Identifier
Created
Classification
Origin
04CARACAS1426
2004-04-27 21:27:00
CONFIDENTIAL
Embassy Caracas
Cable title:  

VISIT TO VENEZUELA OF SENATOR NELSON - ECONOMIC

Tags:  ECON ENRG PREL VE 
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C O N F I D E N T I A L CARACAS 001426 

SIPDIS


ENERGY FOR PUMPHREY AND LOCKWOOD
NSC FOR SHANNON AND BARTON
SOUTHCOM ALSO FOR POLAD

E.O. 12958: DECL: 04/22/2014
TAGS: ECON ENRG PREL VE
SUBJECT: VISIT TO VENEZUELA OF SENATOR NELSON - ECONOMIC
MEETINGS

REF: CARACAS 1350

Classified By: Amb. Charles S. Shapiro. Reason: 1.5(b) and (d)

-------
Summary
-------

C O N F I D E N T I A L CARACAS 001426

SIPDIS


ENERGY FOR PUMPHREY AND LOCKWOOD
NSC FOR SHANNON AND BARTON
SOUTHCOM ALSO FOR POLAD

E.O. 12958: DECL: 04/22/2014
TAGS: ECON ENRG PREL VE
SUBJECT: VISIT TO VENEZUELA OF SENATOR NELSON - ECONOMIC
MEETINGS

REF: CARACAS 1350

Classified By: Amb. Charles S. Shapiro. Reason: 1.5(b) and (d)

--------------
Summary
--------------


1. (C) During his April 15-17 visit to Venezuela Senator
Bill Nelson (D-FL) met with representatives of U.S. energy
businesses operating in Venezuela, with state oil corporation
PDVSA President Ali Rodriguez, and with members of the board
of the Venezuela-U.S. Chamber of Commerce and Industry
(VENAMCHAM). Energy company representatives outlined the
situation which they faced in Venezuela and estimated that
Venezuela produced no more than 2.5 million barrels of oil
per day. PDVSA President Rodriguez put the figure at 3.15
million barrels per day and outlined plans for a major
expansion of the oil sector. VENAMCHAM board members, whose
businesses ranged from food processing to electrical
equipment, expressed concerns about an overall unfavorable
business climate. (Senator Nelson's meetings on political
issues are discussed septel.) End summary.

--------------
Energy Sector Dinner
--------------


2. (C) Senator Nelson dined with energy sector executives
representing operators, oil field service companies and the
trade association of foreign oil companies. The industry
representatives underlined that legal stability is their
primary concern. They pointed to the mixture of "radical
rhetoric with businesslike behavior," of the GOV, adding, "if
they didn,t need us, none of us would be here."


3. (C) Turning to a discussion of President Chavez's recent
threats to stop exporting oil to the U.S. (reftel and
previous),the industry representatives argued that Venezuela
still needed the U.S. market. However, they pointed to the
Libyan example, noting that its production was over 3 million
b/d when Qadhafi came to power and has now dropped to 1.5
million b/d. This reduced income nonetheless has been enough
to maintain Qadhafi in power. The industry representatives
then commented that, with Venezuelan production decreasing
(they put current production at approximately 2.5 million
b/d),Chavez may ultimately not need a market the size of the

U.S. market. (The Ambassador pointed out that Venezuela's
population is five times that of Libya.)


4. (C) Senator Nelson countered with a question about
whether the expectations of the Venezuelan poor can be met
with dropping oil production. The company representatives
noted that the GOV had just made state oil company PDVSA's
2004-2009 business plan public, envisioning a major increase
in Venezuela's production capacity by 2009. In sum, however,
despite GOV stated plans to hire more oil rigs, etc., in
2004, the company representatives anticipated that Venezuelan
production would continue to fall and that Venezuela,s
presence in international markets would decrease.

--------------
PDVSA Meeting
--------------


4. (C) Senator Nelson opened his meeting with PDVSA
President Ali Rodriguez by telling him that he had met with
U.S. companies that were interested in producing more oil in
Venezuela. "What are the prospects?" he asked. Rodriguez
responded that the prospects were good. He said that PDVSA
had just finished an intensive examination of its business
prospects and had also just published its 2004-2009 business
plan in which it envisioned increasing its production
capacity from 3.8 to 5.0 million b/d. The U.S., he said,
would continue to be a major partner. (Note: Production
capacity is the amount of production a country believes it
could produce given optimum circumstances of facilities and
wells. Actual production is the amount currently being
produced. In the case of Venezuela, the amount of actual
production claimed by the GOV is under dispute. End Note.)



