Oct 182014
 

http://wikileaks.org/cable/2008/04/08RIYADH563.html#
Reference ID Created Released Classification Origin
08RIYADH563
2008-04-05 13:36
2011-08-30 01:44
CONFIDENTIAL
Embassy Riyadh

VZCZCXRO4299
PP RUEHDE RUEHDIR
DE RUEHRH #0563 0961336
ZNY CCCCC ZZH
P 051336Z APR 08
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC PRIORITY 8128
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEHML/AMEMBASSY MANILA PRIORITY 0703
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
C O N F I D E N T I A L RIYADH 000563

SIPDIS

SIPDIS

DEPT FOR NEA/ARP, EEB/ESC

E.O. 12958: DECL: 04/05/2018
TAGS: ECON EINV EPET PGOV PREL RP SA
SUBJECT: INSIGHT INTO SAUDI ARAMCO’S DIVESTITURE FROM THE PHILIPPINES

REF: RIYADH 547

Classified By: Consul General John Kincannon for reasons 1.4 (b) and (d
)

¶1. (C) SUMMARY: In addition to revealing that Aramco manages
nearly 60 billion USD in liquid investments (Reftel), during
an April 1 meeting with ConOffs Saudi Aramco Treasurer
Motassim al-Maashouq (protect) also gave insight into Saudi
Aramco’s decision to divest from Petron Corporation, a joint
venture with Philippine National Oil Company (PNOC).
Al-Maashouq was confident Aramco’s sale of its 40 percent
share in Petron would be approved by the Philippine
government, and said that while the joint venture was
profitable, Aramco can only afford to focus on truly “big
deals” given current market conditions. END SUMMARY.

——————————————— ———
DESPITE PROFITS, ARAMCO SELLS PETRON SHARES TO ASHMORE
——————————————— ———

¶2. (C) In an April 1 meeting, Aramco Treasurer Motassim
al-Maashouq said that he is confident the Philippine
government will approve Saudi Aramco’s sale of its 40 percent
stake in Petron Corporation to Ashmore Investment Management
Limited, a British investment firm. Ashmore has agreed to
pay 550 million USD for 3.75 billion shares of the largest
oil refining and marketing company in the Philippines, 200
million USD at closing and 350 million USD payable within 12
months. Al-Maashouq believes that Ashmore is interested in
Petron because it sees value in specific parts of the
company’s operations, and might try to spin-off the most
profitable divisions of the company. In response to
questions about the political viability of such actions given
the Philippine government’s interest in Petron, al-Maashouq
said that Ashmore and Philippine National Oil Company (PNOC)
could easily manage public opinion. For example, Ashmore and
PNOC might create a separate refining subsidiary that
controls all refining capacity, then make the subsidiary
wholly owned by PNOC, the investment firm selling shares to
segue out of the subsidiary. This would allow Ashmore to
focus on what it sees as the most valuable parts of the
company, while the government would claim publicly that it is
gaining greater control of the Philippines’ natural resources.

¶3. (C) Al-Maashouq added that Aramco’s decision to divest
from Petron was not due to lack of profitability. According
to the Aramco Treasurer, the joint venture was “making
between 50 and 60 million USD annually, but was not worth the
hassle.” An al-Maashouq anecdote from his time as Director
of Petron gave insight into the conflicts that exist between
business and politics. When Saudi Aramco CEO Abdullah Jum’ah
visited the Philippines to meet with President Estrada and
demand that oil prices be raised so that Aramco could at
least break even on its investment in the country, the
President agreed to the CEO’s request in a private meeting,
then proceeded to put his arm around both Jum’ah and
al-Maashouq, walk from the meeting to a press conference, and
tell the public that the reason the Aramco CEO had come to
visit was to offer a discount in pricing that would allow oil
to be 50 cents cheaper per gallon. Senior Aramco executives
said that they enjoyed an excellent relationship with former
Philippine President Ramos during his time in power, but had
found working with both Presidents Estrada and Arroyo
time-consuming and not worth the return on investment.

¶4. (C) COMMENT: Despite being fodder for humorous anecdotes,
the hassle of dealing with politicians was not the underlying
cause of Aramco’s divestiture. Instead, al-Maashouq said
that Petron, along with other joint ventures, is simply too
small in size for Aramco to continue involvement given
current conditions (NOTE: Saudi Aramco’s profits this year
will likely exceed 150 billion USD making a 50 – 60 million
USD net return in the Philippines truly a drop in the bucket.
END NOTE). These current conditions include a capital rich
company with incredible liquidity, but a company facing
limits in terms of qualified labor and certain raw materials.
Given that the forecasted expansion of the global market in
upcoming years has energy companies thinking about
positioning in South and Southeast Asia, ventures that do not
reach into the billions, and which involve secondary markets,
do not seem to fit into Aramco’s future plans. END COMMENT.

APPROVED: JKINCANNON
FRAKER

   

 

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