VENEZUELA-GUYANA BORDER DISPUTE OVERSHADOWS

C O N F I D E N T I A L GEORGETOWN 000577

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: DECL: 06/13/2016
TAGS: PBTS ECON EPET PREL GY
SUBJECT: VENEZUELA-GUYANA BORDER DISPUTE OVERSHADOWS
ECONOMIC DEVELOPMENT, REGIONAL COOPERATION

REF: A. 04GEORGETOWN257

B. 05GEORGETOWN979

C. 05GEORGETOWN1184

D. GEORGETOWN 519

E. 04GEORGETOWN185

F. 01GEORGETOWN679

Classified By: ECONOMIC OFFICER EDWARD LUCHESSI FOR REASONS
1.4(b) and (d)

1.(C) SUMMARY: For better or worse, the long-simmering
Guyana-Venezuela border dispute has tempered the GOG's
receptiveness to the BRV's outreach in the region. Despite
Hugo Chavez's high-profile visit to Guyana in February 2004,
relations between Guyana and Venezuela remain cordial but not
close. A number of factors, most notably the border issue and
fiscal austerity requirements that have kept Guyana from
tapping PetroCaribe, have prevented Guyana from moving toward
its Western neighbor's camp geopolitically and economically.
The border issue also continues to undermine Guyana's
development of its resource-rich Essequibo region, to the
detriment of Guyanese and U.S. economic interests.
Nevertheless, Guyana is unlikely to push for resolution lest
it agitate the BRV. END SUMMARY.

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CURRENT STATE OF RELATIONS
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2. (C) Venezuela currently claims Guyanese territory west of
the Essequibo River, which had been formally awarded to
then-British Guyana by an Arbitral Tribunal in 1899. The two
countries have been working the issue through the U.N. Good
Offices process since 1990, with little forward motion. In
the most recent high-level discussion of the matter,
following Chavez's February 2004 visit to Georgetown,
President Jagdeo told Emboffs that Chavez had dismissed the
claim as spurious and said the dispute was an imperialist
issue, blaming pressure from the U.S. and UK in the run-up to
Guyana's independence for Venezuela's pursuit of the claim
(Ref A). However, the BRV has shown no willingness to
renounce the claim.


3. (SBU) In his speech justifying the foreign affairs budget
in February 2006, GOG FonMin Rudy Insanally described recent
relations with Venezuela as a "quiet truce" and said the GOG
continues to work through "patient diplomacy" to resolve the
border issue. News of the Venezuelan National Assembly's
approval of a Chavez-inspired motion to add an eighth star to
the Venezuelan flag to represent the province of Guyana in
March 2006 made headlines in Guyana but did not inspire a
concerted GOG response. The two countries continue to
maintain dialogue through the Guyana/Venezuela High Level
Bilateral Commission (HLBC) and its various subcommittees
dealing with health, political consultations, transportation,
culture, and narcotics. The last meeting, held March 31-April
1, 2006, in Georgetown and attended by Isanally and BRV
Foreign Affairs Vice Minister Cesar Pavel Rondon Daza,
included language reaffirming commitment to the U.N. Good
Offices Process and instructing the facilitators to meet
before May 15, 2006. As of mid-June 2006, this meeting has
not occurred. Head of the Frontiers Unit of the GOG Ministry
of Foreign Affairs, Keith George, says the meeting was
delayed due to the parliamentary responsibilities of Guyana's
facilitator, Ralph Ramkarran, the Speaker of Guyana's
parliament, in the run-up to the dissolution of Guyana's
parliament in anticipation of the impending elections. George
expects the two facilitators will meet with each other and
the Good Officer, Oliver Jackman of Barbados, prior to the
U.N. General Assembly in September, at which point the
foreign ministers are expected to meet as well.

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ECONOMIC IMPACT
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4. (U) Uncertainty surrounding the border issue has led to
decades of missed economic opportunities in the Essequibo
region. Among the more high-profile incidents was Texas-based
Beal Aerospace's decision to forgo construction of a USD 100
million rocket launch site long the Waini River in October

2000. While the company ultimately cited declining
profitability of the aerospace industry as the cause of its
withdrawal of the program--which also encountered substantial
political opposition within Guyana--the project received
severe condemnation from the BRV Foreign Ministry, which
branded the project a "colonialist arrangement" that would
provide cover for U.S. military expansion in the region.

