TRANSREDES UPDATE

UNCLAS LA PAZ 002011 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: TRANSREDES UPDATE REF: A. LA PAZ 1842 ¶B. LA PAZ 1936 ¶1. (SBU) Summary: Transredes' board will meet at the end of July to discuss acquisition of the company's shares by the GOB. According to a Transredes executive, the company could live with GOB majority ownership, as long as the private investors, Shell and Prisma, retained operating control. The GOB's failure to implement transportation regulations means that Transredes continues to operate in a legal limbo, compounding its difficulties in securing needed financing. Transredes is concerned about the erosion of Bolivia's weak democratic institutions and the increasing presence of Venezuelan energy firm, PDVSA. End summary. Transredes to Discuss Ownership Structure -------------- ¶2. (SBU) Transredes executive Maria Claudia Dabdoub told Econoff on July 24 that Transredes' board would meet during the last week of July to discuss its ownership structure and draft a proposal to present to the shareholders. She said that the board would likely accept selling the 16 percent of shares to the GOB needed for it to gain majority ownership of the company (ref A) if Transredes' private investors, Shell and Prisma, maintained operating control. If the GOB refused to delegate operating control to the private investors, she argued that Transredes would not be able to continue operating in Bolivia, as it would not be able to guarantee results. Still No Transportation Regulations -------------- ¶3. (SBU) Dabdoub complained that the GOB had still not promulgated transportation regulations based on the 2005 Hydrocarbons Law, which would provide Transredes with a more certain operating environment and possibly aid the company in unlocking credits frozen by the Inter-American Development Bank and the Andean Development Corporation (ref B) needed to complete several pipeline construction projects. The company is using its cash flow to finance current operations and would not pay out dividends in the near-term, she said. Concerns about Venezuela and Democracy -------------- ¶4. (SBU) Dabdoub added that the Venezuelan energy firm, PDVSA, had increased its presence and visibility in Santa Cruz and begun an advertising blitz nation-wide. Press reports on July 25 indicated that PDVSA would soon begin hydrocarbons exploration in the northern La Paz region. Dabdoub expressed concern about Venezuela's influence in the country and the weakening of Bolivia's democratic institutions, including respect for the law. A recent example, she noted, was the GOB's attempt to avoid sharing hydrocarbons revenue with the regions as required by law (ref B). Instead of following the law, she complained, the GOB offered to "dialogue" with the parties involved in any given dispute and then did what it wanted in the end. However, in the case of revenue sharing, she believed that the regions would force the GOB to back down and share the wealth. GREENLEE