AMBASSADOR RAISES BUSINESS ADVOCACY ISSUES WITH

C O N F I D E N T I A L SECTION 01 OF 06 BUENOS AIRES 001091 SIPDIS SENSITIVE SIPDIS WHA FOR AMBASSADOR TOM SHANNON, AMBASSADOR CHARLES SHAPIRO AND PATRICK DUFFY, EB FOR ASSISTANT SECRETARY TONY WAYNE NSC FOR DAN FISK SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER E.O. 12958: DECL: 05/12/2016 TAGS: ECON EINV ENRG EAGR AR BL SUBJECT: AMBASSADOR RAISES BUSINESS ADVOCACY ISSUES WITH MINISTER OF PLANNING Classified By: Ambassador Lino Gutierrez for reasons 1.4 (B) and (D) -------------- Summary -------------- ¶1. (SBU) The Ambassador called on Minister of Planning Julio De Vido on May 9 to discuss business advocacy cases. The Ambassador began the meeting by thanking De Vido for his help in improving the relationship between the two governments, especially during the January visit of Assistant Secretary Tom Shannon. The Ambassador and De Vido then discussed ten business advocacy cases involving AES, the ATSC Forum, ChevronTexaco, CMS, SES, Cargill, Mirab, Campbell's Soup, Monsanto, and Lockheed-Martin. De Vido addressed each of the cases in a forthright manner, saying that the issue was being addressed, calling subordinates and asking them to meet with Embassy officials, or inviting executives from the U.S. companies to meet with him. Some of these meetings have already taken place with positive results. The Ambassador asked De Vido for his views on Bolivia and he described the situation there as very complicated. As is his custom, De Vido received the Ambassador by placing a full-size U.S. flag alongside the Argentine flag that stands outside the entrance to his office. End Summary. -------------- A Note on the Bilateral Relationship -------------- ¶2. (SBU) The Ambassador called on Minister of Planning Julio De Vido on May 9 to discuss business advocacy cases. De Vido was alone and the Ambassador was accompanied by the DCM and the Economic Counselor (notetaker). The Ambassador began the meeting by thanking De Vido for his help in improving the relationship between the two governments, especially during the January visit of Assistant Secretary Tom Shannon. De Vido responded that he "did not see Assistant Secretary Shannon traveling very much." He later said that Assistant Secretary "Shannon should come more often. I see him as a very open man." He suggested that Assistant Secretary Shannon could be particularly helpful in discouraging radicalized groups in Bolivia. -------------- A Full Plate of Business Advocacy Cases -------------- ¶3. (SBU) The Ambassador and De Vido then discussed ten business advocacy cases involving AES, the ATSC Forum, ChevronTexaco, CMS, SES, Cargill, Mirab, Campbell's Soup, Monsanto, and Lockheed-Martin. De Vido welcomed the discussion and said that the two governments had been cooperating well on the status of U.S. companies. -- AES. The Ambassador mentioned U.S. power generation and distribution company AES and asked about the implementation of the November 2004 agreement between AES subsidiary EDELAP and the GOA that led to the suspension of EDELAP's ICSID claim against the GOA and a 28 percent tariff increase that it has been collecting since February 2005. (Comment: Under the terms of this agreement, AES agreed to withdraw its claim once a long-term tariff schedule was put in place. The next step was to have been a call for a public hearing to implement a long-term tariff schedule. However, De Vido stated in early 2006 that there would be no additional tariff increases in 2006 because of the threat of inflation and AES has not been able to see him since January 2006. End Comment). De Vido replied that AES was "the company that was the farthest advanced" in its negotiations with the GOA. "We BUENOS AIR 00001091 002 OF 006 have to begin the tariff process," he said, "but it is not an opportune time to do this, at least not until June." "They are friends," he continued, "They are good people. And they are the only ones who were able to obtain an initial tariff increase during a time of emergency. This was the result of their own merit, not our own. But now is not the time for additional tariff increases." The Ambassador then asked if it would be possible to recognize the inflation that has occurred since the November 2004 agreement on an interim basis until such time as a long-term tariff schedule can be established. De Vido responded that this was not possible, since this would be accepting the "indexation of the economy," which is precisely what the GOA is trying to avoid. Consequently, AES will have to wait. The Economic Counselor reported this information to an AES executive on May 9. -- ATSC Forum. The Ambassador asked De Vido when he planned to make a decision regarding the consortium of U.S. companies, the ATSC Forum's, bid to supply U.S. technology for Argentina's selection of a new HDTV standard. (Comment: Former Secretary of Communications and current Secretary of Internal Commerce Guillermo Moreno had told the Commercial Counselor and the Economic Counselor that this decision memo for this issue was on De Vido's desk and that he expected the decision to be taken in favor of the ATSC Forum. End Comment). De Vido answered that the decision would not be made that