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