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Viewing cable 04CARACAS1549, STEEL STRIKE RAISES ISSUES OF POWER AND

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Reference ID Created Released Classification Origin
04CARACAS1549 2004-05-11 21:14 2011-08-24 01:00 UNCLASSIFIED Embassy Caracas
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS  CARACAS 001549 
 
SIPDIS 
 
 
NSC FOR BARTON/SHANNON 
SOUTHCOM ALSO FOR POLAD 
STATE PASS AID FOR DCHA/OTI 
 
E.O. 12958: N/A 
TAGS: ELAB ECON PGOV VE
SUBJECT: STEEL STRIKE RAISES ISSUES OF POWER AND 
PRIVATIZATION 
 
 
------- 
Summary 
------- 
 
1.  (SBU)   A strike at the partially privatized SIDOR steel 
complex in Puerto Ordaz (Bolivar state) by a pro-government 
union has gone on for two weeks.  Company sources express 
fear that the strike, allegedly over failure to share profits 
with workers, may be a prelude to an effort to undo the 
privatization, and suspect GOV connivance.  If further 
prolonged, a shutdown at SIDOR could affect a wide range of 
Venezuelan businesses at a time when the economy remains very 
fragile.  Some employees, however, have returned to work, and 
the GOV now may be looking for a face-saving way out for the 
union.  If a negotiated solution is not found, the SIDOR 
strike could force the GOV to choose between a union that 
supports it and multinationals that it has largely left alone 
until now.  End summary. 
 
----------- 
The Players 
----------- 
 
2.  (SBU)  Since April 23, SIDOR (Orinoco Steel Works), 
Venezuela's principal steel producer, has been hit by a 
strike by its main union, SUTISS.  SIDOR, which employs 5,700 
workers at its Puerto Ordaz (Bolivar state) mill and wharf 
complex, producing a wide variety of steel products, was 
originally a wholly-owned component of the giant state 
enterprise "Corporacion Venezolana de Guayana" (CVG).  It was 
largely privatized in 1998, with the sale of 70 pct to a 
consortium led by Argentine interests, but also including 
Brazilian, Mexican, and private Venezuelan firms.  The GOV, 
through CVG, retained a 10 pct interest.  When the firm was 
partially privatized, the GOV was committed to selling the 
remaining 20 pct to employees on preferential terms under a 
"Labor Participation Program."  However, it has not done so, 
and it is generally believed that the Chavez government 
prefers to keep as much as possible of the firm in state 
hands (see below).  SIDOR faced hard times after its partial 
privatization, in face of over-production in the world steel 
market and an over-valued bolivar.  Ultimately, it underwent 
a reorganization in which in exchange for a cash infusion, 
the GOV (through CVG) took back an additional 10 pct, giving 
it a 40 share, including the undistributed Labor 
Participation Program stock, and leaving the consortium with 
60 pct. 
 
3.  (SBU)  SUTISS, the main SIDOR union (representing 4000 
workers), is run by elements in sympathy with the Chavez 
government, and is linked to the pro-Chavez UNT labor 
confederation, which has supported the strike.  The 
pro-Chavez union gained strength following privatization, 
when the workforce was chopped back from 13,000 in an abrupt 
manner, and has organized a number of short-term walk-outs 
since then.  Its leader, Ramon Machuca, campaigned for the 
union presidency as an opponent of privatization.  During the 
December 2002-February 2003, SUTISS led a large march on 
state oil enterprise PDVSA's Anaco natural gas processing 
plant in support of keeping it open.  Had the Anaco plant 
closed, all of the Guayana basic industries complex (SIDOR 
and CVG's Venalum and Bauxilum aluminum mills) would have had 
to just down.  In fact, they stayed open through the strike. 
 
 
------------------------------- 
The Issues - Money and Politics 
------------------------------- 
 
4.  (SBU)  Superficially at least, this is a strike about 
money.  With SIDOR enjoying a more favorable economic 
climate, as a result of increased world demand for steel and 
a cheaper bolivar, SUTISS is demanding that the workers 
receive 90 days pay worth of "profit-sharing."  SIDOR insists 
that the 15 days which it paid them as a Christmas bonus is 
all that the law requires.   The union also alleges that 
SIDOR, which has made significant payments to CVG recently, 
should be giving some of this money to the workers.  SIDOR's 
response is that any money it is transferring to CVG is 
repayment of debt incurred during the restructuring, and not 
any kind of dividend.  It asserts that the workers should 
look to CVG to hand over to the workers their Labor 
 
 
Participation Program shares, if they expect to benefit from 
the firm's improving position. 
 
