Identifier
Created
Classification
Origin
06LAPAZ1782
2006-06-29 15:03:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy La Paz
Cable title:  

REPSOL AND PETROBRAS NEGOTIATIONS UPDATE

Tags:  ECON EINV ENRG EPET BL 
pdf how-to read a cable
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DE RUEHLP #1782/01 1801503
ZNR UUUUU ZZH
P 291503Z JUN 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 9805
INFO RUEHAC/AMEMBASSY ASUNCION 5967
RUEHBO/AMEMBASSY BOGOTA 3285
RUEHBR/AMEMBASSY BRASILIA 7134
RUEHBU/AMEMBASSY BUENOS AIRES 4391
RUEHCV/AMEMBASSY CARACAS 1674
RUEHPE/AMEMBASSY LIMA 1676
RUEHMD/AMEMBASSY MADRID 3115
RUEHMN/AMEMBASSY MONTEVIDEO 3888
RUEHQT/AMEMBASSY QUITO 4305
RUEHSG/AMEMBASSY SANTIAGO 8862
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS LA PAZ 001782 

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 BL
SUBJECT: REPSOL AND PETROBRAS NEGOTIATIONS UPDATE

REF: LA PAZ 1248

UNCLAS LA PAZ 001782

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 BL
SUBJECT: REPSOL AND PETROBRAS NEGOTIATIONS UPDATE

REF: LA PAZ 1248


1. (SBU) Summary: Hydrocarbons company Repsol
(Argentina/Spain) told Econoff June 28 that it expected
Argentina to agree to a price increase on Bolivian natural
gas exports on June 29. Press reports on June 29 indicated
that the agreement would be in effect until December 31 and
include an export volume commitment of 7.7 million cubic
meters per day. Both Repsol and Petrobras (Brazil)
executives lamented the slow pace of negotiations with YPFB
(Bolivia's state oil company) following the GOB's May 1
hydrocarbons nationalization decree. Petrobras contacts said
Brazil is worried about Argentina agreeing to a higher gas
price, as it would put pressure on Brazil to do the same.
Petrobras is also concerned about possible gasoline shortages
that may result from YPFB taking over for gas wholesalers on
June 30 when the wholesalers' contracts expire. End summary.


Argentina - Bolivia Gas Price Negotiations
--------------

2. (SBU) The Argentinean energy firm Repsol YPF Bolivia told
Econoff June 28 that Repsol was not involved in the
negotiations between the governments of Argentina and Bolivia
concerning the price of Bolivian natural gas exports to
Argentina. Repsol executive Miguel Cirbien speculated that
the current price of around USD 3.53 per million BTU would be
increased to approximately USD 5 per million BTU and that the
new price would be announced on June 29 through the release
of a bilateral agreement (press reports and televised
statements by the Bolivian Hydrocarbons Minister confirmed
this). He said that the price increase would benefit Repsol
YPF Bolivia, as it would increase sales earnings, but would
hurt Repsol YPF Argentina, which buys the gas.


3. (SBU) Press reports indicated that the agreement, in which
Bolivia would pledge to export up to 7.7 million cubic meters
per day to Argentina, would be in effect until December 31,
at which time the two nations would sign a 20-year agreement
for a new price. Cirbien speculated that the 20-year
agreement would contain a commitment by the GOB to increase
gas exports to Argentina from the current rate of around 5

million cubic meters per day to around 20 million cubic
meters. This increase, he explained, would require the
construction of an additional pipeline to Argentina, which
would take three to four years to complete. Also,
significant additional investment in the Bolivian gas
industry, including new well perforation, would be required
to increase Bolivian production capacity. The GOB would have
to provide production incentives to obtain additional
investment, but such incentives/investment seem unlikely
given the government's current nationalization and taxation
policies.

Repsol - YPFB Negotiations
--------------

4. (SBU) According to Cirbien, negotiations with YPFB (the
Bolivian state oil company) following the GOB's May 1
nationalization decree (reftel) are going slowly, as YPFB is
insisting on "imposition rather than negotiation." He said
that the GOB has not yet provided Repsol with a new model
contract, but promised to do so soon. He told us that the
two board members named by the GOB (reftel) to replace the
two positions formerly held by the pension funds are actively
participating in board meetings. The other two directors
named by the GOB on May 8 have not yet taken up their
positions, as the GOB has not yet acquired the additional
shares from Repsol needed for majority control over the
company. YPFB is conducting an audit of Repsol and will
value its shares based on the audit results. The government
has not yet made a purchase offer for the approximately 2
percent of Repsol shares that it will need to gain majority
control of the company in accord with the nationalization
decree. Cirbien concluded that Repsol wants to reach
agreement with the GOB, but if that is not possible, Repsol
will resort to international arbitration.

Petrobras - YPFB Negotiations
--------------

5. (SBU) An executive from Brazil's Petrobras, Arturo
Castanos, told Econoff June 28 that Petrobras' negotiations
with the GOB were going poorly. The GOB repeatedly asks
Petrobras for information, but refuses to enter into serious
discussions, Castanos explained. He said that the GOB did
not understand that it should compensate Petrobras for the
present value of its refineries, rather than the value that
it paid for them years ago.

Petrobras Worried About Argentina Price Negotiations
-------------- --------------

6. (SBU) Castanos said Brazil was worried about the June 29
meeting between Argentina and Bolivia on gas export prices.
An agreement by Argentina to pay more for Bolivian gas would
increase the pressure on Brazil to accept a similar increase.
Although higher gas prices would benefit Petrobras' Bolivian
operations, the cost to its Brazilian operation would
outweigh the benefit. He said that the agreement between
Bolivia and Argentina would be political, without economic
justification. He did not see how it would be possible for
Bolivia to agree to provide Argentina more than 7.7 million
cubic meters per day, as Bolivia lacked the production
capacity for a higher quantity.

Potential Gasoline Shortages
--------------

7. (SBU) Castanos also expressed concern about the scheduled
June 30 takeover of gas wholesaler responsibilities by YPFB
(Bolivian state oil company),which could result in gasoline
shortages and intensify the existing liquid petroleum gas
(LPG) shortage, likely leading to blockades and protests. He
explained that the gas wholesalers' contracts expire on June
30 and that YPFB would theoretically begin transporting
gasoline from Petrobras' refineries to gas stations on that
date, but that it was not prepared to do so. Petrobras and
YPFB were also at an impasse regarding payment of
transportation costs, which YPFB was trying to make the
refineries pay. In addition to taking over the wholesalers'
functions, YPFB also plans to acquire ownership of the
nations' 450 gas stations (400 are privately owned, 50 belong
to YPFB already).


8. (SBU) Comment: Although there is private sector interest
in investing in an additional pipeline between Argentina and
Bolivia, there is little interest in investing in Bolivian
production given the current political climate and high
taxation rates. Without this investment, Bolivia would not
be able to meet additional gas export requirements to
Argentina, meaning that any agreement to increase export
volumes would be more of a declaration of intent than a
binding commitment. The announcement of a gas price increase
for Argentina three days prior to constituent assembly
elections may boost the MAS' (Movement Toward Socialism
party) popularity at the polls. However, the current LPG
shortage and potential gasoline shortages due to GOB policies
could have the opposite effect, neutralizing the benefit of
such an announcement. End comment.
GREENLEE