Vol. VIII , No. 6 www.cubatradenews.com June 2006

EconomyEmbargo Updatet

Cuba testing bond markets

Continued on next page

PDVSA JOINS OIL SEARCH IN CUBAExecutives of Venezuela’s PdVSA and CubaPetróleo

(Cupet) signed an agreement May 15 in Havana to cooperatein exploration and production.

PdVSA’s entry into exploration in Cuba could make a bigimpact in the current offshore race.

Cuba’s official media only said that theagreement described the “outlines of short- andmid-term projects,” without providing morespecifics.

The Venezuelan state oil company does haveoffshore expertise. However, offshore

exploration abroad is the only strategic activity still missingin PdVSA’s lineup. PdVSA has tried in the past to engage inoffshore exploration in other countries, but it was stopped bycritics fearing that major assets would be shifted away fromdomestic offshore efforts. PdVSA dedicates 70 percent of its$7 billion investment budget to offshore exploration inVenezuelan waters.

Up to now, PdVSA is only engaged in downstream activitiesin Cuba, such as construction of oil infrastructure. Thecompany also supplies 98,000 bpd of oil to Cuba.

OIL EXEMPTION BILLS LAUNCHEDSen. Larry Craig (R-Id.) and Rep. Jeff Flake (R-Az.) May

11 introduced companion bills in the U.S. Senate and Housethat would exempt oil and gas exploration from the embargo.

The Craig-Flake bill would allow U.S. companies to drillfor oil and gas in “any portion of a foreignmaritime exclusive zone that is contiguous to theexclusive economic zone of the United States,”according to a press release. U.S. companieswould be allowed to “engage in any transactionnecessary” and to travel without having to applyfor a license with the U.S. government.

Co-sponsors include Sen. Pete Domenici (R-N.M.), thepowerful chairman of the Senate Energy Committee. The billis now in the Senate Banking Committee.

Observers believe the law project has a reasonable chanceof reaching the Senate floor for a vote. Even so, the Presidentis expected to veto it.

The significance of the law project is more long-term,though. The bill represents the first time the United States isfacing “real strategic repercussions for maintaining the

Continued on p. 7

Also seeOffshore,

page 7

Bolstered by rising hard-currency

reserves and cash flow, Cuba is dipping atoe in the waters of international bondmarkets.

The Cuban central bank April 6 listed 400million euro ($513 million, face value)worth of eurobonds on the London StockExchange, according to LSE information.All bonds, issued Feb. 14, were bought thesame day, Banco Central de Cuba PresidentFrancisco Soberón said. The central banksold the bonds for a 12-month term at 7percent interest. They are due Feb. 14,2007.

The LSE’s acceptance of the listingallowed Cuba’s first bond sale abroad indecades.

However, only 15 percent of the

bonds were bought by international banks,with the remainder going to Cuban statebanks, according to a foreign financeexecutive in Cuba.

“This is not much foreign exposure,” theexecutive told Cuba Trade & InvestmentNews.

The central bank said in its prospectusthat the bond issue consolidates twoprevious debt issues to Cuban state banksand to foreign banks operating in Cuba. Thecentral bank added the proceeds from theprevious two issues to its hard-currencyreserves.

The consolidation of hard-currency bankdebt could be part of the Central Bank’s

efforts to re-centralize Cuba’s economy,

BCC’s Old Havana offices:Bond issue, hecho en Cuba

photo Banco Central

Also see Documentation on p. 3

2

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Bond markets, from previous page

E c o n o m y

according to the Economist Intelligence Unit. The movewould allow the Central Bank, founded nine years ago tosupervise and control Cuban finances, to centralize andformalize the credit market in Cuba.

Still, the move also shows Cuba’s interest and confidencein accessing international finance markets to raise hardcurrency.

Cuba apparently managed the bond listing without foreignassistance. The broker and registrar was Havana-basedBanco de Inversiones S.A., a 10-year old state outfit; andthe agent in Great Britain was

Havin Bank Ltd., a London-based bank established in1973 as Havana International Bank, in which the Cubancentral bank holds a significant share. The legal adviserswere Allen & Overy LLP, a London-based international lawfirm.

Ever since it stopped serving its foreign debt in 1986, theleading bond rating agencies have ranked Cuba in the non-investment grade category, among the riskiest on the globe.

As a result, Cuba, which cannot obtain multilateral loansfrom the International Monetary Fund (IMF) or the WorldBank, has had to pay a high price for fresh money. Untilreceently, the cash-strapped country was only able to obtainshort-term loans from foreign governments and banks at highinterest rates.

Foreign investors continue to complain about the CentralBank’s lack of transparency regarding its foreign currencyreserves. Bank officials maintain they can’t reveal detailsdue to U.S. efforts to inflict damage on Cuba’s finance. Thebond listing particulars didn’t include any information aboutthe bank’s hard-currency reserves.

Even so, the Cuban debt picture is coming alive again.Cuba has recently been able to obtain mid- and long-termfinancing from foreign banks seeking to collateralize tradereceivables. Also, Exotix Ltd., a British outfit, last year beganto help investors trade in Cuba’s pre-1986 defaulted debt.These Cuban bonds, whose arrears are held by the olderBanco Nacional de Cuba, currently sell for 10 cents on thenominal dollar in London and Madrid.

Banco Central de Cuba executives participated in a May18 meeting in Peru, continuing conversations about financialintegration with their peers from Argentina, Brazil, Ecuador,Haiti, Uruguay and Venezuela.

Venezuela proposes to create a “Banco del Sur.” Thepresidents of Brazil and Argentina, in an agreement signedwith Venezuelan President Hugo Chávez in March 2005, aresupporting the initiative.

Circumventing international lending institutions controlledby the United States and Europe, such as the InteramericanDevelopment Bank, World Bank and International MonetaryFund, the Banco del Sur would support financial stability,promote mutual investment within the region, fund largeinfrastructure projects, and provide loans to regionalcompanies for exports to member countries.

