DETAILS OF VENEZUELAN ENERGY COOPERATION AGREEMENTS

UNCLAS SECTION 01 OF 02 CARACAS 000264

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EPET ECIN EINV VE
SUBJECT: DETAILS OF VENEZUELAN ENERGY COOPERATION AGREEMENTS
WITH BOLIVIA AND OTHER INITIATIVES.

REF: A) CARACAS 03560, B) LA PAZ 00168


1. SUMMARY: On January 23 President Chavez signed two
bilateral agreements with Bolivian President Evo Morales:
the Broad Scope Energy Agreement and the Caracas Energy
Accord. Both are aimed at expanding regional integration
through the BRV's Petroamerica initiative and the
consolidation of its sub-regional component Petrosur. While
the Broad Scope Agreement provides the framework for
increased ties and cooperation in the energy sectors for the
development of the oil, gas, power, and petrochemical
industries of both countries, the Caracas Energy Accord
establishes the quantities of oil and fuels (primarily
diesel) to be exchanged for Bolivian products (primarily soy
and chicken) and spells out the terms and conditions for the
exchange. Several other initiatives including, inter alia,
a USD 30 million donation for social projects, 5001
scholarships for low income students, and technical
cooperation exchanges were also announced/formalized on the
same date. END SUMMARY.

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SUPPLY AND SALES TERMS
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2. According to the MFA's website, under the Caracas
Energy Accord, Venezuela agreed to supply up to 200,000
barrels per month (b/m) of oil, refined products, and LPG
(Liquefied Petroleum Gases) to Bolivia. This volume is
adjustable based on Bolivia's internal demand. The press
reported that Rafael Ramirez, Venezuela's Energy Minister
and President of Venezuela's national oil company PDVSA,
estimated Bolivia's demand for diesel to be around 5,000
barrels per day (b/d) or approximately 150,000 b/m.


3. This bilateral supply agreement is subject to the
availability of production by Venezuela and decisions
adopted by OPEC on assigned quotas. The agreement is
reserved to national energy companies of both countries with
the pre-approved exception by Venezuela of Bolivian private
companies in the logistics and transportation of product.
The agreement is to be managed by PDVSA and subject to
company policies.


4. Sales by PDVSA to YPFB (Yacimientos Petroliferos
Fiscales Bolivianos),Bolivia's national energy corporation,
will be paid under a commercial compensation mechanism with
Bolivian products through Venezuela's economic and social
development bank BANDES. Among the products to be exchanged
for fuels by Bolivia will be approximately 200,000 tons per
year of soy as well as up to 20,000 tons per year of chicken
and other agricultural products.

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PAYMENT TERMS
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5. Similar to most Petrocaribe bilateral agreements,
Venezuela is providing a five tier financing mechanism (only
in this case the terms are based on barter values),which
increases the financed portion of invoices based on the
international price of oil. The minimum financing available
is 5 percent of the invoice when prices are equal or below
USD 5 per barrel and the maximum is 25 percent of the
invoice when prices are equal or above USD 30 per barrel.
The principal must be paid within 90 days of the shipment
with an interest rate of 2 percent. The financed portion
can be paid in fifteen years with a two-year grace period
and a two percent interest rate.

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DURATION OF AGREEMENT
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6. The Caracas Energy Accord was signed on January 23, but
we understand will not go into effect until several legal
and legislative formalities are met by Bolivia. The
duration of the agreement is 1 year, renewable automatically
for similar consecutive periods. (Note: We understand
Venezuela and Bolivia signed a narrower agreement, which
this agreement supersedes, on December 9, 2004 but the
agreement was never fully implemented. End Note.) The
Broad Scope Energy Agreement will have a duration of 4

CARACAS 00000264 002 OF 002


years.

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OTHER INITIATIVES
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7. President Chavez also announced a donation of USD 30
million to support social projects in Bolivia as well as the
opening of offices by PDVSA, BANDES, and BIV (Banco
Industrial de Venezuela) in Bolivia. While PDVSA and BANDES
would manage the exchange of products under the Caracas
Energy Accord, the BIV office would provide loans and
guarantees to Bolivian importers of Venezuelan goods and
services.


8. Two other agreements signed were the Higher Education
Cooperation Agreement and the Technical Cooperation
Agreement on Health. Under these agreements Venezuela
donates 5,000 scholarships for low-income Bolivian students
to conduct undergraduate and graduate studies in Venezuela
in areas ranging from health to energy, business
administration, engineering, and tourism. (Note: While the
agreement provides for 5,000 scholarships Chavez quipped
that he would provide 5,001 as Fidel had committed to 5000.
End Note.)


9. Another important agreement signed was the Agricultural
and Rural Development Agreement, under which the two
countries will exchange scientists and experts in agro-
industry, forestry, land ownership, and water management.
This agreement is aimed at searching for new areas of
"economic complementation" between the two countries,
especially those related to agricultural products such as
soy, coffee, cocoa, and other processed goods.


10. Venezuela and Bolivia also signed a cooperation
agreement on education and sports. Under this agreement
Venezuela provides support to Bolivia in these areas with
experience gained from BRV funded missions such as Robinson
I and II (to improve adult literacy),Ribas (fosters
completing of high school degrees) as well as with
Venezuela's Bolivarian schools.

BROWNFIELD