C O N F I D E N T I A L CARACAS 002268

SIPDIS

SIPDIS

ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD
NSC FOR DTOMLINSON

E.O. 12958: DECL: 07/07/2016
TAGS: ECON ENRG EPET ENIV VE
SUBJECT: PDVSA PUMMELS JBIC


Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)


1. (C) SUMMARY: The PDVSA board scuttled a major gas project
in March when it rejected project financing by the Japan Bank
for International Cooperation (JBIC), Japan's version of
EXIM. The decision severely embarrassed JBIC and it is not
clear if it will be willing to finance Venezuelan projects in
the future. END SUMMARY

--------------
JBIC LOSES FACE
--------------

2. (C) Two Mitsubishi executives told Petroleum Attache on
July 31 that their competitors Mitsui and Marubeni had put
together a major cryogenic project as part of the East-West
gas pipeline project. The executives also indicated that
there were smaller additional projects that were part of the
package. JBIC was supposed to finance a major portion of the
project. One of the executives stated that although Mitsui
and Marubeni were Mitsubishi's competitors, he had to admit
that they had done an excellent job putting together the
project, including the financing.


3. (C) According to the executives, JBIC's board had
approved the financing for the project in early March and its
Governor had signed off on the project. However, when the
project was presented to the PDVSA board, they rejected the
JBIC financing. According to the Mitsubishi executives, the
financing was rejected on two grounds: the interest rate was
too high and the agreement was governed by U.S. law. Later
in the conversation, one of the executives opined that the
PDVSA board lacked sophistication and found the agreement to
be too complicated. They apparently did not like the fact
that the agreement had provisions for an escrow account and
an off-shore account in New York.


4. (C) The PDVSA board rejected the project financing on or
around March 27. Since JBIC's fiscal year ends on March 31,
the rejection left JBIC in a difficult situation. The
Venezuela project was supposed to take the place of a project
in Sakhalin that had fallen through. AS a result, JBIC was
left with a significant amount of funds that it could not
disburse. The executives stated JBIC is currently being
reorganized by the Japanese government and that the rejected
deal could not have come at a worse time for JBIC management.
In addition, the executives implied that the PDVSA did not
communicate its rejection of the deal in an appropriate
manner.

--------------
COMMENT
--------------

5. (C) According to the executives, the whole incident is
referred to in their offices as the "funny (or strange) thing
that happened in March." As we have repeatedly noted, PDVSA
has lost most of its commercial acumen. It is quite
believable that the PDVSA board had trouble understanding the
nature of the financing arrangement. It is also quite
believable that they did not think through how to best
present their rejection to JBIC in order not to burn any
bridges. According to the Mitsubishi executives, it is not
clear if JBIC will finance another project in the future.
Both executives indicated that they did not think Mitsubishi
would be able to secure JBIC financing for any of its oil or
gas projects in Venezuela in the future.
BROWNFIELD