C O N F I D E N T I A L BRIDGETOWN 000344

SIPDIS

SIPDIS

SANTO DOMINGO FOR FCS
SOUTHCOM ALSO FOR POLAD

E.O. 12958: DECL: 02/17/2016
TAGS: PGOV PREL ENRG EPET ETRD VC VE TD XL
SUBJECT: ST. VINCENT'S DISPUTE WITH TEXACO CONTINUES: WILL
VENEZUELA STEP IN?

REF: A. 05 BRIDGETOWN 2417


B. 05 BRIDGETOWN 2377

C. 05 BRIDGETOWN 2085

Classified By: DCM Mary Ellen T. Gilroy for reasons 1.4 (b)
and (d).


1. (C) Summary: The dispute between the Government of St.
Vincent and the Grenadines (GOSV) and Texaco over the price
of liquefied petroleum gas (LPG) has continued since the
company threatened in November 2005 to stop supplying the
island with the fuel unless the government-regulated price is
raised. Some progress was made during a January 2006 meeting
between the GOSV and Texaco, and Prime Minister Ralph
Gonsalves said thereafter that he hopes an agreement could be
reached. In the meantime, the GOSV is discussing options for
obtaining the fuel from Trinidad and Venezuela, which has
already sent two shipments of LPG to St. Vincent.
Significantly, PM Gonsalves told Parliament that this is not
a political issue but one of obtaining LPG at the best
possible price, and avoided blaming the U.S. for the
situation. The PM had previously accused the USG of
instructing Texaco to cut off supplies of LPG in order to
undermine him politically. End summary.

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Dispute With Texaco Continues
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2. (C) The GOSV and Texaco failed to reach an agreement on
the government-regulated price of LPG sold in St. Vincent,
leading the company to threaten to stop supplying the cooking
fuel used in nearly every home on the island. Texaco has
argued that the artificially low government-regulated price
has forced it to sell the fuel at a loss. When it did not
receive an adequate response from the GOSV, Texaco informed
its St. Vincent distributor of LPG on November 7, 2005, that
the oil company would cut off supplies of the fuel in one

month, December 7, which happened to be the same day as St.
Vincent's national election. This unfortunate coincidence
led to a confrontation between the President of
Chevron-Texaco Eastern Caribbean and Prime Minister
Gonsalves, during which the PM accused Texaco of conspiring
with the USG to undermine his chances for re-election (ref
B).

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PM Gonsalves Goes Public With Texaco's Threat
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3. (U) PM Gonsalves met again with the Texaco representative
in January 2006 to discuss a possible LPG price increase.
Texaco has asked that the retail price at which the cooking
fuel is sold to the public be raised from US$11 per 20-pound
bottle to US$15. The parties did not, however, come to an
agreement. Following the meeting, PM Gonsalves spoke of the
impasse in Parliament and informed the country of the
company's threat to end shipments of LPG. The PM explained
that he hopes an agreement could still be reached and has
asked Texaco to provide information justifying the price
increase. The GOSV has also announced that it has begun to
explore options for obtaining emergency supplies of LPG, and
Gonsalves has spoken with Trinidad and Tobago Prime Minister
Patrick Manning and Venezuela President Hugo Chavez about
these oil-producing countries providing LPG to St. Vincent.

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Texaco, the Perennial Scapegoat
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4. (C) Stephen Babb, President of Chevron-Texaco Eastern
Caribbean, and Maria Pis-Dudot, Chevron-Texaco Public and
Government Relations officer for the Western Hemisphere (both
based in Florida), told Econoff that their company is used to
playing the scapegoat for increases in government-regulated
energy prices. They believe PM Gonsalves went public with
the Texaco price dispute in order to prepare St. Vincent for
an increase in the price of LPG price and to place the blame
for this on the company. In his January meeting with the PM,
Babb said Gonsalves took a conciliatory tone, explaining that
he understands companies need to make a return on their
investment. The PM went on to say that St. Vincent is better
off with competition in the energy sector - suggesting that,
despite being one of the strongest supporters of PetroCaribe,
Gonsalves does not want to be completely dependent on
Venezuelan petroleum. The Texaco officials hope the GOSV

will agree to raise the price of LPG after the company's next
meeting with the PM on February 27.

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Venezuela to the Rescue?
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5. (U) Venezuela recently sent two shipments of LPG to St.
Vincent, although these were not necessarily connected to the
dispute with Texaco. The first shipment arrived in December
2005 just days before St. Vincent's national election (ref
A); the second shipment arrived in January 2006. The GOSV
sold the Venezuelan LPG for US$9 per container, which is
below the regular government-controlled price of US$11.
While the availability of low cost fuel may have assisted PM
Gonsalves's re-election, circumstances surrounding the
shipments demonstrate the difficulty St. Vincent may face in
continuing to obtain LPG from Venezuela.


6. (U) The LPG from Texaco is delivered economically in bulk
shipments that are piped from ships to a storage tank on St.
Vincent. From there, the LPG is transferred to small
20-pound metal bottles that are sent to distributors who sell
directly to consumers. In contrast, the LPG delivered from
Venezuela was already in individual 22-pound bottles that
were packed into shipping containers. A photo on the GOSV
website showed the bottles being taken out of the shipping
containers by hand, a process that must have taken
considerable time considering that the December shipment
included 7,200 bottles of LPG. To complicate matters
further, the Venezuelan bottles were not compatible with the
existing equipment on St. Vincent that allows LPG bottles to
be refilled. The GOSV has had to import special equipment or
be faced with thousands of worthless metal canisters.

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Comment
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7. (C) It remains unclear whether the two Venezuelan
shipments of LPG were carried out as part of the PetroCaribe
oil agreement, despite public statements by the GOSV that
they were. St. Vincent has yet to finalize the internal
arrangements necessary to begin receiving petroleum products
under PetroCaribe (ref C). Furthermore, the difficulties
encountered with the shipments of LPG suggest that these were
undertaken with little planning and may have been a personal
gesture by Hugo Chavez to help the political fortunes of his
friend Ralph Gonsalves.


8. (C) PM Gonsalves's public statement that he hopes to reach
an agreement with Texaco stands in sharp contrast to his
earlier charge that the USG was behind the company's threat
to stop LPG shipments. While Gonsalves's paranoia is
unfounded, his anger at Texaco's threat to end shipments the
same day as St. Vincent's national election is
understandable. The Texaco representative who chose that
cut-off date was clearly uninformed about local politics.
The fact that PM Gonsalves told the nation that the GOSV
could countenance some form of a LPG price increase suggests
that his earlier anger over the incident has subsided and the
recent adversaries may still reach a mutually beneficial
agreement. Additionally, his comments on valuing competition
and private investment in the energy field suggest Gonsalves
has some doubts about Venezuela's ability to reliably meet
all of his country's energy needs through PetroCaribe. End
comment.
KRAMER