GOB PROPOSES "DIGNITY TARIFF" FOR ELECTRICITY

UNCLAS LA PAZ 000600 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/AND LPETRONI COMMERCE FOR JANGLIN TREASURY FOR SGOOCH E.O. 12958: N/A TAGS: ETRD EINV ECON PGOV BL SUBJECT: GOB PROPOSES "DIGNITY TARIFF" FOR ELECTRICITY ¶1. (U) Summary: GOB officials recently announced plans to lower electricity rates to a still undetermined "dignity tariff," demanding that businesses make services less expensive for rural populations and the poor. Leaving little room for discussion, the GOB presented a three-point proposal to industry representatives and established a joint commission to analyze its impact. Company executives greeted the proposal warily, telling the Ambassador March 6 that they feared increased GOB interference in their operations and expected profits to suffer if tariff rates were substantially lowered. End summary. ¶2. (U) In a February 23 meeting with electricity generation and distribution firms, GOB officials announced plans to lower electricity rates to a still undetermined "dignity tariff," demanding that businesses make services less expensive for rural populations and the poor. Minister of Planning Carlos Villegas noted that lowering tariff rates was a campaign promise the Morales administration intended to keep, suggesting firms could best serve their own interests by supporting the GOB's initiative. ¶3. (U) Leaving little room for debate, the GOB presented a three-point proposal to industry representatives, noting that an agreed version would be incorporated into the National Electricity Plan the GOB hopes to reveal later this year. The proposal calls for a 25 percent tariff reduction for low-income populations in La Paz, Santa Cruz, and Cochabamba; a 25 percent tariff reduction for rural populations; and a broad review of electricity distribution rates, with companies absorbing most of the estimated $5 million costs of the changes. Jose LaFuente, President of Empresa Electrica Corani, a subsidiary of U.S.-based Duke Energy International and generator of 20 percent of Bolivia's electricity supply, told Econoff the proposed tariff reductions could cost the company as much as $500,000 per year. LaFuente will serve on a joint commission (to include business representatives and officials from the vice ministry and superintendent of electricity) to analyze the proposal's impact and will join other industry representatives in a second meeting with GOB officials in early March. ¶4. (SBU) Executives of Elfec, a subsidiary of U.S.-based PPL Corporation and Bolivia's second-largest electricity distribution company, greeted the proposal warily, telling the Ambassador and Econoffs March 6 that they feared increased GOB interference in their operations. They worried that in addition to lowering tariffs, the GOB might raise service requirements or compel companies to expand services outside their concession areas, pointing out that the GOB could hinder companies' operations in several ways. PPL Global Vice President and Chief Counsel Robert Burke told the Ambassador he would join Spanish-owned Electropaz and other electricity firms in pushing for a comprehensive, long-term agreement. His chief concern, he said, was that if profits suffered, PPL's board of directors would look at Elfec more as a tax write-off than as a functioning firm and possibly decide to leave the country. ¶5. (SBU) Comment: Industry representatives told us they were blindsided by the GOB's proposal, having heard nothing more than murmurs about tariff reductions until the February 23 meeting. Many have said the GOB seems reluctant to compromise, with officials indicating the GOB will issue a supreme decree lowering rates if companies refuse to cooperate. The government's stance may be an ominous sign for other private entities, particularly those capitalized (or privatized) under the Sanchez de Lozada administration and recently threatened by the GOB's announcement of plans to retake control of such enterprises (septel). In any case, the GOB's apparent willingness to run roughshod over the private sector does not bode well for investors, foreign or domestic. End comment. GREENLEE