week, but would be made during the following week (during the week of May 15). "Be assured that it will go well," he said, "I want your system." Regarding the Japanese competition, De Vido said that Brazil was moving toward the Japanese system and noted Brazil had an immense Japanese community. He added that the local Japanese Ambassador was very nice, but that the Japanese Embassy did not have the relationship that existed with the U.S. Embassy. The Japanese Embassy wants Japanese power generation equipment manufacturer Marubeni to participate in the two USD 800 million combined-cyle power generation plants that the GOA wants to build near Rosario (which would compete directly against U.S. power generation equipment manufacturer GE). Regarding the European competition, De Vido made light of "an EU Commissioner from Luxembourg" that had come to promote EU technology. Finally, De Vido stated that he had been polling local broadcasting and telecommunications companies to determine their preferences, because he wanted to establish a consensus rather than impose a decision on the sector. He noted that media magnate Daniel Haddad, who owns the Channel 9 television station, is interested in the U.S. standard. However, Telefonica of Spain, which owns Channel 11 and the Telefonica telephone company, supports the EU standard, and local businessman Julio Wertheim, who owns the Telcom telephone company along with Telcom of Italy, does not have a large stake in this issue. (Comment: Channel 7, which is owned by the GOA, will go whichever way the GOA wants to go on this issue, even though its technicians have been heavily influenced by supporters of the EU standard. End Comment). De Vido concluded that the U.S. standard represented a good technology, a strong demonstration of political will, and an excellent opportunity to improve the bilateral relationship. The Economic Counselor added that a GOA decision in favor of the U.S. standard would also permit the U.S. and Argentina to promote the use of the same standard throughout the Spanish-speaking countries in the western hemisphere. The Economic Counselor and the Commercial Counselor were scheduled to meet with Moreno to discuss this project on May ¶12. -- ChevronTexaco. The Ambassador mentioned that ChevronTexaco would be coming to see him the following day and would be coming to brief him about their future BUENOS AIR 00001091 003 OF 006 investment plans. De Vido described ChevronTexaco as a "conservative company" and that he was willing to meet with the company. He then noted that Apache of the U.S. "had better technology than the other companies" and that they were eager to invest in the country. In fact, he told Apache that "if they know of anyone who was underinvesting, they should let us know and we will make them an offer." He added that, "I have nothing against Repsol (of Spain),but sometimes you have to scold them to get them to produce the petroleum. If they increase the production (to meet domestic requirements at fixed prices),then they can export (the surplus at international prices)." The Ambassador reported this information to ChevronTexaco's local executives during an office call on the Ambassador on May 10. (Comment: Apache recently announced the USD 675 million purchase of Vintage Oil of the U.S. and its plans to invest another USD 100 million to expand Vintage's operations in Argentina. Visiting Apache executives told the Ambassador and De Vido in separate meetings that they had been able to triple production in property that they had acquired from Repsol in Egypt. Occidental Petroleum of the U.S. had similar plans to purchase and expand the Argentine operations of Pioneer of the U.S. Pan American Energy of the U.S. is also involved in a major expansion of its Argentine operations. These aggressive investments have caused De Vido to publicly praise Pan American, Total of France and other small companies for their adequate investment and growing production and reserves and to criticize Repsol, Petrobras of Brazil and ChevronTexaco for their insufficient investment and declining production and reserves at an April 11 event with the newly formed Chamber of Argentine Energy Companies (CEADE). End Comment). -- CMS. The Ambassador then asked if there was a chance of negotiating a settlement of CMS' ICSID international arbitration case. De Vido said, "Yes, if they are willing to negotiate." He added that he had met with CMS during his 2005 visit to New York and that CMS' former local manager had taken a harder line (duro) than CMS' U.S.