During a March 25 seminar in Caracas, Chávez urged LatinAmerican central bank executives to support Banco del Sur.He had earlier suggested that each central bank could providehalf of their foreign reserves to Banco del Sur, but at themeeting he emphasized that the economic development bankcould also draw from other financial sources, includingcontributions from OPEC member countries.

At the seminar, Cuban Central Bank President FranciscoSoberón called the Banco del Sur project “particularlyopportune.” The spiraling U.S. debt, he argued, should triggersecond thoughts among foreign central bank executives aboutcontinuing to park their hard-currency reserves in U.S.government bonds.

Peru hosted the May 18 event, but no Peruvian central bankexecutives participated.

Cuba eager to join Banco del Sur

3

Documentation

Trackingthe Embargo

Banco Central’s bond issue: The details

By Paolo Spadoni

Tourism’s challenges:Low spending, high cost

International tourism in Cuba haswitnessed dramatic growth during thepast decade and a half, especiallysince the legalization of the dollarsector of the economy in 1993.

Now, the tourism industry is facingtwo major challenges. But I’ll get tothat later.

Whereas in 1990 Cuba ranked 23rdamong the 25 top tourist destinationsin Latin America, by the end of 2004the island occupied the eighth place.In the Caribbean region, only theDominican Republic and Puerto Ricocurrently receive more foreignvisitors each year than Cuba.

According to official figures,international arrivals to Cuba rosefrom 546,000 in 1993 to about 2.3million in 2005. During the sameperiod, gross revenues from tourismincreased from $720 million to morethan $2.5 billion, making the tourismindustry, as Cuban officials oftendescribe it, the “engine” of theisland’s economy. In 2005, arrivalsand revenues were up by 11.8 percentand 10 percent, respectively, from theprevious year despite the negativeeffects of an active hurricane seasonand the significant reduction ofvisitors from the United States as aresult of new travel restrictionsintroduced by the Bushadministration in June 2004. Canadais by far the biggest source of foreignvisitors to Cuba (603,000 Canadianstraveled to the island last year),followed by the United Kingdom,Spain, Italy, and Venezuela. It isworth emphasizing that health travelis becoming an important alternativeto the traditional sun and beach

On April 6, the Banco Central de Cuba listed and sold 400 million euro worth ofbonds on the London Stock Exchange (see article p.1). Below, we are publishingexcerpts from the prospectus and information about the participating players.

See next page

The issuerBanco Central de Cuba, Havana

Cuba’s“new”central bank wasfounded in 1997to superviseCuba’s finances.It took over thecountry’s centralbank functions from Banco Nacionalde Cuba, which continues to operateas a commercial bank. Cuba“parked” all of its defaulted debtwith the old entity, allowing BancoCentral an unburdened start.

Form Day One, the president hasbeen Francisco Soberón, who isappointed by the Council of State.

The registrarBanco de Inversiones S.A.,Havana

The statebank wasfounded in1996 tomanage allinvestmentbank needsof the Cuban

government and state companies. Itis the only financial institution onthe island with an investment banklicense. BdI has executed andparticipated in bond emissions,share purchases, syndicated loans,and debt restructurings forgovernment institutions, statecompanies and foreign corporations.

GeneralThe Bonds do not represent

obligations of, and are not guaranteedby, the Republic of Cuba. Aninvestment in the Bonds involvescertain risks.Political and economic risks

(...)Cuba has pursued an active policy

of normalising its relations with theoutside world and has achievedconsiderable success in this area withmost major countries. Its publicrelations with the United States ofAmerica remain poor, however.

(...)Given current US sanctions, persons

resident in, or subject to the laws of,the United States of America shouldnot purchase the Bonds.

The conditionsFace value amount:400 million EuroInterest: 7%/yr., paid quarterlyDuration: 1 yearDue: Feb. 14, 2007

Continued on next page

(...)In 2004, Cuba reached agreement with

Venezuela to supply 53,000 barrels of oildaily along with a number of otherpetroleum products under favourablepayment conditions, which allow the oilbill to be offset against medical, health,educational and sports services providedby Cuba to Venezuela. Any terminationof, or adverse change in, this arrangementcould significantly adversely affectCuba’s economy.

(...)Debt repayment record

In 1986, Banco Nacional de Cuba (theformer central bank and a commercialbank) ceased payments on its externaldebt (representing debt contracted by theState and Banco Nacional de Cuba).Although a part of this debt hassubsequently been rescheduled and isbeing repaid in accordance with its terms,a significant portion (whic is required tobe managed by Banco Nacional de Cuba)remains subject to this payment cessation.BCC is not responsible for this debt andBCC has never defaulted on any debtincurred by it. There can be no assurance,

4

Documentation: bond issue

Tracking the Embargo (contd.)

The details, from previous page

tourism as more than 170,000 people from Latin Americancountries have received medical treatment in Cuba over thepast 18 months, mainly eye operations funded by theVenezuelan government.

Furthermore, there has been a notable improvement inthe integration between local industries and the Cuban touristsector. While in the early 1990s the overwhelming part ofthe inputs to the sector had to be imported, local corporationsand particularly joint ventures with foreign firms currentlysupply a wide range of products (about 70 percent of totalinputs) such as mineral water, soft drinks and alcoholicbeverages, processed meat, buses, air conditioners,telephones, and electronic equipment. Approximately105,000 Cubans work directly in the island’s tourismindustry, with some additional 210,000 indirect workers.

Notwithstanding these remarkable achievements, Cuba’sexperience with international tourism still presents severalproblems. In terms of tourist expenditures, annual grossrevenues per tourist increased from $948 in 1991 to $1,475in 1995, but they have decreased significantly since then.Gross revenues per tourist were $1,128 in 2005, about 23

percent below the 1995 level. This suggests that the futurecontribution of tourism to economic growth could diminishgreatly once the sector reaches its maturity.

