ARGENTINA: ENERGY SECRETARY CAMERON ON U.S. BUSINESS

UNCLAS BUENOS AIRES 001726 SIPDIS SIPDIS SENSITIVE PASS NSC FOR MICHAEL SMART PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE PASS USTR FOR KATHERINE DUCKWORTH AND MARY SULLIVAN TREASURY FOR ROSELLEN ALBANO USDOC FOR 4322/ITA/MAC/OLAC/PEACHER US SOUTHCOM FOR POLAD E.O. 12958: N/A TAGS: ENRG EPET EINV ECON PREL AR SUBJECT: ARGENTINA: ENERGY SECRETARY CAMERON ON U.S. BUSINESS CONCERNS AND ECONOMIC POLICY IN THE CRISTINA ERA Ref: (A) Buenos Aires 1680 (B) Buenos Aires 1593 (C) Buenos Aires 1456 (D) Buenos Aires 1415 (E) Buenos Aires 65 This cable contains business-sensitive information - not for internet distribution. -------------- Summary -------------- ¶1. (SBU) Energy Secretary Daniel Cameron, a leading candidate to replace Planning Minister De Vido in a likely Cristina Kirchner administration, told Ambassador the Planning Ministry will be re-engineered to better administer its Energy, Transportation, Communications, Mining and Public Works responsibilities. He denied the GoA is taking a "statist" approach to energy infrastructure development, notwithstanding recent announcements of over US$ 10 billion in new GoA-funded hydro, thermal and nuclear power generation projects. He praised the IDB's energy project flexibility but faulted the World Bank for being unnecessarily rigid in its approach to Argentina, citing Argentina's 2006 decision to pre-pay a World Bank loan for the controversial Argentine/Paraguayan Yacyreta hydroelectric facility. Cameron hoped that newly arrived World Bank country manager Pedro Alba will help smooth the bilateral relationship. He expressed concern over the large number of ICSID arbitration cases filed by international energy companies that are still pending resolution. ¶2. (SBU) On specific U.S. upstream player (Occidental, Apache) concerns about negotiations with provinces to renew exploration concessions that will expire in 2016, Cameron argued that hydrocarbon exploration and development capital investments generally pay out in 3-5 years and that hydrocarbon multinationals have a "social obligation" to continue high rates of investment in Argentina. On concerns by U.S. electricity generators AES and Duke about arrears in GoA wholesale electricity payments, he admitted that GoA accounts had been "strained" by the July energy crunch (Ref D) and said he is working to regularize payments. Finally, Cameron said that, should Cristina Kirchner win upcoming presidential elections, she would "open the way" for new initiatives to rationalize growing Argentine economic distortions. End Summary. -------------- Re-Engineering the Planning Ministry -------------- ¶3. (SBU) In an August 24 meeting with GoA Planning Ministry Energy Secretary Daniel Cameron, Ambassador presented Energy Secretary SIPDIS Bodman's invitation to Cameron to attend a September 16 meeting in Vienna of the Global Nuclear Energy Partnership (Ref A). Ambassador noted to Cameron that, with six major U.S. energy firms currently operating in Argentina (Apache, Chevron, Occidental, Esso, AES and Duke),our Embassy follows developments in this sector closely. Cameron replied that the GoA is implementing a coordinated energy master plan to expand hydrocarbon exploration and development in Argentina and to bring needed new hydro, thermal and nuclear electricity generation resources on line. ¶4. (SBU) Current "strains" on the domestic energy network, Cameron said, should be "stabilized" by 2009 as planned new capacity is added, Cameron said (Refs C, D). He agreed that the GoA needs to work on "better institutionalization" of primary energy infrastructure, since current Planning Ministry initiatives to finance new energy capacity have "many virtues but some problems." The Planning Ministry will be "re-engineered" to facilitate its role in managing 18-19% of Argentina's GDP, he said. (The Planning Ministry has responsibility for Energy, Communications, Transportation, Mining and Public Works. Cameron has been widely mooted for promotion to the Planning Minister position in a likely Cristina Kirchner administration.) -------------- Relations with MDBs -------------- ¶5. (SBU) Notwithstanding recent GoA announcements of over US$ 10 billion in new GoA-funded hydro, thermal and nuclear generation and gas and electricity distribution projects, Cameron denied that the GoA is taking a "statist" approach to energy infrastructure development. All recent GoA investment initiatives have been reviewed with the private sector, he said. The GoA is also in discussions with the Inter-American Development Bank (IDB) on new energy infrastructure project development, above and beyond the IDB's US$ 580 million commitment earlier in 2007 to fund the Norte Grande electricity transmission program. ¶6. (SBU) Cameron praised the IDB's project-oriented flexibility and noted their early support for developing a planning function in the GoA's Energy Secretariat. But he faulted