HYDROCARBONS CONTRACT DEADLINE DRAWS NEAR

C O N F I D E N T I A L LA PAZ 002900 SIPDIS SIPDIS STATE FOR WHA/AND TREASURY FOR SGOOCH ENERGY FOR CDAY AND SLADISLAW E.O. 12958: DECL: 10/25/2016 TAGS: ECON EINV ENRG EPET BL SUBJECT: HYDROCARBONS CONTRACT DEADLINE DRAWS NEAR REF: SAO PAULO 1143 Classified By: Ambassador Philip Goldberg for reasons 1.4 (b) and (d). ¶1. (C) Summary: The press published a copy of the model contract supposedly provided by the GOB to the hydrocarbons companies who must sign new contracts by October 28, according to the May 1 nationalization decree. The contract appears highly favorable to Bolivia's state oil company, YPFB. Petrobras told Econoff on October 25 that it had not reached agreement with the GOB and indicated that it would likely seek an extension. The press reported on October 25 that Hydrocarbons Minister Villegas said the GOB might grant extensions to some companies and that British Gas and Total were closer to agreement with the government than other companies. Other sources indicate that these companies find the contract unacceptable. End summary. Model Contract Published -------------- ¶2. (SBU) The press published a copy of the model contract that was supposedly provided to the companies by the GOB on October 24. The contract, which contains more than 30 obligations for producers and only around 3 for YPFB, appears unbalanced. It takes away the ownership of production, in accord with the law, and imposes exploration and exploitation requirements on the companies. The companies must pay YPFB if they do not fulfill these obligations. YPFB must approve company exploration, field development, and investment plans. It declares that all company equipment and installations are the property of YPFB, without mentioning any compensation. The companies are required to insure their products, installations, and equipment although they will belong to the state. YPFB will receive payments directly for hydrocarbon product sales, directly pay royalties and taxes due to the government, and reimburse the companies for their costs and a certain amount of profit for their services as defined in one of the annexes. The contract forces the companies to assume all liabilities, with no risks assumed by YPFB, even though YPFB seeks to be the majority shareholder of five companies. YPFB must approve a change of company control or a transfer of company rights under the contract. Arbitration must take place in La Paz, in Spanish, with no right to international appeal or diplomatic recourse. The companies must provide YPFB unspecified bank guarantees after signing the contract. Petrobras Says No Deal -------------- ¶3. (C) A Petrobras executive told Econoff on October 25 that the company has not reached agreement with the GOB regarding its production and refinery operations. It had received a copy of the model contract with all seven annexes, but the annexes were incomplete. The contract provided to Petrobras was not the same as the one published in the press, but, according to the executive, worse. Petrobras will likely request an extension past the October 28 deadline. Hydrocarbons Minister Villegas stated on October 24 that extensions might be possible for some companies, despite earlier public statements that the deadline was firm. Other Companies Uncertain -------------- ¶4. (C) The press reported on October 25 that Total (French) and British Gas (BG) were closer to reaching agreement than other companies. However, based on reftel and conversations with the British DCM, it seems unlikely that BG will sign a contract by the deadline. U.S.-owned Vintage Petroleum told us that the model contract they were provided contained at least four deal-breaking clauses, but they were inconclusive about their overall negotiation strategy and wanted to know if other companies would sign. ¶5. (C) Comment: It remains to be seen whether this model contract is a negotiating ploy or a serious offer. If it is the latter, then certainly it will impede any timely conclusion of negotiations; if the former, it has definitely succeeded in intimidating private hydrocarbons operators here in Bolivia. In the short term, it seems that the GOB is focusing on signing contracts with the smaller producers by the October 28 deadline. There continue to be rumors of the possibility of extending negotiations with the larger players -- Petrobras and Repsol. End comment. GOLDBERG