Interestingly, the beginning of a downward turn in grossincome per tourist coincided with the Castro government’sdecision in the mid-1990s to actively promote all-inclusivevacation packages, which tend to produce a smaller impacton a host country’s economy than other accommodationsubsectors. In 1998, there were 33 all-inclusive hotels inCuba with 8,900 rooms, or about 30 percent of total roomsfor international tourism. Today, 76 resorts under thismodality dispose of 26,000 rooms, accounting for 64 percentof the island’s hotel room capacity. Yet, it has been arguedthat the aforementioned negative trend is also due to theinsufficient diversification of complementary tourismservices and the average socio-economic structure of foreignvisitors, classified as low-middle income tourists.

Another shortcoming of the Cuban leisure industry isexemplified by its excessive operational costs. In May 2003,a high-ranking official from the Ministry of Tourismestimated the cost per dollar of gross income from touristactivities at about $0.80, which would mean for the country

continued on next page

The legal adviserAllen & Overy, LLP. , London

A global law firm with roots in Britain.

The agentHavin Bank Ltd. , London

The bank wasincorporated in 1972 asHavana InternationalBank Ltd. under Britishlaw and is regulated byBritain’s FinancialServices Authority (FSA).The sole shareholder isthe Banco Central deCuba; HavinChairwoman MichelleAbdo Cuza also is adirector of BancoCentral. Havin Bank isthe only 100-percentCuban owned bankincorporated abroad. Located in the City of London, Havinhas served as a conduit for the Cuban government andstate enterprises to the London financial markets.

The bank accepts deposits at “very competitive” interestrates, and provides financing, and international trade andbanking services. Havin works with 400 correspondentbanks worldwide.

Havin’s City of Londonoffices

photo: Banco Central

however, that any future rescheduling of Cuba’s defaulteddebt could be reached before the Bonds mature.

(...)Statistics

The statistical information in this document has, unlessotherwise stated, been produced by BCC and other officialCuban sources. Such statistical information may differ fromthat provided by other sources for a variety of reasons,including different definitions and cut-off times. In particular,in 2004 Cuba revised its methodology for calculating GDPto take account of the country’s social safety net and subsidisedservices. All GDP statistics presented in this document reflectthis new methodology.

(...)Regarding the sanctions implemented by the United States

of America under the blockade against Cuba, it has been alongstanding Cuban policy not to disclose the country’sinternational reserves to avoid any risk to assets that Cubamay have in other countries. Although, as Cuba’s CentralBank, it is BCC’s duty to administer the country’s internationalreserves, BCC is subject to this policy and is not able to giveany information in relation to those reserves in this document.

(...)Enforcement of liabilities

BCC is the central bank of a sovereign State. It hassubmitted to the jurisdiction of the English Courts and hasappointed Havin Bank Ltd as its agent for service of process

Continued on next page

5

Documentation: bond issue

cont’d from previous page

a net result of just 20 cents for every dollar captured by thesector.

Unhappy about loose spending and corruption that havelimited profits, Cuban authorities have recently begun toreassert central control over the tourism industry. In late2003, they fired several top executives from the island’slargest tourism group Cubanacán. Early in 2004, theyreplaced Tourism Minister Ibrahim Ferradaz with ManuelMarrero Cruz, who at the time of his designation was headingthe army-controlled Gaviota tourism group.

This is not surprising. Two years ago, an unofficial sourcein Havana told the author that Gaviota had managed to obtainin its establishments an average cost per dollar of grossincome of only $0.63 in 2003, prompting local authoritiesto demand the same results from other major Cubancorporations. And a number of smaller state companies arebeing taken over by larger ones in what is widely seen as anattempt to promote greater efficiency in the tourism sector.

Finally, Cuba’s decision in April 2005 to revaluate theconvertible peso by 8 percent against all internationalcurrencies means that the Castro government will obtainmore profits from tourist activities, but the island may run

the risk of losing competitiveness to other destinations inthe Caribbean region. By early May 2006, Cuba had recordeda 3.3 percent increase in foreign arrivals, well below theofficial target of a 7.7 percent growth (or 2.5 million tourists)for the year. Even more important, gross tourism revenueswere up by a meager 4 percent in the first trimester of 2006.

International tourism in Cuba has been a successful storyso far. However, the declining trend in the average spendingper tourist and low levels of profitability remain crucialchallenges for the industry’s future. Centralizing measuresaimed to squeeze profits out of existing resources can increasenet gains in the short-run, but they do not provide lastingsolutions to efficiency problems. Cuban officials shouldinstead step up their efforts to promote other kinds of tourism(cultural, health-related, ecological, and educational) besidesall-inclusive sun and beach packages, upgrade basicinfrastructures and facilities, and diversify tourist attractionsand accommodations. Substantial improvements in theseareas would represent more effective ways to bolster touristexpenditures, minimize operational costs, and enhance thecontribution of tourism to the island’s overall economy.

Paolo Spadoni, PhD, is a Visiting Lecturer in theDepartment of Political Science at Stetson University,DeLand, Florida.

in London. Nevertheless, it may be difficult for investors toenforce against the Issuer in Cuba any judgments they mayobtain as there is no treaty relating to the enforcement ofjudgments in force between England and Cuba.

(...)Governing Law

The Bonds are governed by, and will be construed inaccordance with, English law. The Issuer irrevocably agreesfor the benefit of the Bondholders that the courts of Englandare to have exclusive jurisdiction to settle any disputes whichmay arise out of or in connection with the Bonds andaccordingly submits to the exclusive jurisdiction of suchcourts. The Issuer waives any objection to the courts ofEngland on the grounds that they are an inconvenient orinappropriate forum.

