BRAZIL TO PAY MORE FOR BOLIVIAN GAS

UNCLAS BRASILIA 000282

SIPDIS

SENSITIVE
SIPDIS

USDOE FOR GWARD, CGILLESPIE
STATE PASS TO USTR:SCRONIN
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E.O. 12958: N/A
TAGS: EPET ENRG ECON BR BL
SUBJECT: BRAZIL TO PAY MORE FOR BOLIVIAN GAS



1. (SBU) An agreement reached February 15 between Brazil and
Bolivia created a formula that could oblige the parastatal Brazilian
energy company, Petrobras, to pay up to four percent more each year
for the Bolivian natural gas that primarily supplies the state of
Sao Paulo. The increase--although less than what had been asked for
by Bolivia, which had sought an adjustment of 25 percent--is being
viewed by local analysts as a victory for Bolivian President Evo
Morales and could constitute an extra $100 million per year for
Bolivia. Morales indicated his intention to continue being a
trusted supplier to the Brazilian marketplace. "We will comply with
all the contracts that we have with Petrobras. There will never be
a lack of gas for Brazil," he promised. Bolivia sells 27 million
cubic meters of gas daily to Brazil.


2. (SBU) Silas Rondeau, Brazilian Mines and Energy Minister,
confirmed that the new formula, according to Petrobras's analysis
and based on the volume of gas received in 2006, will represent an
increase of three to four percent per year. Rondeau stated that
only half of one percent of the cost would be passed to the
individual consumer. Bolivia had wanted Brazil to pay the same
price as Argentna, a price of US$5 BTU. Petrobras President Sergio
Gabrielli said that price could not happen, noting that Bolivia was
not taking into account the investments made by Brazil, nor the
larger volume of gas that Brazil purchases. Gabrielli indicated
that the agreement will build on and respect the terms of the
current contract between Petrobras and Bolivia. Still, Gabrielli
was cautious when discussing the eventual impact to the consumer:
"The price of gas will depend on the state distributors," he said.
The Brazilian state of Mato Grosso is an example: the two countries
announced on Wednesday an agreement that will increase the price of
Bolivian gas sold to Mato Grosso by 285 percent. Mato Grosso's
governor told Reuters that the federal government will bankroll the
increase in price by the thermoelectric plant in Bolivia.


3. (SBU) Morales's visit, which almost didn't happen due to the
possibility of a breakdown in the discussion, ended up being
extended for a second day due to the complexity of the negotiations.
To help close the deal, Brazil apparently pledged to help Bolivia
construct hydroelectric plants near the border with Brazil.


4. (SBU) Post will continue to follow this issue and report as
warranted.

SOBEL