VENEZUELA'S FUEL DEAL WITH ARGENTINA

C O N F I D E N T I A L CARACAS 001550

SIPDIS


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

E.O. 12958: DECL: 05/11/2014
TAGS: ENRG ECON PREL VE AR
SUBJECT: VENEZUELA'S FUEL DEAL WITH ARGENTINA


Classified By: Economic Counselor Richard M. Sanders. Reason 1.4(b).

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Summary
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1. (SBU) Venezuela and Argentina are moving forward with a
USD 200 million deal under which state oil corporation PDVSA
sells fuel oil and diesel fuel to Argentine firms to ease its
energy crisis, and Argentine companies sell a range of food
products and manufactures to the GOV. In addition to simply
making a sale, the GOV may hope to gain political points in
Buenos Aires, while making at least a gesture towards
diversifying oil sales away from the U.S. End Summary.

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We Send You Fuel
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2. (SBU) On May 10, Caracas newspapers announced that the
first load of fuel oil had arrived in Argentina which had
been purchased under an agreement signed on April 6 between
Venezuelan Minister of Mining and Energy Rafael Ramirez_ and
Argentine Minister of Planning Julio de Vido. That same day
econcouns met with Alberto Alvarez, the Argentine Embassy's
Economic-Commercial Counselor, who outlined the scope of the
deal. Noting that Argentina faced a severe power shortage,
as a result of its post-default growth surge, together with a
failure to provide adequate incentives for natural gas
production, he said that the short-term solution was to
re-open closed power plants which could run on fuel oil and
diesel fuel.


3. (SBU) The deal, he said, entailed the purchase of USD
200 million in fuel oil and diesel fuel, which would be sold
by PDVSA to a private Argentine entity called CAMMESA
(Wholesale Electricity Market Management Company),which
would in turn sell it to the various companies with
mothballed power plants. The amount sold would be 8 million
barrels of fuel oil and 1 million barrels of diesel over the
next six months (the Southern Hemisphere winter). PDVSA
would charge the market price for these products. However,
it would agree to payment within 45 days instead of the seven
or ten days which is normal in such purchases.

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You Send Us Other Products
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4. (SBU) Alvarez said that CAMMESA would take the money
earned from the sale of the fuel oil and diesel fuel and put
it into a trust fund to be jointly administered by PDVSA, the
Economic and Social Development Bank (BANDES),which is owned
by the GOV, and the Foreign Trade and Investment Bank (BICE)
owned by the GOA. The money would be used for the purchase
of Argentine products by Venezuelan ministries and state
corporations. PDVSA would purchase a range of metal products
such as steel tubes and valves. The Agricultural Supply
Corporation (CASA),an arm of the GOV's Ministry of
Agriculture, would buy products such as powdered milk,
sunflower and soybean oil, yellow corn and beef. (CASA is
the vehicle for supplying the GOV's MERCAL program of
state-run food markets in low income neighborhoods.) The
Office of the Minister of State for Special Economic Zones (a
rural development agency) will buy live cattle. The Ministry
of Health would buy medical supplies for state hospitals.
Alvarez said that the price of the various products to be
sold would be set by a bidding process.

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Comment: Buying Friends?
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5. (C) This kind of creaky, state-to-state counter-trade
arrangement seems like a throwback to the 1960's or earlier.
Still, as outlined by Argentine diplomat Alvarez, this deal
seems fairly neutral from an economic point of view.
Argentina gets needed fuel with a longer repayment period
than it would otherwise have, and some new access for its
food and other products to the Venezuelan state sector.
Venezuela finds a new market for petroleum products.

However, we also see some political angles here. PDVSA is
largely dependent on the U.S. market, a situation which has
never sat well with Chavez. This sale to Argentina, while
hardly affecting the overall structure of PDVSA's marketing,
is at least a down payment on further diversification. The
purchase in turn of other products from Argentina fits in
nicely with the GOV's ideological predilection for
south-south trade, and in particular with the MERCOSUR
countries (again as opposed to the U.S.).


6. (C) And by coming to Argentina's rescue at its hour of
need, the GOV may be hoping to purchase some good will in
Buenos Aires. When Kirchner took office, there was
considerable speculation here that he would have a close
rapport with Chavez as a fellow leftist. This has proven not
to be the case. Argentina has kept a low profile here, and
while hardly anti-Chavez, it has shown its support for the
democratic process, most notably by Kirchner's meeting with
representatives of Venezuela's opposition during his last
visit here. Petro-diplomacy has a long tradition in
Venezuela, although it has usually been used with the
Caribbean and Central American countries, who receive
preferential prices for Venezuelan oil. It remains to be
seen whether Venezuelan fuel oil can be used to warm
relations with Argentina as well as Argentine homes. We note
that according to Alvarez, if Argentina's energy crisis is
not resolved by next year, it may want to renew the current
deal.
SHAPIRO


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