MORALES IN ARGENTINA TO SIGN GAS, IMMIGRATION

C O N F I D E N T I A L BUENOS AIRES 001486

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/30/2016
TAGS: ENRG ETRD ECON AR BL
SUBJECT: MORALES IN ARGENTINA TO SIGN GAS, IMMIGRATION
ACCORDS

REF: A. BUENOS AIRES 1352


B. BUENOS AIRES 1439

Classified By: Ambassador Lino Gutierrez for reasons 1.4 (b) and (d).

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Summary
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1. (U) Bolivian President Evo Morales visited to Argentina
on June 29 to sign agreements with President Kirchner on the
price and volume of natural gas deliveries from Bolivia and
agreements on immigration and bridge construction. Kirchner
did not sign an agreement on coca leaf imports to Argentina.
Under the natural gas accord, the price Argentina has agreed
to pay will be USD 5 per million BTUs, an increase of 56
percent from the current price of USD 3.20 per million BTUs.
Argentina will start paying the new price on July 15, but the
price will be in effect only until the end of 2006. Before
the end of the year, officials from both countries will need
to establish a formula for determining the price of natural
gas to take effect in 2007. The agreement also provides for
an increase in the volume of deliveries from 4.5 million
cubic meters per day to 27.7 million cubic meters per day.
Bolivia has committed to delivering the increased daily
volume for the next 20 years. State companies Enarsa and
YPF-Bolivia will need to determine how to fund expansion of
the Northeastern Argentina Pipeline (GNEA),which now has
capacity for deliveries of only 7 million cubic meters per
day. End Summary.

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Morales Signs Natural Gas Agreement
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2. (U) Bolivian President Evo Morales visited Argentina on
June 29 to sign an agreement with President Kirchner on the
price and volume of natural gas deliveries from Bolivia.
Negotiations on price had reached an impasse on June 12 in
Bolivia when discussions between Argentina's Minister of
Planning Julio De Vido and Bolivian Vice President Alvaro
Garcia Linera failed to produce an agreement on the per unit
price of natural gas imports (Reftel A). At that time,
Bolivia sought USD 6 per million BTUs while Argentina offered
to pay USD 5 per million BTUs. The June 29 agreement sets
the price at USD 5 per million BTUs, which Argentina will
begin paying on July 15. This price will only be in effect,
however, until December 31. The agreement stipulates that,
before the December 31 deadline, officials from both
countries will define the formula for calculating the
delivery price that will take effect in 2007. The formula is
supposed to incorporate variations in the prices of other
liquefiable gases such as butane, ethane, and propane. When
this formula is developed, officials from both countries will
sign a new natural gas delivery contract.


3. (U) The natural gas agreement also increases the volume
of deliveries. Argentina currently imports approximately 4.5
million cubic meters of Bolivian natural gas daily. The June
29 agreement increases the daily volume to 27.7 million cubic
meters and prohibits selling the gas to third countries.
Existing pipeline capacity, however, allows for the
importation of only 7.7 million cubic meters per day. State
energy companies Enarsa and YPF-Bolivia will determine the
source and scope of funding for the Northeastern Argentina
Pipeline (GNEA). Estimates on the completion of the GNEA
range from two to three years with costs ranging from USD 800
million to USD 1.2 billion. Planning Minister De Vido
announced at the June 29 signing ceremony that Argentina
would be soliciting construction bids within the next 5
months.

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Other Agreements
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4. (C) Kirchner and Morales signed other agreements during
the ceremony in the Buenos Aires Province city of Hurlingham,
which is home to more than 20,000 Bolivians. Issues included
in these other accords were immigration, the construction of
a bridge connecting Salvador Mazza in Salta Province with
Yacuiba in Bolivia, the creation of a common missing children
database, labor, and public investment. Neither Kirchner nor
Morales made any mention of an agreement on importation of
coca leaves into Argentina. (Comment: The head of
Argentina's Drug Prevention Secretariat (SEDRONAR) Dr. Jose

Granero has told the DCM that Kirchner opposes legalization
as well as importation of coca leaves from Bolivia. See
Reftel B. End Comment.)

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Comment
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5. (C) Kirchner and Morales were quite measured in their
public comments at the signing ceremony. Kirchner appeared
to haven taken on the mantle of regional integrationist, and
Morales refrained from agitating against the U.S. Deputy
Foreign Minister Roberto Garcia Moritan told the Ambassador
that Kirchner had specifically asked Morales to temper his
remarks.


6. (C) The conclusion of the natural gas agreement
represents only the beginning of the GOA's energy
problem-solving. Projections of GNEA expansion costs and
recuperation have relied heavily o a "solidarity" price for
Bolivian natural gas since the Kirchner administration first
announced the project in late 2003. Domestic natural gas
prices and the export prices that Chile and Uruguay face are
fixed at very low rates. The terms of the June 29 agreement
with Bolivia, however, require the GOA to pay more than the
solidarity price, which means that the GOA will need to
allocate the difference in costs to those in the distribution
and consumption chain. How they will do this without
allowing costs to be passed on to consumers, and thus
increasing inflation, is not clear. End Comment.


7. (U) To see more Buenos Aires reporting, visit our
classified website at:
http://www.state.sgov.gov/p/wha/buenosaires.< /a>
GUTIERREZ