ST. VINCENT'S DISPUTE WITH TEXACO CONTINUES: WILL

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. -------------- Dispute With Texaco Continues -------------- ¶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). -------------- PM Gonsalves Goes Public With Texaco's Threat -------------- ¶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. -------------- Texaco, the Perennial Scapegoat -------------- ¶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. -------------- Venezuela to the Rescue? -------------- ¶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. -------------- Comment -------------- ¶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