HYDROCARBONS CHAMBER SAYS NEGOTIATIONS WILL

UNCLAS LA PAZ 001564

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND LPETRONI
ENERGY FOR CDAY AND SLADISLAW
COMMERCE FOR JANGLIN
TREASURY FOR SGOOCH

E.O. 12958: N/A
TAGS: EPET ENRG EINV ECON BL
SUBJECT: HYDROCARBONS CHAMBER SAYS NEGOTIATIONS WILL
CONTINUE

REF: A. LA PAZ 1157


B. LA PAZ 0083


1. (SBU) Summary: Hydrocarbons Chamber representatives told
the Ambassador June 7 that hydrocarbons companies would
negotiate with GOB officials to determine the terms of their
new contracts (ref A) until they felt they could no longer
negotiate in good faith - at least until the expiration of
the 180-day deadline imposed by the GOB's May 1
nationalization decree. After that, they said, companies
would consider alternatives, including (as a last resort)
international arbitration. Companies' ultimate decisions
will likely be shaped by the GOB's flexibility in negotiating
new tax rates, providing compensation for forcibly acquired
shares, and defining firms' roles under the new contracts.
End summary.


2. (SBU) Hydrocarbons Chamber President Jose Magela and
General Manager Raul Kieffer told the Ambassador June 7 that
hydrocarbons companies would negotiate with GOB officials to
determine the terms of their new contracts (ref A) until they
felt they could no longer negotiate in good faith - at least
until the expiration of the 180-day deadline imposed by the
GOB's May 1 nationalization decree. Firms have said they are
willing to talk but have argued that the decree contradicts
earlier laws, noting that complying with it would force them
to violate existing rules and regulations.


3. (SBU) According to Magela and Kieffer, the absence of
concrete government proposals and model contracts has delayed
negotiations. Companies have said it may be possible to sign
new contracts by the nationalization decree's November 1
deadline, but only if serious negotiations begin soon, and
only if GOB officials and company executives agree on the
scope of proposed company audits and select a mutually
acceptable auditor. While discussions continue, companies
have been operating under existing contracts and investing
only the minimum amount necessary to maintain current
operations.


4. (SBU) If the two sides failed to reach agreement by the
180-day deadline, Magela and Kieffer said, companies would
consider alternatives, including (as a last resort)
international arbitration. Assuming companies won a case and
assuming the GOB honored an arbitral court's finding (both
big assumptions),companies would be concerned about the
amount and timing of possible settlement payments. Companies
have noted that past attempts to pursue arbitration have
ended unsuccessfully, citing Bechtel's decision to abandon
arbitration earlier this year in favor of reaching a
negotiated settlement (ref B).


5. (SBU) Comment: Companies' ultimate decisions will likely
be shaped by the GOB's flexibility in negotiating new tax
rates, providing compensation for forcibly acquired shares,
and defining firms' roles under the new contracts. Companies
have repeatedly said they do not want to be mere "service"
providers, but GOB officials have not accepted their position
or offered alternatives. Companies may have to play along
for now, despite the absence of a consistent, coherent
government plan, while keeping alternatives on the table.
End comment.
GREENLEE