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
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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.

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Summary
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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.

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Re-Engineering the Planning Ministry
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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.)

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Relations with MDBs
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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.)

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Hydrocarbon Concession Renewals: A Provincial Play
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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.

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Arrears to Electricity Generators
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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.

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Christina Kirchner
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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