EXXONMOBIL TO SIGN PROJECT DOCUMENT

C O N F I D E N T I A L CARACAS 002570 SIPDIS NSC FOR TSHANNON AND CBARTON ENERGY FOR DPUMPHREY AND ALOCKWOOD E.O. 12958: DECL: 08/08/2014 TAGS: ENRG PGOV VE SUBJECT: EXXONMOBIL TO SIGN PROJECT DOCUMENT Classified By: Economic Counselor Richard Sanders; for reasons 1.4 (b) and (d) -------------- SUMMARY -------------- ¶1. (C) ExxonMobil de Venezuela President Mark Ward told the Ambassador August 9 that the company is likely to sign the Preliminary Development Agreement (PDA) for a multi-billion dollar petrochemical project with the GOV on August 12. Ward reported that the signing will take place in PDVSA President Ali Rodriguez,s office. Although the company has firmly refused to participate in a public signing ceremony at Miraflores palace, they now have agreed to coverage of the signing by state television. End Summary -------------- THE PROJECT -------------- ¶2. (SBU) The project, a joint venture with PDVSA chemical affiliate Pequiven, has been under discussion since 1996. It would see the construction of an ethane-based, ethylene cracker that would create feedstock for the plastics industry. The integrated facility, to be located in the Jose Industrial Complex in Anzoategui state, would convert 1.3 million metric tons of ethane (derived from natural gas) into 1 million tons of ethylene. The ethylene in turn would be converted into high-and low-density polyethylene and ethylene glycol, used respectively in grocery bags, garment bags, and polyester clothing. According to Ward, the capital investment for the project is now estimated at approximately $3 billion. ExxonMobil expects that the plant once built would be a major supplier to Latin America's plastics industry. The GOV would obtain a big project consistent with its economic/ideological goals of directing foreign investment downstream. ¶3. (SBU) Ward said he wanted to explain to the Ambassador what the PDA is and is not. -------------- THE EVENT -------------- ¶4. (SBU) Ward said he would sign the PDA on behalf of ExxonMobil while Pequiven President Saul Ameliach would sign on behalf of the GOV. An ExxonMobil staffer informed econoff separately that PDVSA President Ali Rodriguez would also sign because the PDA includes commitments made by PDVSA. Although Ward told the Ambassador August 9 that there would be no public press coverage of the event and the two sides would issue a joint press statement, ExxonMobil subsequently informed us August 11 that it has now agreed to coverage of the signing by state television. -------------- WHY SIGN BEFORE AUGUST 15? -------------- ¶5. (C) When the Ambassador asked why the company had agreed to sign the PDA the week before August 15, the scheduled date of the referendum on Chavez's tenure in office and the event that has convulsed Venezuela's political life, Ward responded that ExxonMobil is satisfied with the content of the agreement. He said bluntly that ExxonMobil could not think of any other issues to raise with the GOV and that the GOV has been pressuring the company to sign immediately, including questioning its commitment to the project if it refused to go ahead. Ward said the company has firmly refused to participate in a public signing ceremony at Miraflores palace. ¶5. (SBU) Despite the signature of the PDA, the final investment decision will not be made for another 18-24 months, Ward said. In the meantime, ExxonMobil expects to spend approximately $2 million to revalidate the economics of the project (and particularly the availability of sufficient natural gas feedstock),negotiate detailed agreements with the GOV, do the preliminary engineering up to the point where ExxonMobil could let the construction project for bids, and secure financing. The actual investment would be spread out over six years beginning with the signing of contracts with the GOV. -------------- COMMENT -------------- ¶6. (C) Ward was anxious to notify the Ambassador about ExxonMobil's motives for signing the project agreement in advance of August 15. He also noted that ExxonMobil Chairman Lee Raymond would be notifying senior Washington officials as well. However, this project has been under discussion for nine years (through four changes in the presidency of Pequiven since the December 2002-February 2003 strike) and it is doubtless a relief for the company to take this step. While ExxonMobil has apparently successfully avoided a high profile ceremony ahead of the referendum, the GOV will carry the signing on state television and use it as part of its campaign against the recall referendum. See septel for other politically generated "outreach" campaigns to the petroleum sector it has been undertaking. Shapiro