(...)Use of proceeds

The Bonds are being issued in exchange for two series ofbonds previously issued by BCC on 5 December 2005 and 5February 2006, respectively. Accordingly, no new proceedswill be received by BCC in respect of the issue of the Bonds.The net proceeds of the previous issues of the bonds, whichamounted to approximately ¤400,000,000, have been addedto BCC’s hard currency reserves.

(...)Description of the issuer

BCC was established on 28 May 1997 as the central bank

The details, from previous page and monetary authority of Cuba. BCC has an independent legalstatus and is not responsible for the obligations of theGovernment except where it has expressly assumed thatresponsibility.

(...)Ratings

No request has been made to any rating agency to rate theBonds. The Issuer is not rated by any rating agency. •

E m b a r g o

DOLLAR REMITT ANCES DROPPINGU.S. dollar remittances to Cuba dropped by two-thirds during

the first quarter from the same period last year, Fidel Castrosaid during his May Day speech, without providing specificfigures.

The Bush Administration imposed a new set of restrictionson remittances in summer 2004. In fall 2004, Cuba eliminatedthe dollar from domestic transactions and penalized sales ofthe U.S. currency with an 8-percent surcharge.

The surcharge has probably led many Cuban Americans inthe United States to exchange their dollars for other currencieswhen sending money to family in Cuba.

In his speech, Castro added that trade grew 30 percent, con-struction grew 15 percent, telecommunications 12.9 percent,and transportation 4.8 percent during the same period. Castropredicted that Cuba’s overall economy should continue to growalong the lines of 2005 growth.

6

E m b a r g o

7

Oil exemption, from page 1

embargo,” Cuba trade consultant Kirby Jones said.Fidel Castro repeated in a recent TV appearance that U.S.

oil companies are welcome to participate in Cuba’s offshoreactivities.“We won’t exclude U.S. companies, we aredeclaring this publicly,” Castro said after announcing a majoroffshore drilling contract.

Cuban offshore activity also triggered a counter-bill,introduced by Sen. Bill Nelson (D-Fla.) April 28. The Housecompanion bill is co-sponsored by almost the entire Floridadelegation, including the three Miami representatives. JimDavis (D-Tampa), a gubernatorial candidate, is also co-sponsoring that bill.

In a first semi-official response from Cuba, an editorial bynewswire Prensa Latina called the measure “extraterritorial.”

Nelson’s bill would force the United States to undo a 30-year old agreement with Cuba and Mexico and penalizeforeign oil companies that drill in Cuban waters near Florida.The House version would punish all companies that engagein drilling anywhere in Cuba, if they invest more than $1million.

RESTRICTIONS REPORT DELAYEDWidely-expected new restrictions on travel and remittances

to Cuba were delayed as a report of the PresidentialCommission on Assistance to a Free Cuba has not beenpresented to George W. Bush yet.

Officials told the Miami Herald May 18 that the commissionwas still working out details. Bush is expected in early Juneto make a decision on which recommendations to implement.

Even before the Commission’s report became public, it wasgreeted with a barrage of harsh criticism.

A day before the expected presentation May 20, thebipartisan Cuba Working Group of the House ofRepresentatives called the embargo “a spent force, at oddswith America’s strategic and diplomatic interests and ournation’s values.” “Any hope that an ever-tightening Americanembargo could force political change has been wiped awayby Cuba’s successful economic adjustment to the post-Sovietworld,” the 50-member group said in a statement.

The Church World Service said at a press conference it isconcerned over the Administration’s “violations of religiousfreedom and unwarranted incursions into relationships withchurch counterparts in Cuba.”

In Miami, the outgoing top U.S. military official for theCaribbean region publicly urged the Bush Administration toperform a radical review of its Cuba policy.

“One of the things that we as a government probably don’tdo well is to review our policies and our laws routinely, basedupon the conditions in the world changing,” Army GeneralBantz J. Craddock, who is leaving his post as head of SouthernCommand, was quoted by the Miami Herald. “I don’t wantto make a judgment on whether or not to change (the Cubapolicy), but I think it needs to be re-looked.”

E c o n o m y

Offshore drilling may re-start in ‘08After months of negotiations, Spain’s Repsol-YPF,

Indian state company ONGC Videsh, and Norway’s NorskHydro signed an agreement with CubaPetróleo (Cupet)May 23 in Havana to begin offshore oil drilling in Cubanwaters near the maritime border with the United States.

Repsol spent at least $50 million on an unsuccessfuldrill in one of the blocks two years ago. The companyfound high-quality oil in that solo venture, but not incommercially viable amounts.

According to Repsol officials, the “InternationalAssociation Contract” covers six of Cuba’s 59 blocks inGulf waters.

Under the agreement, Repsol, which held 100 percentof exploration rights on these blocks, cedes 60 percent ofblocks 25, 26, 27, 28, 29 and 36 to ONGC and NorskHydro. ONGC and Norsk Hydro will hold 30 percent each.Repsol will retain 40 percent and be the operatingcompany. State-owned Cupet will retain its previous rights.

Repsol is planning to complete a seismic survey thismonth; the partners will then make a decision where todrill. However, A Norsk Hydro official said that thepartners likely won’t be able to start drilling before 2008due to a shortage of deep-sea rigs. There are only 20-30platforms worldwide for drilling in mile-deep water.

Cuban offshore oil map. The blocks usedby the joint venture are in yellow

Meanwhile, the Organization of American States (OAS),which traditionally has been largely in line with U.S. strategicinterests in Latin America, is increasingly critical ofWashington’s Cuba policy. “There is no transition, and it’snot your country,” OAS General Secretary José MiguelInsulza recently said, directed to Bush, about the Commission.The Chilean also said he would favor some type of contactbetween the OAS and Cuba, and criticized the United States’attitude in the case of terrorism suspect Luis Posada Carriles.

E m b a r g o

8

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Charter carrier files for bankruptcyMiami-based charter airline Falcon Air Express filed for

Chapter 11 bankruptcy protection. Falcon owner EmilioDirube blamed the cash crunch on rising fuel prices andthe airline’s aging, kerosene-guzzling fleet of a dozen Boeing727.