Development of the region's oil resources is also held up by
the border situation. ExxonMobil, which holds a potentially
lucrative concession in the offshore beds that fall within
the disputed area, has been unable to cultivate the block
lest it jeopardize its holdings in the BRV.


5. (C) Partly as a result of the border issue, Guyana has
been slow to embrace the BRV's offers to the region,
including PetroCaribe. Historically, Guyana has been wary of
Venezuelan petropolitics, as evidenced by Jagdeo's statement
during negotiations of the Caracas Energy Accord in 2000 that
Guyana "has always been opposed to petroleum or
food-exporting countries using these commodities as political
weapons against importing countries." To be certain, other
factors have also tempered Guyana's attitude toward
PetroCaribe. Guyana has yet to receive any PetroCaribe
shipments, due mostly to its inability to assume additional
debt and the Prime Minister's preference that the oil be
refined in Trinidad prior to shipment to Guyana (Ref B).
Prime Minister Hinds reiterated his call for an arrangement
whereby oil could be sourced from Venezuela and refined in
Trinidad in a media interview in March 2006.


6. (C) Ironically, fuel smuggling may also undermine the
attractiveness of PetroCaribe in Guyana. ExxonMobil
executives recently informed post they estimate that 20% of
the fuel available on the Guyanese market is smuggled out of
Venezuela. Guyana is essentially already accessing cheap fuel
from Venezuela--without incurring an additional debt
burden--albeit through the informal economy. A lack of GOG
capacity to market PetroCaribe fuel may also be tempering
Guyana's involvement in the initiative. The state-owned
Guyana Oil Company (GUYOIL) has been plagued by mismanagement
and scandal, culminating in the ouster of its second managing
director in four years in October 2005. Among the more
scandalous events surrounding the management shake-up was the
revelation that Guyoil was unable to account for GD85 million
(USD425,000).

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COOPERATION ON OTHER FRONTS
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7. (C) Talk of a road linking Guyana with Venezuela has
persisted for some time with little development. The March
2006 HLBC called for convening a Joint Venezuela/Guyana
Technical Committee to discuss terms of reference for a
feasibility study. The road gained the endorsement of a team
of technical experts who examined three potential routes
before recommending a road project move forward in the GOG's
Transportation Sector Study issued in early 2006 (ref. C).
However, the potential for any movement forward on a road is
slim. President Jagdeo has dismissed the idea in the past as
a "possible Trojan horse" (ref. A),and competing GOG
transport priorities, including the long-awaited Berbice
River Bridge and a road to Brazil, would take precedence.


8. (U) Venezuela sent environmental scientists and relief
supplies in February 2006, following flooding in the Mahaica
River basin. The government-owned Guyana Chronicle featured a
front-page photograph of a Venezuelan military plane arriving
at Timehri airport. Commerce Minister Manzoor Nadir also
negotiated with Venezuelan authorities to source 30,000 tons
of cement to alleviate a shortage in March 2006.


9. (C) Guyana has a standing invitation for Jagdeo to
reciprocate Chavez's 2004 state visit, an invitation that was
reiterated in the March HLBC. However, FonMin Insanally
recently told Emboffs that Venezuela had demurred on a visit
this year, citing impending elections in both countries (ref.
D). Post reporting at the time of Chavez's 2004 visit,
however, implied that the trip was hastily planned in part to
project an image of a government "not under siege" (Ref E),
suggesting Chavez may seize such erratic political
opportunism in the future. In the meantime, the next HLBC
subcommittee meeting, the Mixed Commission on Drugs, is
expected to meet in late June.


10. (C) COMMENT: Guyana is essentially paralyzed in its
relations with Venezuela. The BRV indirectly exerts control
over western Guyana, an area rich in natural resources, by
dissuading large-scale economic development there. This state
of affairs materially harms Guyana (and hampers U.S.
commercial interests too). However, the GOG is very reluctant
to push for a bilateral resolution, for fear of antagonizing
Chavez. Instead, the GOG would rather have others apply the
pressure on Venezuela to resolve the border dispute.
Tellingly, President Jagdeo has in the past requested that

USG and UK issue statements affirming the 1899 settlement and
the current boundary (Ref F).


11. (C) COMMENT CONTINUED: There is another factor at work as
well--Chavez and Castro appeal on some level to those in the
GOG who still harbor Marxist sympathies. Despite the damage
wrought by Venezuela's specious claim, they instinctively
gravitate to Venezuela and Cuba and regard the U.S. with
utmost suspicion.
BULLEN