-based U.S. executives. He then asked the Ambassador to tell CMS' current local manager to come see him. "Tell him to come see me," he said, "and we will meet with (Ministry of Planning Under Secretary of Coordination and Management Control Eduardo) Barata." De Vido then observed that the country's economic emergency was over and expressed his intention of reaching agreements with all of the public service companies that had claims against the GOA. "Aguas Argentinas (the water distribution and treatment company controlled by Suez of France, which recently announced its intention to leave the country) is the only one that we could not do," he said. The Economic Counselor reported this information to CMS' local manager on May 12. (Comment: The Ambassador has raised CMS' interest is negotiating its ICSID case on several occasions during the past two-and-a-half years. De Vido met with CMS current local manager at the Ambassador's request and encouraged him to meet with former Chairman of the joint Ministry of Planning and Ministry of Economy public service contract negotiating unit (UNIREN) and current Secretary of Communications Carlos Salas. Unfortunately, the CMS local manager's numerous meetings with Salas and other GOA officials have not produced any positive results. Salas and Barata have said that the GOA would only negotiate with TGN, where CMS has a minority interest, and that the only way CMS would be able to recover its losses was through TGN's renegotiation of its contract with a possible tariff increase. Furthermore, such a tariff increase could only come after CMS had suspended its ICSID case against the GOA. The GOA is currently offering TGN an 8-12 percent tariff increase. CMS responded that it now had an ICSID award and that it is only willing to talk about suspension of the case BUENOS AIR 00001091 004 OF 006 in return for compensation, not the possibility of future compensation. Salas and Barata said they would think about possible alternatives and get back to CMS, but this did not happen. Meanwhile, a new ICSID panel has been formed to hear the GOA's appeal of the first arbitral panel's award. According to CMS' local manager, CMS will ask that the GOA post a bond before they begin the appeal. The arbitral panel has not decided whether it will require a bond or not. Refusal to post a bond would likely result in the arbitral panel's refusal to consider the appeal. CMS is certain that the GOA will not post a bond. End Comment). -- SES. The Ambassador asked about the status of the GOA's negotiations with SES of the U.S. to launch a satellite to occupy the 81-position orbital slot. De Vido said that the GOA would "use U.S. (not Chinese) technology," that former Secretary of Communications and current Secretary of Internal SIPDIS Trade Moreno was still responsible for the project, and that a former official from Mendoza Province, Rodolfo Galonetti, had been chosen to be the head of ARSAT, the recently established state satellite company, that would hold the license to the 81-position orbital slot. De Vido then called Moreno on the phone and asked him to meet with the Economic Counselor to provide the Embassy with an update on the status of the project. The Economic Counselor and the Commercial Counselor were scheduled to meet with Moreno to discuss this project on May 12. (Comment: Argentina has asked the International Telecommuncations Union for an extension to keep the 81-position orbital slot. The Radio Frequency Commission will be meeting in September 2007 to review the case. If Argentina loses the slot, it will go to the U.K. Moreno is concerned that Argentina could lose the slot and appears willing to negotiate with SES to occupy the slot. Moreno has emphasized that ARSAT would hold the license to the slot, but SES could have ownership of the satellite, which is what SES proposed two years ago. The slot is very coveted and has an extensive footprint that ranges from Canada to the southern tip of South America. GOA and SES officials are currently negotiating the terms of this arrangement. End Comment). -- Cargill, Mirab and Campbell's Soup. Acknowledging that he was raising an issue outside De Vido's direct area of responsibility, the Ambassador mentioned the GOA's March 11 ban on beef exports and explained that the ban had had a negative impact on several U.S. companies. Cargill had invested in the purchase of beef exporter FINEXPOR last year and the ban had affected its cooked and fresh beef exports and export levels. Mirab employs 350 workers in a plant in Pilar that exports beef jerky to the U.S. and would have to lay off workers if it was unable to export. Campbell's Soup also imports 95 percent of the cooked beef that its uses in its production process from Argentina. The company's purchases of Argentine cooked beef will increase in September when its ramps up production for the North American winter. Campbell's will soon need to find another supplier if the ban is not lifted. Most of the beef that is used by these companies comes from older animals that are desired by Argentine consumers, so the lifting of the ban on cooked beef and beef jerky should not have a significant impact on domestic prices. De Vido replied that the GOA had lifted the ban on the export of some 350 containers of beef in the ports of Buenos Aires and Rosario that day. The GOA was also announcing a plan to promote beef production that day and the lifting of the ban on the export of cooked beef and beef jerky -- "which was not consumed in Argentina" -- was the first issue that would be addressed. "You will see," he said. De Vido then called Under Secretary for Agriculture and Livestock Policy Javier de Urquiza on the telephone and asked him to meet with the DCM to discuss the "precise BUENOS AIR 00001091 005 OF 006 schedule" whereby the ban on beef exports would be eased. The DCM and the Agricultural Counselor met with de Urquiza