BOLIVIA AND ARGENTINA SIGN ENERGY DECLARATION

UNCLAS LA PAZ 001129

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: N/A
TAGS: ECON EINV ENRG EPET PGOV BL
SUBJECT: BOLIVIA AND ARGENTINA SIGN ENERGY DECLARATION

REF: A. LA PAZ 1107


B. LA PAZ 1114


1. (SBU) Summary: On April 21, Bolivia and Argentina signed
an Energy Integration Declaration in La Paz, promising to
revise the natural gas sales agreement between the two
countries, including provisions on price and export volumes,
create a partnership between both countries' state oil
companies, and promote the industrialization of Bolivian gas.
According to Tarija Senator Roberto Ruiz and Petrobras
contacts, the declaration was more rhetoric than substance,
and Bolivia will have a tough road ahead to achieve the gas
price increases that it desires from Argentina. Argentine
Embassy contacts confirmed that the price negotiations will
be difficult, but were pleased by the GOB's positive change
of tone towards Argentina. Ruiz expressed concern about the
GOB's inconsistent statements about the sector and the future
of Bolivia's relationship with both Argentina and Brazil.
End summary.


2. (SBU) On April 21, Bolivian Hydrocarbons Minister Andres
Soliz Rada and Argentine Planning Minister Julio De Vido
signed an Energy Integration Declaration in La Paz.
According to a copy of the Declaration provided to us by the
Bolivian Hydrocarbons Chamber, Argentina and Bolivia agreed
to revise the natural gas sales agreement signed by the two
nations in April 2004, including articles on price and supply
conditions, by May 15. According to Argentine Embassy
contacts, the sales agreement expired in March 2006, and thus
the decision to "renegotiate" it was not a new development.


3. (SBU) On supply, they agreed to sign the necessary
agreements to move forward on the construction of a pipeline
to Northeast Argentina (GNEA) and revise the gas sales
agreement to include larger gas export volumes. (Note:
Bolivia currently exports approximately 5 million cubic
meters per day to Argentina. Argentina has expressed
interest in increasing that figure to 20 million cubic meters
per day. However, higher export volumes are not possible
without additional investment in Bolivia's hydrocarbons
sector, because the companies are already producing at full
capacity. Investment has been frozen for the past year. End
note.) They also agreed that future gas sales transactions
would be handled by YPFB (Bolivian state oil company) and
ENARSA (Argentine state oil company). In addition, they
agreed to found binational enterprises to promote the
industrialization of Bolivian gas and the training of human
resources and a bilateral commission to work on the above
tasks.


4. (SBU) In an April 25 meeting, Tarija Senator Roberto Ruiz,
President of the Senate Economic Development Commission, told
Econoffs that, despite the GOB's and press' portrayal of the
declaration as a great success, the GOB and Argentine
delegation achieved no concrete agreements. According to
Ruiz, and contacts from the Brazilian company Petrobras (ref
A),GOB price negotiations with Argentina are not going well.
Ruiz, who as President of Tarija's Civic Committee played an
instrumental role in sealing the 2004 gas sales agreement
between Argentina and Bolivia, expressed concern about the
negative trend in relations between the GOB and both
Argentina and Brazil. He explained that Bolivia only
provides about 5% of Argentina's gas, with the rest coming
from domestic sources. He added that Argentina has a price
freeze in effect that has made domestic gas significantly
cheaper than Bolivian imports, and thus, Argentina would be
reluctant to agree to much of a price increase with Bolivia.
On the other hand, the price freeze has diminished investment
in Argentina and increased their need for importing gas.
Argentine Embassy contacts explained that Argentina currently
pays around USD 3.20 per MCF for Bolivian gas, while the
domestic price is frozen at USD 0.90 per MCF. Argentine
Embassy contacts speculated that Argentina may accept a price
increase of USD 0.30 to O.80, but not more. Embassy contacts
agreed with Ruiz that the price negotiations would be

difficult, but were pleased, at least, that the GOB appears
to have softened its tone towards Argentina, after Minister
Soliz Rada's ranting against President Kirchner earlier in
the month.


5. (SBU) Ruiz said that the Senate Economic Development
Commission had questioned Bolivian Hydrocarbons Minister
Soliz Rada on three occasions, during which Soliz Rada
demonstrated his complete ignorance of the hydrocarbons
sector. Ruiz stated that he was bothered by the GOB's
inconsistent statements about the sector. For example,
President Morales said that the GOB would be "partners" with
the oil companies, while Minister of the Presidency Juan
Ramon Quintana said that the oil companies would be mere
"service providers" and not "partners." Vice President
Garcia Linera met with the Prefect of Tarija and promised to
respect the Bolivian law which allows prefects to develop
their own gas projects, but contradicted his promise two days
later, Ruiz said. He also expressed concern about the GOB's
role in promoting the Chaco movement to secede from Tarija
and form a 10th department (ref B),stating that the central
government wanted to gain control over Tarija's gas reserves.

GREENLEE