The 10-year old airline used to be one of the largestplayers in the Cuba charter business.

Falcon’s Cuba flights were chartered mainly by Miami-based Xael Charters Inc. U.S. travel to Cuba, most of itfrom Miami, dropped by two-thirds after the BushAdministration imposed new restrictions in summer 2004.In fall that year, Xael laid off 14 of its 16 full-time employeesand was inspected by the U.S. Treasury Department.

So far this year, the Treasury Department has withdrawnlicenses from 26 Cuba travel providers.

Falcon listed $12.9 million in assets and $47 million inliabilities in its bankruptcy filing. Falcon’s largest debtor is

aircraft leasing company Pegasus Aviation.Falcon laid off 73 of its 169 employees, according to the

Miami Herald. The airline is trying to obtain bridgefinancing from Jet Global Inc. and to reorganize, whilecontinuing to fly with a reduced fleet. Falcon retained oneMD-82 and one MD-83 aircraft, and is trying to lease threemore MD-83 from a company affiliated with Jet Global.

Falcon Air Boeing 727 at Miami photo Falcon Air

FLORIDA CURTAILS ACADEMIC TRAVELThe Florida legislature unanimously passed a bill that bans

Florida colleges from sponsoring trips to Cuba.The bill denies researchers not only the use of state funds,

but also bans private donations and foundation grants if theyare obtained using state university resources. This practicallyforces researchers to pay Cuba travel out of their own pocket.

“It basically helps to ensure that the state that should be thebest informed on Cuba is going to be the worst informed onCuba, particularly from an agricultural standpoint,” BillMessina, a University of Florida agricultural economist, toldthe Gainesville Sun.

Florida Gov. Jeb Bush on May 30 signed the bill, whichwas sponsored by state Rep. David Rivera (R-Miami).

The Board of Governors, which governs public universitiesin Florida, has questioned the legality of the measure. Also,

United Faculty of Florida (UFF), a state teachers’ union, isexpected to file a suit against the state of Florida over the law.

Academics sue Feds over travel restrictionsA group of academics sued in federal court in

Washington, D.C. against the educational travelrestrictions issued by the Bush administration in 2004.

The restrictions violate academic freedoms as definedby the Supreme Court, the academics say.

Plaintiffs include the Emergency Coalition to DefendEducational Travel, a group of 450 academics, along withWayne C. Smith, an adjunct professor of Latin Americanstudies at Johns Hopkins University.The suit named U.S.Treasury Department Secretary John W. Snow as adefendant. The plaintiffs are represented by Washingtonattorney Robert L. Muse.

9

GRUPO BM CO-FOUNDER STEPS BACK

E c o n o m y

Rafi Eitan, the head ofIsrael’s Pensioners’ Party(GIL) made a weeklongbusiness visit to Cuba at theend of May.

Eitan, 79, also controls TelAviv-based Grupo BM, thelargest commercial developerin Havana and Cuba’s biggestcitrus exporter.

Eitan told EFE thatbecause Cuban regulations

forbid foreign investors to be cabinet ministers in their homecountry, he is passing on the leadership of Grupo BM to otherpeople, including a son.

“I must disconnect physically, transfer attributions, closebank accounts, a series of things,” Eitan wasquoted as saying by EFE.

Eitan traveled to Cuba accompanied by therabbi of the city of Tel Aviv, Israel Lau, onrequest of Fidel Castro.

GIL surprisingly won seven seats in thenational parliament in March elections andis now part of the governing coalition inIsrael. Eitan was appointed minister ofpension affairs.

Israel does not have diplomatic relationswith Cuba and consistently supports the U.S.

embargo against Cuba in the UnitedNations.

Eitan has a long track record ofworking for Israeli intelligenceagencies. He was instrumental inthe seizure of Nazi war criminalAdolf Eichmann in Argentina in1960; in the mid-1980s, he was in chargeof managing Jonathan Pollard, the Israeli spy in U.S. NavalIntelligence. Eitan assumed responsibility and resigned fromthe Bureau of Scientific Relations, an Israeli spy agency, afterPollard was caught and condemned to life in prison. Eitanhas been persona non grata in the United States ever since.

From 1985 to 1993, he was head of state-owned IsraelChemicals Ltd. In 1993, after winning a bid to operate part ofthe Jagüey Grande citrus cooperative in Cuba, he joined with

three Israeli-Latin Americancompanies to form Grupo BM.The company now employs20,000 in its citrus business.More recently, Grupo BMdeveloped a 2-million squarefeet office complex in Havana,the Miramar Trade Center, andbuilt a Holocaust memorial inOld Havana.

In his spare time, Eitan isknown as an avid sculptor.

Eitan

Miramar Trade Center

HOME BUILDING PROGRAM LAGGINGA $1.5 billion home building and renovation program is

missing its ambitious targets, the Instituto Nacional de laVivienda admitted in recent hearings in the nationalparliament.

Decent and safe housing is one of the biggest needs ofCubans.

Only 182,000 of 380,000 planned renovation projects havebeen completed from Sept. 2005 through April this year,Communist Party daily Granma reported, blaming a lack oftransportation and supplies, as well as insufficientinvolvement by residents.

Under the program, residents can apply for tools, buildingsupplies at subsidized prices to renovate or rebuild their homesunder their own direction.

Granma said that, in order to speed up the program, thegovernment is providing additional funds to buy additionaltools and trucks, and to expand production of galvanizedsteelframe windows. Most urgent, however, Granma says, iseducating and training residents to become more active inthe program.

Participants in the program are selected according to“political merit.” In a recent review of the program, acommission of the national parliament decided to continuewith this approach.

‘GRIPE LEADERS’: HOUSING, UTILITIESA publication for delegates in Cuba’s municipal and

provincial assemblies said that there were nearly 175,000instances of citizens’ input during the last legislative period.