5. (C) Rodriguez said that Venezuela (PDVSA plus the

Strategic Associations under which foreign oil companies
operate here in partnership with PDVSA) was producing 3.150
million b/d. In response to a question by the Senator about
why others said production is 2.5 million, Rodriguez
responded that PDVSA's production alone was 2.56 million.
Venezuela, according to Rodriguez, had tremendous reserves
but the market could not accept an infinite amount of oil and
must instead be balanced.


6. (C) Senator Nelson commented that he had seen a great
deal of poverty in Venezuela and that, if he were President
Chavez, he would pump more oil. Rodriguez responded that
PDVSA planned to do just that but that it needed do so on a
rational basis. Pointing to the extra heavy crude of the
Orinoco heavy oil belt as an example, Rodriguez said that the
current seven percent recovery level was too low. The GOV
wanted to increase that to 20 percent or more and was now
examining the development of new technologies with its
partners. He added that new laws passed by the Chavez
government had opened the hydrocarbons sector to new
investment. ChevronTexaco, for example, had won important
off-shore exploratory gas blocks and now Venezuela planned to
bid out seven more blocks.


7. (C) Turning to a discussion of energy policy, Senator
Nelson noted that oil consumption in the U.S. would continue
to increase. He detailed Senator Kerry's energy policy,
saying that the Senator believed it was not good for the U.S.
to be dependent on Middle Eastern oil. Rodriguez agreed that
projections hold that U.S. demand will continue to increase.
He added that he believed there should be an international
agreement between producers and consumers. He noted that he
had been OPEC Secretary General at a time when prices had
dropped and added that this volatility affected everyone.


8. (C) The Ambassador then asked Rodriguez about the status
of the Tomoporo oil project. (Note: While the GOV has gone
back and forth on whether PDVSA will develop this large new
field itself or open it to foreign investment, the most
recent announcement was that PDVSA would develop it. End
note.) Rodriguez explained that PDVSA is continuing to study
the development of Tomoporo, the largest new project on the
horizon. He added that between 2004-2009, PDVSA's business
plan envisioned $37 billion in investment. Of this, $27
billion would be invested by PDVSA while $10 billion was
anticipated from third parties.

--------------
VENAMCHAM Meeting
--------------


9. (C) In an April 17 meeting, members of the
Venezuelan-American Chamber of Commerce and Industry
(VENAMCHAM) Board of Directors briefed Senator Nelson on
increasingly negative business conditions in Venezuela. The
members attributed the country,s economic decline to various
political factors, including endemic corruption and the
absence of a predictable rule of law. Board member Alberto
Mestre, head of General Mills' operations in Venezuela, told
the Senator corruption had increased under the current
administration and asked for U.S. help in confronting the
problem. Mestre also warned of imminent problems in the food
sector if the GOV continued directly importing food in
competition with the private sector while simultaneously
maintaining rigid price and exchange controls. Reina McPeck,
coordinator of Venamcham,s small and medium business
committee, estimated that almost 10,000 businesses had shut
down in the last year of economic contraction.


10. (C) Regional General Electric representative Jose Luis
Serra told the Senator that Venezuela remained attractive for
multinationals in comparison with places such as Iran or
Iraq. However, he expressed concern about future investment
given the unpredictable nature of GOV economic policy
creation. He noted that the "rules of the game have changed"
when dealing with government entities such as PDVSA, and
communication has become more complicated. In response to
their appeals for investment and support from the U.S.,
Senator Nelson asked the gathered businesspeople what efforts
they had made to address Venezuela's underlying social
problems as a means of gaining support from Chavez's core
constituency. They described ongoing projects aimed at
increasing literacy, providing health care and fostering


entrepreneurship. The members ended by asking the Senator to
convey to candidate Kerry their call for the U.S. to get more
involved in Venezuela's search for a solution to its
political crisis.
SHAPIRO


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2004CARACA01426 - CONFIDENTIAL