JAPANESE AMBASSADOR WORRIED ABOUT INVESTMENT

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000241 SIPDIS SIPDIS ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD NSC FOR DTOMLINSON E.O. 12958: DECL: 01/12/2017 TAGS: EPET ENRG EINV ECON VE SUBJECT: JAPANESE AMBASSADOR WORRIED ABOUT INVESTMENT CLIMATE REF: A. 2006 CARACAS 02268 ¶B. CARACAS 38 Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D) ¶1. (C) SUMMARY: The Ambassador met with Japanese Ambassador Matsui, at Matsui's request, on February 2 to discuss the current investment environment in Venezuela. Matsui was clearly concerned about the Japan Bank for International Cooperation's (JBIC) one billion USD loan to PDVSA. Matsui opined there are two competent BRV officials: Energy Minister Ramirez and National Tax Superintendent Vielma Mora. Matsui noted the GOJ had invited Evo Morales to Tokyo earlier this year and asked how the USG would feel if a similar invitation were to be extended to President Chavez. END SUMMARY -------------- INVESTMENT CLIMATE CONCERNS -------------- ¶2. (C) Ambassador Matsui began the conversation by stating JBIC, Japan's version of the EX-IM Bank, had provided PDVSA with a one billion USD operating loan that carried a GOJ guarantee. He opined that PDVSA was a profitable enterprise and a good risk, and then asked if the Ambassador agreed. The Ambassador replied that he was not so sure. He added that it was not clear if PDVSA's management had a firm handle on its finances. He noted PDVSA's income and expenditures were now politicized, making it difficult to assess the organization's health. One group within PDVSA had an idea of the amount of income being generated by oil production, another was distributing funds to social programs, and a third was trying to invest in service, maintenance, and future production. As best we can tell, there was no coordination or communication between the three groups. The Ambassador added that there was significant evidence that PDVSA was suffering from liquidity and cash flow problems. For example, many contractors were not being paid. Despite high oil prices, PDVSA may be running out of money. The Ambassador opined that this may be the reason that PDVSA sought the operating loan in the first place. (COMMENT: As reported in Reftel A, PDVSA has treated JBIC very poorly in the past, and at one point scuttled a major loan for a gas project at the last moment. We also note that BNP Paribas closed a one billion USD unsecured revolving credit facility for PDVSA on February 1. END COMMENT). -------------- THE QUEST FOR COMPETENCE -------------- ¶3. (C) Matsui remarked that in his opinion there were two competent senior BRV officials: National Tax Superintendent Vielma Mora and Energy Minister and PDVSA President Ramirez. The Ambassador agreed that Vielma Mora was the most competent senior BRV official that he knew but that he had a political agenda sometimes. The Ambassador questioned Matsui's high opinion of Ramirez. He stated Ramirez had to accept the blame for PDVSA's administrative and operational problems. He added that Ramirez was merely carrying out Chavez' orders without trying to structure PDVSA in a way that insures the future sustainability of its operations. Ramirez had succeeded so far due to high oil prices, but eventually the structural problems would lead to a crisis within PDVSA or its collapse. -------------- JAPANESE INVESTORS' MOOD -------------- ¶4. (C) When the Ambassador inquired as to how Japanese investors in Venezuela were faring, Matsui responded that the CARACAS 00000241 002 OF 002 automakers were not complaining. They had complained about the foreign exchange commission, CADIVI, occasionally in the past, but not lately. ¶5. (C) Matsui also stated Mitsubishi was optimistic about its investment in a methanol plant with the Venezuelan state petrochemical company, Pequiven. When the Ambassador asked if Mitsubishi was concerned about pressure to eventually migrate the investment to a joint venture in which Pequiven held a majority stake, Matsui replied no. The Ambassador stated he thought that would last about a year. ¶6. (C) Mitsubishi announced on December 22 that it would invest 480 million USD in a methanol plant. Mitsubishi Venezolana President Masashi Yoshihara told Petroleum Attache on January 18 that Mitsubishi felt comfortable with the investment since it held all of the patents that were vital for the functioning of the plant. He also opined that the BRV needs private sector involvement in the petrochemical sector even more than it needs it in the oil sector. Yoshihara's point about intellectual property rights is equally true for the international oil companies that are partners in the strategic associations. ¶7. (C) Matsui also stated to the Ambassador on February 2 that the GOJ was angry with PDVSA's decision to break Orimulsion supply contracts last year without prior notice (Reftel B). He said PDVSA has agreed to pay compensation and that the Japanese were not nearly as angry as the Chinese, who had a contract ten times the size and had altered some domestic enterprises to accept Orimulsion. -------------- ANY PROBLEMS WITH A VISIT? -------------- ¶8. (C) Matsui closed by noting the GOJ had invited Evo Morales to Tokyo earlier this year. The Japanese Foreign Ministry was thinking of inviting Chavez at some point in the not near future. Matsui asked how the USG would view such an invitation. The Ambassador replied that we might be perplexed by the invitation, which might put the GOJ in a challenging situation, taking into account Chavez' predilection for rhetorical attacks on the United States. For example, it would be embarrassing to the USG and GOJ if Chavez stood at the door of the Prime Minister's office and blasted away at the USG. BROWNFIELD