AMBASSADOR CALLS ON NEW MINISTER OF ENERGY AND

C O N F I D E N T I A L SECTION 01 OF 02 GUATEMALA 000247

SIPDIS

ENERGY FOR GARY WARD
TREASURY FOR OASIA: CHRIS KUSHLIS AND BILL BLOCK

E.O. 12958: DECL: 02/02/2009
TAGS: ENRG EMIN PGOV PINR GT
SUBJECT: AMBASSADOR CALLS ON NEW MINISTER OF ENERGY AND
MINES ROBERTO RODRIGUEZ: ENERGY BACKGROUND AND FRIEND OF
MARKET ECONOMICS


Classified By: EconCouns Steven S. Olson for reason 1.5(d)

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

1. (C) Ambassador called on new Minister of Energy and
Mines Roberto Gonzalez on January 28. Gonzalez has strong
free-market credentials and beliefs, has a background in the
electric power sector, and shares our views on respecting
contracts, attracting investment, reducing subsidies, and
preserving market based regulation. He appreciated AID's
assistance to date and welcomed its continuation. Despite a
general atmosphere of open hostility by the new government to
its predecessor, he had the grace to recognize the strengths
of the previous minister and of the regulatory board the
prior government named (and tried, unsuccessfully, to
subvert). End Summary.

New Minister Close to Berger, Free Market Background
-------------- --------------

2. (SBU) Ambassador and EconCouns called on new Minister of
Energy and Mines Roberto GONZALEZ Diez Duran on January 28.
Gonzalez, 36, was personal aide to President Berger during
the recent campaign, and his professional and academic
background is in the electric power sector. His views are
decidedly pro-market. His undergraduate work was at the
Francisco Marroquin University (where the libertarian bent
requires study of Austrian economists Mises and Hayek). He
has a Masters in Finance from the Universidad Catolica in
Chile and has studied at the University of Chicago and at the
Adam Smith Institute in London, where his focus was on
"natural monopolies." He has worked as a consultant on power
sector regulation and pricing and on co-generation at a large
sugar mill.

Focus on Power, Investment and Cutting Subsidies
-------------- ---

3. (SBU) Ambassador congratulated Rodriguez on recent
comments to the press concerning the need to respect
contracts with electrical generators and distribution
companies. Rodriguez said that his entire focus was on
attracting private investment, and one had to start by
respecting the contracts of existing investors. He was fully
aware of the terms of existing power purchase agreements
(PPAs) and the functioning of the Central American merchant
market. He would like to try to lower PPA costs if contracts
could be renegotiated to the satisfaction of all parties, but
it was clear to him that the real problem in the price
structure was the subsidized "social tariff" for users of
less than 300 KWh per month. (Note: The IMF has recommended
the social tariff's elimination.)


4. (SBU) Rodriguez had told the press that the "social
tariff" subsidy had to be removed or reduced for all but the
poorest of users, and he had mentioned the concept of
increasing rates gradually, keeping the existing rate for the
first 100 KWh/month, a higher rate for the next 100
KWh/month, and so on up to a flat rate at a level to be
determined. The overall effect would be to reduce the cost
paid by small businesses and larger household consumers by
requiring the middle class to pay its fair share. 300 KWh
was simply too high for the social tariff, as it meant that a
relative handful of small businesses and wealthier households
bore the burden of a subsidy for the vast majority of
Guatemalans, while the largest industries were able to
negotiate competitive rates with the private merchant
generators. Market signals were being subverted and not
conveying the proper incentives to market participants.
Ambassador commented that all the minister had said coincided
with our thinking.


5. (SBU) Rodriguez said that he had President Berger's
agreement in principle to reduce the social subsidy, but the
President had asked him to wait 30 or 45 days before acting.
Comment: A little delay is probably a good thing. It
provides time to make the public case for why reform is
necessary and allows the government to deliver some positive
results in its social services agenda, e.g. healthcare, and
not have rate hikes its first concrete action. End Comment.

Rodriguez Welcomes AID's Assistance
--------------

6. (SBU) Rodriguez had just met with AID contractor PA
Consulting, which had produced a study of pricing and
regulatory options for the ministry. He welcomed AID's
assistance and was delighted to hear that AID was willing to
continue collaborating. EconCouns noted that Guatemala
served as the model for regulating the interconnected
regional energy market and said that it was important that
the market-oriented regulatory framework in Guatemala not
fall prey to populist initiatives of the sort the Congress
had been discussing over the course of the past year.

Regulatory Board and Former Minister Did Well
--------------

7. (C) The Ambassador asked Rodriguez's opinion of the
national electrical energy regulatory board (CNEE).
Rodriguez said that the FRG government had interfered with
the board and forced changes in its membership, but the board
members had maintained their independence and made decisions
on sound technical criteria. He recounted how the FRG had
forced one member to resign and replaced him with one of its
congressmen, but the congressman had left after a couple of
months when he realized he couldn't cause any mischief.
EconCouns commented that we remembered the story exactly the
same way. He also congratulated the minister for his
graciousness in complimenting his predecessor Raul Archila in
remarks to the press. Rodriguez said that Archila (not an
FRG member) was "a hero" for protecting the ministry from
harm from a government that was otherwise a disaster.

Wants to Meet with U.S. Investors in Guatemala
-------------- -

8. (U) Rodriguez asked if we could help organize a meeting
of U.S. energy and mining interests, as he would like to get
to know them as quickly as possible and hear their concerns.
Ambassador said we would like to arrange such an event and
would be back in touch shortly.

Comment
--------------

9. (SBU) Rodriguez is personable, seemed to want to work
with us closely, and shared our view on virtually everything
we discussed. He was not yet up to speed on his mining
portfolio, though he was reading up on the Glamis Gold Marlin
project in San Marcos Department (Glamis is headquartered in
Reno Nevada. The Marlin site has initial estimated reserves
of 1.4 million ounces of gold associated with ten times than
in silver. Investment is estimated at close to $100
million.) The only deterrent to a longer and more detailed
discussion was the minister's insistence on practicing his
English, which was either not quite as good as he believed or
hadn't been practiced recently. We anticipate a good and
fruitful relationship with him (and hope that his English
comes back or he decides that Spanish is fine).

HAMILTON