the World Bank for being unnecessarily rigid in its approach to Argentina. He cited in particular the multi-billion Yacyreta hydroelectric facility on the Parana River along the border between Argentina and Paraguay which the Bank has been funding since 1992. (In September 2006, Argentina pre-paid the US$ 106 million balance due on the World Bank's second Yacyreta project loan to overcome longstanding World Bank objections to the project's non-compliance with environmental and relocation conditionality.) The World Bank needs to bring "new air" to its relationship with Argentina, Cameron concluded, and he hoped that the arrival of new World Bank country manager Pedro Alba would help smooth the bilateral relationship. ¶7. (SBU) Finally, Cameron expressed concern over the large number of International Center for the Settlement of Investment Disputes (ICSID) arbitration cases filed by multinational energy companies that are still pending resolution. It would be helpful, he said, if these cases could somehow be combined into a single class-action to limit the time and expense the GoA is devoting to their legal resolution. (There are billions in outstanding arbitral claims against the GoA by foreign investors (Ref E),the value of whose Argentine assets were dramatically reduced by unilateral emergency measures adopted by the GoA in the aftermath of the 2001/2 economic crisis. As a consequence, Argentina holds the largest single number of outstanding arbitration cases pending at the World Bank's ICSID.) -------------- -------------- Hydrocarbon Concession Renewals: A Provincial Play -------------- -------------- ¶8. (SBU) In a separate meeting with EconCouns August 23, Cameron reviewed specific U.S. energy company concerns. U.S. upstream players Occidental (with operations concentrated in Santa Cruz province) and Apache Energy (with the bulk of its new investment in southernmost Tierra del Fuego province) remain eager to move forward on concession renewal negotiations with provincial authorities. Although current concessions originally granted in the early 1990s run through 2015-2016, Occidental and Apache argue that they need longer term certainty in order to better plan and justify to U.S. Boards of Directors new capital investment in Argentine exploration and development. ¶9. (SBU) Cameron replied that Occidental's negotiations in Santa Cruz will likely follow concession terms currently being negotiated with provincial officials by UK/Argentine joint venture Pan American Energy: Pan American had recently concluded a concession contract in bordering Chubut province with Governor Mario Das Nevas that Cameron believes should serve as a national model. He called delays in Pan American and Occidental's Santa Cruz province concession negotiations the consequence of "political sensitivity" there following ongoing teacher and oil field work strikes in the province. He urged Apache Energy to help educate the newly elected governor of Tierra del Fuego province on "world-class" concession accords. (Provinces have been granted considerable autonomy in managing their hydrocarbon and mineral wealth under the GoA's recently implemented natural resource law.) ¶10. (SBU) Cameron argued that hydrocarbon exploration and development capital investments generally pay out in 3-5 years and that hydrocarbon players have a "social obligation" to continue high rates of investment in Argentina. He appreciated that Occidental and Apache are putting considerable effort and new money into the ground. Others, he said, including Spanish-owned YPF Repsol, are not. -------------- Arrears to Electricity Generators -------------- ¶11. (SBU) Cameron confirmed that payment by the GoA-regulated wholesale electricity CAMMESA of December 2006 arrears due to generators, including U.S. companies AES and Duke, would be made shortly. This leaves CAMMESA roughly six months behind on payments. Cameron said CAMMESA accounts were "strained" during the July energy crunch given the GoA's need to purchase significant "topping" electricity from Brazil and to purchase fuel-oil from abroad to provide generators needed supplies (Ref C, D). The GoA, he said, is working to "regularize" CAMMESA's finances to see generators made whole. -------------- Christina Kirchner -------------- ¶12. (SBU) Cameron noted Cristina Kirchner's upcoming September 24-27 visit to New York City, where she will be the guest of honor at a Council of the Americas lunch. He asked EconCouns what the USG thought of Cristina's August 7 Council of the Americas seminar presentation in Buenos Aires (Ref B). Cameron said that Cristina will "change" some things and "open the way" on other new initiatives to rationalize growing distortions in Argentina's economy. He declined to answer when EconCouns asked if such changes could include adjustments in public utility tariffs that most energy players in Argentina argue are needed to attract new private investment in the sector. WAYNE