According to the Boletín Correo del Delegado, the mainhands-on concerns of citizens were about repair andmaintenance of residences and cities; water supply problems;water leaks; deficient electrical wiring; potholes and lack ofpavement on streets; bad quality of bread; problems withgarbage collection; transportation problems; applications forpublic phones; applications for new electric poles; problemswith family doctors.

“The issues most mentioned by the population are relatedto problems with residences and utility services,” the Boletínsaid. In 51 percent of the cases, the complaints were consideredjustified.

ETECSA INSTALLS PUBLIC PHONESState telecom ETECSA said it plans to install an additional

6,300 public telephones in the country this year.The deployment is part of a three-year plan to increase

the number of public phones from 35,000 at the beginningof this year to 50,000.

Many of the phones will be installed in rural areas thathave not had telephone service before..

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10

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MILL TESTING CANE HAR VESTERThe Loynaz Hechavarría sugar mill in eastern Holguín

province will be testing sugarcane harvesters made byGermany’s Claas KG. Violeta Mesa Castillo, in charge ofthe Sugar Ministry’s Grupo Empresarial Agroindustrial, issupervising the test run. Mesa said the harvesters would allowfor significant fuel savings because they would eliminate theuse of trains and tractors to bring the sugarcane to the scales.The harvesters would also allow for 24-hour work. She didn’tsay how many harvesters were bought by the Sugar Ministry.

Local media called the test run an “event of nationalimportance.” Claas, one of the world’s largest agriculturalmachine manufacturers, is offering two sugarcane harvestermodels. The Ventor is powered by a Mercedes-Benz engine;the CC3000 runs with a U.S.-designed Caterpillar engine.

Rising sugar price doesn’t lift ‘06 harvestFidel Castro said in a speech that the just-ended sugar

harvest was below expectations, despite efforts to raisethe output after a rise in the world sugar price.

Castro, according to Reuters, said that the harvest was10 percent below the goal of 1.3 million metric tons. Theresult is slightly below that of last year’s harvest and thelowest since 1908.

In February, the harvest was 13 percent below the goalwhen Castro called in an emergency meeting to make anextraordinary effort to raise the output.

The extra effort allowed Cuba to make an additional$200 million. More than 400,000 tons of the harvest aregoing towards fulfilling a contract with China.

However, an expert told the IPS news service that Cubais spending an estimated $80 million on sugar purchasesabroad, to cover domestic demand, estimated at 700,000tons.

Reuters said that Cuba is expected to import 200,000metric tons of sugar this year. In January, Cuba alreadyagreed on the purchase of 100,000 tons of low-qualitysugar from Colombia and Brazil. In April, Belorus agreedto refine and re-export to Cuba 50,000 tons of sugar fromthe island.

Castro met again with sugar industry leaders in earlyMay to talk about how to raise the output in the 2006-07harvest to take advantage of high sugar prices.

Claas Ventor in action photo courtesy Claas

AUDIT MINISTR Y GETS NEW BOSSAmid a campaign to battle corruption and irregularities,

the Cuban Council of State let go the minister in charge ofkeeping the economy clean. Gladys Bejerano Portela

succeeded Lina Pedraza Rodríguez as Minister of Audit andControl. Pedraza will be “promoted to other responsibilities,”an official comunique said. Pedraza, 50, had been in chargeof the Ministry since it was created in 2001. Bejerano, hersuccessor, served as vice minister since 2001.

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MERCOSUR, CUBA DISCUSS TRADENegotiators from Cuba and Mercosur May 10 concluded a

round of discussions in Buenos Aires for a “5+1” tradeagreement. A Mercosur agreement with Cuba has beenpending since 2003, when Cuba first asked for it.

Discussion topics ranged from tariffs, security, traderegimes and regulations to norms and technical proceduresfor animal hygiene.

The Argentinean delegate who led the discussions said thatMercosur had finally achieved an “internal consensus” overCuba’s interest, which made the negotiations possible. Thetalks were made possible by the leftward trend of SouthAmerican governments. Uruguay dropped its objection to aMercosur agreement with Cuba after a leftist president wasvoted into power last year.

Two-way trade between Cuba and Mercosur reaches about$500 million. Brazilian companies have established importantjoint ventures in Cuba. Venezuela, Cuba’s biggest tradepartner, just joined Mercosur.

MEXICAN BANK SEIZING $35 MILLIONMexico’s Banco Nacional de Comercio Exterior

(Bancomext) said it seized $35 million from an Italian escrowbank account held by the Cuban-Italian telecom monopoly.

In 2002, at the height of a political spat between Cuba andMexico, the Cuban government issued a decree under whichit assumed responsibility for serving Bancomext loans.However, it did not make any payments to Bancomext.

At issue are two loans Bancomext granted to BancoNacional de Cuba — $350 million 1994, and $211 millionafter a restructuring in 2002.

In 2002, Bancomext sued Banco Nacional de Cuba in anItalian court after the Cuban government blocked the Mexicanstate export bank from using cash from U.S.-Cuba phone callsat Empresa de Telecomunicaciones de Cuba S.A. (ETECSA)as collateral for the loans. The Italian judge ruled Bancomexthad the right to seize more than $147.8 million from ETECSAescrow accounts at Banca Commerciale Italiana.

In response, ETECSA filed a complaint against Bancomextbefore an international commerce tribunal. The complaint waswas refuted.

Bancomext said it is considering further court action to seizemore ETECSA funds.

Partially as a result of the conflict, Bancomext in 2004closed its Havana office. Mexico-Cuba trade has been on asteady declinesince the mid-1990s.

CIGB seeking U.S. partnersCuba’s Centro de Ingeniería Genética y Biotecnología

(CIGB) said it is looking for partners to bring Citoprot-P,a new drug that stimulates healing of diabetic foot ulcers,to the U.S. market and elsewhere.

