BRAZIL: ADDITIONAL DEVELOPMENTS ON BOLIVIAN

C O N F I D E N T I A L SECTION 01 OF 02 BRASILIA 000882

SIPDIS

SIPDIS

TREASURY FOR F. PARODI

E.O. 12958: DECL: 05/05/2016
TAGS: PREL EINV EPET XM BR
SUBJECT: BRAZIL: ADDITIONAL DEVELOPMENTS ON BOLIVIAN
NATIONALIZATION OF ENERGY INSTALLATIONS

REF: BRASILIA 861 AND PREVIOUS

Classified By: CHARGE PHILLIP CHICOLA. REASONS: 1.4 (B)(D)


1. (C) Summary. Senior Brazilian Government (GOB) officials
told emboffs that they viewed the 4 May meeting in Puerto
Iguazu, Argentina as a "successful symbolic event" that
demonstrated Presidents Lula, Morales, Chavez and Kirchner
remain commited to regional cooperation and can talk
productively about energy issues, in the wake of Bolivia's
sudden nationalization of foreign-owned energy installations
on May Day. But the gap between the GOB's official spin and
public reactions appears wide. The tone of reporting in much
of Brazil's media remains highly critical of the GOB's
handling of the situation, and continues to depict an
emerging Morales-Chavez axis that is pursuing an agenda at
Lula's expense. End summary.

A POLITICAL GESTURE...
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2. (C) Raimundo Magno, diplomatic advisor to Civil Household
Minister Dilma Rousseff, told Charge on 5 May that the
Argentina meeting was viewed by the GOB as a "successful
symbolic event." The GOB's intention was not to engage in
hard bargaining or concrete policy negotiations, but "to send
a message" that the presidents are still united in seeking
the goal of regional integration, and would be able to work
together on the gas issues.


3. (C) In an earlier conversation on 4 May with PolCouns,
Marcel Biato, deputy foreign affairs advisor to President
Lula, had conveyed a similar message. Biato had not received
a briefing on the meeting, but made a few observations:

-- The Argentina meeting is &a political gesture8 that Lula
and Kirchner conceived on 2 May. The Brazilians wanted to
use the summit to reinforce their continued political
commitment to regional integration and comity, despite the
events of recent days. At the same time, Lula intended to
make it clear that the issues with Bolivia and Petrobras are
strictly bilateral in nature. Biato said that Lula,s
&soft8 position in the past two days is intentional, to
leave him room for maneuver. Petrobras President Gabrielli
is providing the hard line in public, i.e., no price
increase, no more investment in this climate, ready to go to
arbitration. This is choreographed, a deliberate tactic,
Biato said. (Comment: But it should be noted that Lula seemed
to publicly undercut Gabrielli's hard line at the Argentina
meeting, saying there is still the possibility of new
Brazilian investment. End comment.)

-- Asked whether Planalto is not concerned about the harsh
media reaction depicting Lula,s response as weak, Biato said
Lula and the GOB see no profit in &engaging in megaphone
diplomacy8 with Morales, and that the Brazilian media and
public will come around to seeing the merit in a circumspect
approach, &as the markets are already recognizing.8
Results are what count: if the GOB keeps the gas flowing at
stable prices while Petrobras pursues its legal options, the
wisdom of Lula,s approach will be vindicated. Keeping a
dialogue going is useful, Biato said, because Morales is
going to realize sooner or later that Bolivia is not
Venezuela -- i.e., foreign companies will, in fact, walk away
if they must, so he needs to deal. Biato said the GOB is
looking for this realization and perhaps political changes
that come in Bolivia with the constituent assembly as factors
that may affect Morales, position.

-- Challenged about the growing public perception in Brazil
that Morales and Chavez are in cahoots at Lula,s expense,
and whether this does not undermine Brazil,s regional unity
vision, Biato was laconic. &What are we supposed to do? We
can,t choose our neighbors. We don,t like Chavez,s modus
operandi or Morales, surprises, but we have to manage these

BRASILIA 00000882 002 OF 002


guys somehow, and keep the regional integration idea alive.8

... THAT MAY HAVE BEEN A DUD
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4. (U) But looking at Brazilian media coverage of the
Argentina meeting, it is far from clear that the symbolism
was as successful as the GOB hoped. Most Brazilian press
following the meeting focused on Lula's failure to achieve
any breakthroughs, and commentators continued to criticize
the GOB response as weak and inadequate. Respected columnist
Miriam Leitao stated on TV Globo that "President Lula has
been inept throughout this crisis. The trip and joint
interview were a disaster. It is obvious that it was not the
moment to show solidarity with Morales...This was a
disastrous week." Leading daily "Estado de Sao Paulo"
carried comments by former Brazilian ambassador and Brazilian
Petroleum Agency CEO Sebastiao de Rego Barros Netto
expressing his bewilderment at the passivity with which Lula
has reacted to events in Bolivia. And former Brazilian
Ambassador to the U.S. Rubens Barbosa noted in "Folha de Sao
Paulo" that Brazil's "national interest should come ahead of
anything. The government is minimizing the expropriation."
Brazilian media also highlighted a report in "The Economist"
-- widely respected in Brazil's policy and finance
communities -- saying the events in Bolivia are a victory for
Chavez and his proxy, Morales, and a defeat for Lula. The
optics were hardly kinder than the editorials. A large photo
on the front page of "Estado de Sao Paulo" shows an awkward
Lula standing between Kircher, Morales and Chavez -- the
three of whom appear to be laughing at some joke told at
Lula's expense.

COMMENT
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5. (C) Ineptitude and mixed signals continue to characterize
the GOB's response to Morales' fait accompli. And the
Brazilian public and media remain riled up in an unusually
vociferous way, voicing frustration with the GOB and growing
suspicion -- if not outright animosity -- toward Chavez and
Morales. It remains to be seen whether the public ire
continues. (Brazilians can forget such things quickly when
the World Cup is on the horizon.) The real story of Brazil's
response is probably just starting now, and will likely play
out in the hard-headed world of corporate board rooms and
arbitration court, with Petrobras -- which has legal
obligations and share holder demands that may ultimately
trump Lula's faltering dream of regional leadership -- doing
the talking that matters for the Brazilian side. We will
touch base with key political and energy sector contacts in
the next days and report new developments.

CHICOLA