - Are there any bilateral trade agreements between
Spain and Cuba?:

There is a bilateral "Commission on Economic-Industrial
Cooperation" between Spain and Cuba that is intended to
promote bilateral trade and investment. The work of the
Commission has been suspended for several years due to
disputes over Cuba's non-payment of debt to Spanish entities
and other differences.

¶6. (C) - Are there any exchange programs between Spain and
Cuba?:

-- During the visit of Spanish FM Moratinos to Cuba in April
2007 Spain and Cuba agreed to the resumption of Spanish
development aid to Cuba. This assistance had been
unilaterally suspended by Cuba following Spain's criticism of
the 2003 Cuban crackdown on human rights activists. Over 90
percent of Spanish development assistance to Cuba comes from
regional governments, with less than 10 percent provided by
the central government. Such assistance is channeled
primarily through the Cuban government, and to a lesser
degree through multilateral aid organizations.

¶7. (C) - Has Spain worked to promote the advancement of
democracy and human rights in Cuba?:

-- Spain, like the U.S., supports democratic objectives in
Cuba, but, unlike the U.S., believes that direct engagement
with the authorities as well as with civil society will lead
to more positive results in the island. Spain's view is
conditioned by the experience of its own democratic
transition (which took place over more than five years). It
is concerned that a rapid transition to democracy may lead to
instability and violence. As a result, Spain is focused on
building relationships with potential successors to Castro,
believing Spain will be able to steer them in a positive
direction after Castro's death. This outlook limits Spain's
willingness to take a tough stand against the Castro regime.
-- Within the EU, Spain is unlikely to deviate from its
support for continued engagement with the Cuban government.
The Embassy, in coordination with the Department, has called
on Spanish officials to work with its EU partners to issue a
statement promoting democratic reforms in Cuba, in light of
the developing situation there. We have received mixed
signals in response to this request, since some Spanish
officials argue that it is more important to preserve
communication with Castro's likely successors than it is to
pressure them now for immediate changes.

¶8. (C) - Have there been any high level visits by Spanish
officials to Cuba in the past six months?:

-- Spanish FM Miguel Angel Moratinos visited Cuba April 1-3
for meetings with Cuban Vice President Raul Castro, FM Felipe
Perez Roque, and other members of the Cuban leadership. The
visit triggered criticism by Cuban human rights activists and
by opposition political parties in Spain, and intensified the
internal divide in the EU over Cuba policy.
AGUIRRE