The partner wouldoutlicense Citoprot-P as an orphandesignation fordiabetic amputationprevention.

If CIGB issuccessful, thiswould be the thirdcase in which theUnited States

allowed the development of a Cuban-designed drug by aU.S. company.

Millions of Americans suffer of diabetes mellitus andits symptoms. Diabetic foot ulcers lead to amputation in10 to 15 percent of cases.

“It’s a unique product in the world,” said Ernesto LópezMola, business development director of CIGB. “There’sno alternative right now in the United States against thisdisease.”

Mola said he has written to the main U.S. companiesinvolved in this type of product.

The CIGB in May also presented Heberpenta, acombined, synthetic vaccine for diphteria, tetanus,whooping cough, hepatitis B and haemophilus influenzaeB. Heberpenta has received awards worldwide and in theUnited States.

In other news, CIGB is planning to open abiopharmaceutical joint venture in Colombia. The lab inMedellín would produce unspecified medical drugs. Cubanand Colombian authorities are currently discussing theproject, Cuba’s ambassador in Bogotá said. In a soon-to-come visit to Havana, Colombia’s Social Protectionminister will be accompanied by a group ofpharmaceutical entrepreneurs.

Citoprot-P photo courtesy CIGB

GRID OVERHAUL MOVING AHEADIn an effort to renovate the electric grid, 13,000 utility poles

and pylons have been replaced during the first four monthsof the year, Unión Eléctrica said. Usually, UE replaces lessthan 4,000 in a normal year.

The overhaul is part of an effort to cut back on transmissionlosses and making the system less prone to blackouts.

Also, some 5,800 transformers had been replaced throughApril. In a normal year, UE only replaces some 2,500transformers.

6,400 transformers were produced in Cuba during the firstfour months of the year. Cuba plans to produce 15,000transformers this year.

Bancomextoffices

in Havana

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Part of theCATIC lineup:ARJ-21 (right),and Y-12 (left)

photos:AVIC2 (right),AVIC1 (left)

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CUBA TO BUY CHINESE AIRCRAFT?The Cuban Transport Ministry and the Civil Aviation

Institute held a round of negotiations in Havana withexecutives from the China National Aero-Technology Importand Export Corp. (CATIC Group) to talk about newcooperation projects and alternative financing mechanisms.

Official media didn’t provide details about the negotiations.The Beijing-based state company is, among others, in chargeof China’s aircraft and aviation technology exports.

Cuba recently agreed to buy five mid- and long-rangeTupolev and Ilyushin jets from Russia’s Ilyushin Finance Co.to renew its aging Cubana de Aviación’s fleet. Among CATIC’sproduct offerings are the Y-12, a small turboprop passengeraircraft, and the ARJ21, a short-range passenger jet.

CATIC also exports heavy trucks, buses, automobiles andspare parts, and motorcycles. Cuba recently bought 8,000Yutong intercity buses in a billion-dollar deal with financingfrom CATIC.

Transport Minister Carlos Manuel Pasos Torrado announced

JAMAICA TACKLES CEMENT SNAGThe government of new Prime Minister Portia Simpson-

Miller is sending a delegation to Cuba to speed up deliveriesof Cuban cement. Cuba agreed to sell 64,000 tons of cementto Jamaica, which is facing a deadline to finish constructionof a stadium in time for the Cricket World Cup. However, afirst shipment of 8,000 tons of bulk cement faced a shippingproblem which the delegation was trying to solve, RadioJamaica reported. Jamaica expects delivery of 24,000 tons ofbagged cement from Cuba by the end on July. The CricketWorld Cup is hosted by nine Caribbean countries.

after the meeting an agreement for further purchases of vehiclesfor various uses. He didn’t specify.

Yang Ying, vice president of CATIC, said his company wouldalso like to negotiate sales of maritime, railroad and heavymachinery products.

C O N F E R E N C E S & E V E N T S

•Expocaribe 2006 (general trade fair), Santiago, June 18-23•First International Mango Congress, Santiago, June 18-23•Diversificación 2006 (sugar and byproducts), Havana, June 19-22•Legacies and Lessons conference (U.S. experience with Vietnamand Cuba), Washington, D.C., June 19-22•International Transportation Fair (FITN), Havana, Sept. 27-30•9th Int’l. Congress of Industrial Recycling, Havana, Oct. 9-13•Metanica 2006 (Metal and Metal-mechanic industriesconvention), Havana, Oct. 9-13•International Havana Fair (incl. U.S.-Cuba round ofnegotiations), Oct. 30-Nov. 4•11th World ‘Sports for All’ Fair, Havana, Oct. 31-Nov. 3

Call (941) 330-0303 or send an e-mail tojwerner@cubatradenews.com for more information on events

News from theNews from theSales DepartmentSales Department

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++Cuba hosted a business delegation from Panama at aconference and trade fair at Havana’s Melia Cohiba hotel.The meeting came on the heels of resumption of fulldiplomatic relations between the two countries. ThePanamanian delegation consisted of businessmen from theColón Free Zone led by Severo Sousa, president of the Users’Association of the Colón Free Zone. A trade fair exhibitedproducts from Colón companies, including automobiles, tires,air conditioners, furniture, air compressors, medical drugs,apparel, shoes, appliances and hardware. The free zone is amajor hub for Cuban import goods from third countries suchas China and the United States. In spite of a temporary breakof diplomatic relations, trade between Cuba and Panama hascontinuously increased during the past four years. In 2005,Cuba imported $400 million worth of goods from the ColónFree Zone.++

++A business delegation from Spain visited Cuba in earlyMay, to negotiate contracts worth Euro 180 million ($231million) for a variety of products. The trip was organized byGececuba, a trade association formed by Basque Country-based small and medium companies in the energy sector. Anexecutive with Bilbao-based Grupo Miesa said thenegotiations ranged from boilers, elevators, and agriculturalmachinery, to construction equipment, electronic equipment,electrical equipment and paint. The deals are based on Euro180 million in financing over three years provided byGececuba. In addition, larger Spanish companies arenegotiating sales of more diesel power generators and electricdistribution equipment.++

