Identifier
Created
Classification
Origin
06LAPAZ2269
2006-08-22 15:52:00
CONFIDENTIAL
Embassy La Paz
Cable title:  

HYDROCARBONS MINISTER BASHES BRAZIL

Tags:  ECON EINV ENRG EPET BL 
pdf how-to read a cable
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C O N F I D E N T I A L LA PAZ 002269 

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 08/21/2016
TAGS: ECON EINV ENRG EPET BL
SUBJECT: HYDROCARBONS MINISTER BASHES BRAZIL

REF: LA PAZ 1157

Classified By: Amb. David N. Greenlee for reasons 1.4 (b) and (d).

C O N F I D E N T I A L LA PAZ 002269

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 08/21/2016
TAGS: ECON EINV ENRG EPET BL
SUBJECT: HYDROCARBONS MINISTER BASHES BRAZIL

REF: LA PAZ 1157

Classified By: Amb. David N. Greenlee for reasons 1.4 (b) and (d).


1. (C) Summary: Hydrocarbons Minister Soliz Rada told the DCM
on August 21 that Brazil's strong presence in Bolivia is the
root of many of the nation's problems, particularly in the
hydrocarbons sector. Soliz said that Bolivia needs to
develop alternate markets to Brazil, including Argentina and
Paraguay. He affirmed news reports that Bolivia's state oil
company YPFB will seek a working capital loan from the
Central Bank. The GOB hired 200 auditors to review oil
company investments. Audit results will be used as the basis
for negotiating new contracts. The government is looking for
ways to compensate private investors, including Transredes,
for shares which the GOB aims to acquire (reftel). End
summary.

Minister Bashes Brazil
--------------

2. (C) Hydrocarbons Minister Andres Soliz Rada told the DCM
on August 21 that Brazil's strong presence in Bolivia is the
root of many of the nation's problems in various sectors,
including hydrocarbons, the environment, agriculture, road
construction, and banking. He said that Bolivia desires a
new balance with its larger neighbor, and that Brazil should
follow Argentina's example and agree to pay more for Bolivian
gas. He claimed that although the relationships between the
Bolivian and Brazilian Presidents and Hydrocarbons Ministers
are good, the rapport between Bolivia's state oil company
YPFB and Brazil's semi-state company Petrobras is poor. He
asserted that Bolivia is receiving an insufficient return on
its resources because of Petrobras' conflict of interest. He
explained that Petrobras and other international oil
companies operating in Bolivia are selling Bolivian gas to
related companies overseas at non-market prices, thus
depriving the Bolivian state of its fair share of revenues.


3. (C) Soliz is not worried about Brazil's threat to close
its market to Bolivian gas, because, he said, Bolivia has
opportunities to sell gas to Argentina and Paraguay and

gas-fired electricity to Chile. He explained that although
Bolivia and Argentina had signed an agreement for Bolivia to
export up to 27 million cubic meters per day, the two
countries are now discussing exports of up to 50 million.

GOB Will Seek Central Bank Loan for YPFB
--------------

4. (C) Soliz confirmed news reports that YPFB would seek a
loan from the Central Bank to use as working capital, which,
he said, the state company needed to cover the three-month
gap between collecting money due it from sales and paying the
percentage of tax revenue due to the regional governments.
Soliz said that the GOB would seek to change the Central Bank
Law, but argued that such change would not damage
macroeconomic stability.

Audits and Contract Negotiations Ongoing
--------------

5. (C) Soliz said that the GOB had hired 200 people to
conduct audits of the oil companies to determine how much the
companies had invested in Bolivia. The information from the
audits would be used to negotiate new contracts with the
companies, he said. Compensation would be based on whether
or not companies had invested the amounts that they were
contractually obligated to invest and on how much of their
investments the companies had already recouped. Soliz
claimed that accusations against the companies arising from
the audits would be dealt with during the negotiations rather
than in the press.

Negotiations for Shares
--------------

6. (C) Soliz reiterated that the nationalization process is
about neither "confiscation nor exclusion." He said that
negotiations with Transredes to acquire majority ownership of
the company are moving forward (reftel). He said that YPFB
would offer to take over liability for the Inter-American
Development Bank and Andean Development Corporation loans
held by Transredes as partial payment for Transredes' shares.
He understood that Transredes wanted to maintain operating
control, but said that the GOB would propose contracting a
third, neutral operator upon which both sides agreed.


7. (C) Comment: Minister Soliz was friendly towards the U.S.
during the meeting, downplaying U.S. interest in the sector,
while demonizing Brazil and expressing discontent with Spain.
Like us, U.S. investors are pleased that Brazil and
Petrobras are taking the lead on pushing the GOB to soften
its nationalization policy. While GOB rhetoric and symbolism
on hydrocarbons nationalization have at times been
heavy-handed, the GOB's actions to date have respected the
need to negotiate and compromise. Soliz took pains in his
meeting with us to emphasize that the GOB is behaving
reasonably with private industry and does not intend to
expropriate private assets. End comment.
GREENLEE