on May 10. The DCM and the Agricultural Counselor discussed the ban on cooked beef and De Urquiza understood why the ban did not make sense. De Urquiza confirmed that approximately 15 containers of cooked beef had been approved for export. De Urquiza also said there should be no problem in lifting the ban on cooked beef, since these were not products normally consumed by Argentines. -- Monsanto. The Ambassador then asked what the GOA planned to do about Monsanto, which had tried to negotiate an arrangement for the collection of royalty payments on the use of Round-Up Ready (RR) soybean technology in Argentina and which had recently taken legal action in the EU aimed at collecting these payments. The Ambassador expressed the view that there were too many GOA interlocutors on this issue and that that had prevented a solution. He then suggested that there were two possible solutions, one that was based on the collection of the royalty by the grain exporters, which would be easier to administer given the relatively small number of exporters, and one that was based on the collection of the royalty by the seed producers. De Vido responded by asking the DCM to raise this with Under Secretary de Urquiza when they met to discuss the ban on beef exports. The DCM and the Agricultural Counselor raised the Monsanto issue with De Urquiza on May 10 and De Urquiza underlined that it was a very difficult issue to resolve and that there were several parties already involved, which complicated a resolution. De Urquiza committed to sit down with the stakeholders with the objective of resuming negotiations. He emphasized that this and subsequent meetings must be kept very low profile if they were to succeed. He then asked the DCM to arrange the initial meeting, which the Embassy will try to arrange in the next two weeks. -- Lockheed-Martin. Noting that former Minister of Economy Roberto Lavagna and other GOA officials had often wanted Lockheed-Martin and the U.S. to help sell the Argentine Air Force's Pampa AT-63 Jet Trainer from the Lockheed-Martin foreign markets, the Ambassador explained that the GOA had refused to authorize the export of the Pampa to Israel. The result was that Lockheed-Martin had not been able to present a proposal responding to the Israeli Air Force's Request for Information for the production of 20-30 jet trainer aircraft in Tel Aviv on April 23. Brazil, Israel, South Korea, Spain, Italy, the Czech Republic and the U.S. were the seven countries that presented proposal. The Ambassador noted that Brazil did not have any difficulty authorizing the export of its Tucano jet aircraft. De Vido thanked the Ambassador for the report. -------------- Views on the Situation in Bolivia -------------- ¶4. (C) The Ambassador concluded the meeting by asking De Vido for his views on recent developments in Bolivia. De Vido described the situation in Bolivia as very "complicated." He said that there was "an anti-Chavez front" in Bolivia that came from within the left. He observed that President Morales was a strong leader, "like President Kirchner," but that unlike Kirchner, he was "not a good administrator." For example, if you asked President Kirchner about a particular economic issue, you usually got a detailed answer, which revealed that he was intimately involved in the technical details of its implementation. This was not the case with Morales. De Vido also saw various different fronts in Bolivia, including sectors that were "very radicalized." Brazil and Chile had serious problems with the need to import BUENOS AIR 00001091 006 OF 006 natural gas, which was not the case with Argentina, which only imports five percent of its needs and exports much more than that to Chile. Brazil will lose it competitiveness if it has to pay USD 5.50 per million cubic meters of gas. Chile has a "serious structural energy problem, "even though it has the best economy in Latin America." ¶5. (C) Turning to Argentina, De Vido "we have to fix the price of gas (with Bolivia)." "I will not contaminate the domestic price of gas," he said, "by importing gas that costs USD 5.50 per million cubic meters. "However, I will purchase gas at this price from Bolivia," he continued, "if I can find a way to pass it through and sell it at the same price to Chile." (Comment: One well-informed local energy consultant believes that the GOA will use the newly established state oil company, ENARSA, to purchase the gas from Bolivia and swap with Argentine gas to export to Chile at the same price. That way, the GOA could claim that none of the gas imported from Bolivia was exported to Chile. End Comment). De Vido continued that if Bolivia cut its gas exports to Argentina, he would have no choice but to cut Argentina's gas exports to Chile. He also stated that Chile and Brazil and successful economic models that dated back to President Pinochet in Chile and President Figueiredo in Brazil. These countries have been successful, since they have been doing the same thing since the 1930s. This is unlike Argentina, which has been changing its economic model on a regular basis. ¶6. (U) To see more Buenos Aires reporting, visit our classified website at: http://www.state.sgov.gov/p/wha/buenosaires.< /a> GUTIERREZ