++Russia and Cuba signed several military-technologicalagreements during a visit to Havana by a delegation of militarycompanies led by an executive of the Russian state arms exportagency, RIA Novosti reported. Rosoboronexport associatedirector Nikolay Shvets didn’t specify. In April, Fidel Castrotold a group of Russian businesspeople that Cuba would liketo buy buses, trucks and railroad material from Russiancompanies.++

++Cuba agreed to buy 100 more locomotives from China,after delivery of a dozen DF7G-C diesel electric engines fromChina Northern Locomotive & RollingStock Industry(Group) Corp. for $15 million. The price for the new orderwas undisclosed. The Transport Ministry also said it plans torefurbish its existing rolling stock, including 80 locomotivesand 1,800 wagons, and fix the main east-west railroad by theend of this year. Chinese companies supplied rails and otheraccessories. The total cost of that program is $160 million.++

++ Fidel Castro said in a speech that Cuba ordered 1,00020-ton trucks from a Chinese company. No details areknown.++

++A 30-member delegation from Guatemala led by IndustryChamber Executive Director Ricardo Sagastume visitedHavana in May. The group included representatives ofcosmetics, alcohol, bakery and lumber companies.++

HAVANA STAGES U.S. MUSICALAn American

produced the firstbroadway musical inHavana in more thanfour decades.

“Havana Carnival,”which bowed April 27in the TeatroNacional, deals with acouple in love thatc h a l l e n g e sconventions andbridges the seemingly permanent U.S.-Cuban conflict. Themusical touches on some hot topics in Cuba; one of the scenesfeatures Cuban rafters on their way to Florida.

Playwright Tony Giordano has used a niche in the U.S.embargo law that allows cultural production in Cuba, as longas it doesn’t involve spending money.

Cuban musician Abel Maceo composed the score and playsa stage role in the musical. Havana’s Compañía de DanzaContemporánea provides most of the dancers. MassimoMastruzzi, an Italian, is a co-author of the score and script.

Giordano would like to bring the musical to New York.The Web site of his New York-based Ananke Ltd. says thatthe producers are looking for investors “to finance theproduction of the show for a large-scale audience (Broadway)or tour the show around the world.”

Rafter scene from ‘Carnival’

HURRICANES UNITE U.S., CUBAAs the hurricane season begins on June 1, meteorologists

in the United States and Cuba have agreed to cooperate. TheInstituto de Meteorología de Cuba (Insmet), the NationalHurricane Center in Miami, and the National Oceanic andAtmospheric Administration (NOAA) in Washington haveestablished a constant communications and informationexchange system. Between eight and 10 hurricanes areexpected to hit the Caribbean this year.

NORTH AMERICAN P ARTNERSConnecting Business to New MarketsP.O. Box 13752 Tampa, FL 33681-3752 USATel.: 813 839 6988 Fax: 813 831 3811Dagodd100@aol.com

ADDRESS CORRECTION REQUIRED

C o m p a n i e s

Damex catamaran ferry

Sherritt International Corp. and CubaPetróleo (Cupet)tapped a new well in an oilfield just off the beach in theVaradero West area, Granma reported May 9. The Varadero-736 well should produce at least 1,500 barrels of oil per day.The partners spent $6.5 million on the 17,000-feet directionalwell from the beach towards the sea, the longest of its kind inCuba. The investment should be recovered within one year,Granma said. In other news, Sherritt said that during the firstquarter oil and gas revenues increased. Net earnings stayedput at $35.7 million, compared to the first quarter 2005. Totalrevenues rose 1 percent to $259.6 million.

***Astillero Damex, the largest shipyard in eastern Cuba,

launched its 50th vessel, a catamaran ferry that will be used toship up to 237 passengers from Batabanó, near Havana, tothe Isle of Youth. The welded-aluminum ship can reach speeds

of up to 25 knotsand is the second-ever made of itstype in Cuba.Damex wascreated in 1995 andis today one of thefew completelyf o r e i g n - o w n e dcompanies inC u b a . D a m e xbelongs to Damen

Shipbuilding Group, a privately owned company based inthe Netherlands. Damen owns 31 shipbuilding companies,18 in the Netherlands and 13 abroad. The group makes 65-70vessels a year. The Cuban subsidiary currently employs about100 and produces tug boats, barges, Ro-Ro cargo vessels,fishing boats and more. The ships have been sold to Germany,Mexico, Bahamas, Chile, Curazao and Trinidad and Tobago.

Great WallMotor Co. Ltd.sold $12.2 millionworth of vehicles tobe used by UniónEléctrica (UE).The order includes407 pickup trucks,54 specialtyvehicles and 50motorcycles, to beef up its aging fleet. Hebei province-basedGreat Wall is the only privately owned auto manufacturer inChina. UE, which purchased the vehicles with a loan payablein two years, also bought spare parts from Great Wall for twoyears of operation. Most of UE’s aging 5,000-plus fleet oftrucks is from the Soviet Union, with some used vehicles fromItaly and Mexico. In May, the state utility received a firstbatch of 101 Chinese-made new trucks and 50 motorcyclesto support the rehabilitation of Cuba’s aging electricity grid.

***Spanish chain Sol Meliá SA is adding two luxury hotels in

Cuba with 1,200 rooms to its portfolio. In October, the largesthotel operator in Cuba expects to open the 925-room MeliáLas Dunas on Cayo Santa María, on the north-central coast.The company said it isalso planning toopen a 300-roomhotel on CayoLargo , off thes o u t h w e s t e r ncoast. Sol Meliácurrently operates8,345 rooms in 21hotels on theisland.

Great Wall’s Deer pickup

Rendering of Meliá Las Dunas bar