5.  (SBU)  However, company sources tell us that they see a 
larger agenda here.  They suggest that union leader Machuca 
wants to create chaos with an ultimate goal of getting the 
GOV to intervene and roll back SIDOR's privatization. 
Connivance with the GOV is suspected here.  They note that 
upon taking office Chavez froze planned partial 
privatizations of other CVG firms.  They also suggest that 
the GOV dragged its feet on the distribution of the Labor 
Participation Program shares to individual workers to keep 
its own existing interest as high as possible to prepare for 
such a move.  There is also speculation that Machuca is 
interested in using a labor battle at SIDOR to either promote 
the candidacy of former CVG President Francisco Rangel, the 
pro-Chavez Fifth Republic Movement candidate for governor of 
Bolivar state (or in another version, to promote himself as 
an alternative to Rangel). 
 
--------------------- 
Economic Consequences 
--------------------- 
 
6.  (SBU)  As the strike drags on concern is rising about its 
impact.  SIDOR has announced it will stop paying the 
strikers, a move which the union denounces as unfair.  The 
lost income will have an immediate effect on the economy in 
Bolivar.  But beyond that, the businesses which rely on 
SIDOR's steel are getting nervous.  (SIDOR has kept up 
intermittent deliveries from inventories thus far, but cannot 
do so indefinitely.  It has also faced union demonstrations 
and roadblocks which have turned violent, adding to its 
difficulties.)  Leaders of business associations ranging from 
the strongly anti-Chavez Venezuelan Industrial Confederation 
(CONINDUSTRIA) to the more pro-Chavez Confederation of Small 
and Medium (FEDEINDUSTRIA) have weighed in, noting that SIDOR 
supplies raw material for a wide range of businesses, and 
that some are on the verge of shutting down.  An 
advertisement placed by the steel industry's trade 
association noted that SIDOR's steel is used in everything 
from auto parts and food packaging to petroleum tubes. 
SIDOR's steel is also used by CVG for production processes at 
its aluminum smelting plants, and it too has called for a 
rapid end to the conflict. 
 
----------------- 
Finding a Way Out 
----------------- 
 
7.  (SBU)  The GOV has been largely silent on the SIDOR 
strike.  SIDOR management has demanded that the strike be 
declared illegal, which the GOV has thus far not done.  Only 
on May 3 did the Labor Ministry become engaged, hosting a 
meeting between labor and management, which has not 
apparently moved the parties any closer.  State-owned CVG has 
published an advertisement saying that it is moving forward 
on the distribution of the Labor Participation Program shares 
to SIDOR workers (although it is not clear at all that this 
is what the union is seeking).  Thus far Chavez has made no 
comments on the strike.  News reports on May 10 and 11 stated 
that several hundred workers had voluntarily returned to 
their jobs, and implied that the return of the Labor 
Participation Program shares, plus some additional bonus 
money could be the basis for a settlement. 
 
------- 
Comment 
------- 
 
8.  (SBU)  We cannot say whether the GOV has actively been 
involved with the union in setting up this crisis or whether 
it has stumbled into it as a result of the union's acting on 
its own.  But it now faces difficult choices.  Letting the 
strike continue hurts an economy which the GOV has sought to 
pump up as it deals with the challenge presented by the 
political opposition's referendum drive.  Supporting SIDOR 
management and declaring the strike illegal would be 
tantamount to disavowing the new pro-Chavez labor movement it 
has spent so much effort in promoting.  Intervening to undo 
SIDOR's privatization, while attractive ideologically, would 
set the GOV up with a direct confrontation with foreign 
 
 
multinationals, including ones from two countries it is 
trying hard to cultivate, Brazil and Argentina.  If the 
strike is indeed beginning to crumble (good jobs are hard to 
come by and many workers may not want to follow the union 
over a cliff), then the distribution of the Labor 
Participaton Program shares, plus some more money (either 
from SIDOR itself or from the GOV) may allow the union to 
declare victory.  That would probably be the best short-term 
outcome from the GOV's point of view, unless it really does 
want to use this as a chance to "deepen the revolution," 
albeit at a high political and economic cost. 
 
SHAPIRO 
 
 
NNNN 
 
      2004CARACA01549 - UNCLASSIFIED