CHINESE POLITBURO COMES TO TOWN

UNCLAS SECTION 01 OF 03 CARACAS 000669

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E.O. 12958: N/A
TAGS: ECON ENIV ENRG EPET PGOV VE CH
SUBJECT: CHINESE POLITBURO COMES TO TOWN

REF: CARACAS 38


1. (SBU) Summary: During Chinese Politburo Member Li
Changchun's visit to Caracas March 25-27, Venezuela and China
signed six new cooperative agreements in the petroleum sector
and reaffirmed a USD 6 billion joint development fund.
Chavez assured China that Venezuela would be a trustworthy
oil supplier and added that by the end of the year Venezuela
would supply China with 320,000 barrels of petroleum/day and
one million barrels/day within five years. Though China and
the BRV failed to resolve a lingering dispute involving
orimulsion in the Faja (Reftel) and there was the typical
high degree of political theatre to the visit, both nations
appear committed to their strategic partnership in the
petroleum sector. End Summary.

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Homage to Bolivar and Six New Accords
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2. (U) Politburo Member Li Changchun led a delegation of
Chinese dignitaries, including the President of China
National Petroleum Company (CNPC),Jiang Jieming, for a
three-day visit to Venezuela March 25-27. On March 26, after
a morning visit to pay homage to Simon Bolivar at the
pantheon, the Chinese delegation was received at PDVSA's
offices. The receiving Venezuelan delegation consisted of
Chavez' senior ministers, including Minister of Popular Power
for Foreign Affairs (MPPFA) Maduro, Minister of Popular Power
for Energy and Petroleum (MPPEP) Ramirez, Minister of Popular
Power for Finances Cabezas, Minister of Popular Power for
Planning and Development Giordani, and Minister of Popular
Power for Basic Industries and Mining Khan. Before leaving
for Suriname on March 27, Li met with National Assembly
President Celia Flores. Playing up the significance of the
Chinese-Venezuelan economic relationship, the pro-Chavez
daily newspaper "Vea" estimated bilateral trade at USD 4.2
billion.


3. (U) Chavez and Li participated in an evening signing
ceremony on March 26 at Miraflores Place, during which the
two nations signed six new agreements and reaffirmed a prior
commitment to a USD 6 billion joint development fund, of
which China would contribute USD 4 billion and Venezuela USD
2 billion. PDVSA will hold a majority 60/40 interest of the
capital in the joint ventures located in Venezuela and CNPC
will hold a 60/40 interest in the companies located in China.



4. (U) The PRC and BRV signed the following six agreements:

-- Cooperative Agreement for the Donation of 10 million RMB
(USD 1.25 million) between the PRC and the BRV, executed by
Minister Maduro and the Chinese Ambassador to Venezuela Ju
Yije.

-- Petrozumano Accord: The agreement provides for the
creation of a joint-venture for the exploration, extraction,
and transportation of hydrocarbons, executed by CNPC
President Jiang Jieming and PDVSA President Ramirez.

-- Cooperation Agreement between CNPC and PDVSA executed by
Ramirez and Jieming. This agreement evaluates the
possibility of creating a mixed company to develop an
additional 600,000 barrels/day of crude in three areas of the
Faja. The first is Block Junin 4, whose production is
estimated at 200,000 barrels/day. A second is Block MP-3
where Sinovensa, a joint Venezuelan-Chinese company,
currently operates (200,000 barrels/day). The third is the
Carabobo Block (200,000 barrels/day). The crude extracted
from the Faja would be sent to three new refineries in China
with a capacity of 800,000 barrels/day to supply the Chinese
market. The agreement also envisions creating a mixed
company for maritime transport of crude to the new
refineries. Capital in the maritime transport company will
be split 50/50.

--Agreement between PDVSA and CPNC to form a mixed company

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named Chinovenezuela, executed by PDVSA Vice President for
Exploration and Production Felipe Vielma Perez and CPNC
Director General for Europe and the Americas Li Shiju. The
purpose of the company is to service and maintain oil wells.
--CPNC and Venezuela also executed two supply contracts to
provide crude and fuel oil to the Chinese market.

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Venezuelan Oil Exports to China on the Rise
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5. (U) During the signing ceremony, Chavez highlighted the
developing relationship with China in the petroleum sector.
Chavez said that, in the past, Venezuela was a "colony" of
the United States and therefore was unable to export
petroleum to China. In an interview with "El Universal,"
Energy Minister Ramirez said that China would import 1
million barrels/day of Venezuelan oil by 2012. Chavez said
that his goal has always been for Venezuela to become a
stable and growing supplier of petroleum to China. According
to Chavez, in 2005, Venezuela did not export a single barrel
to China. In 2006, it exported 300,000 barrels/day, and in
2007, he estimated Venezuela would export 500,000
barrels/day. (Note: There appears to be some confusion over
the numbers, as PDVSA later backed down from the 500,000
barrel estimate and proposed a more conservative target for
2007 of 320,000 barrels/day. According to "El Universal,"
the Chinese Ambassador to Venezuela said that China was
currently importing 200,000 barrels of oil/day. End Note.)

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Chavez Takes Aim at the United States, Praises Mao
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6. (U) In typical fashion, Chavez took shots at the United
States during the signing ceremony, while praising Mao and
the Chinese revolution. In a thinly veiled attack at the
United States, Chavez said "China is a power, but it is not
imperialist, for the good grace and luck of the world.
Rather it is a revolutionary people and a revolutionary
government that follows the line of Mao Tse Tsung and
socialism." He then proceeded to launch into a bizarre
comparison between Chairman Mao and Bolivar to conclude his
discourse.

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But what about the Orimulsion Dispute?
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7. (SBU) One noteworthy aspect of the agreements signed
between the PRC and BRV was what provisions they didn't
contain. CNPC has had doubts about the reliability of PDVSA
and the BRV as partners after MPPEP ordered the
Venezuelan-Chinese joint-venture Sinovensa to stop producing
orimulsion in December 2006. CNPC views the BRV's actions as
an expropriation and is currently negotiating compensation
with the BRV (Reftel). The cooperative agreement between
PDVSA and CNPC (para 4) regarding extending Sinovensa's MP-3
block essentially says PDVSA and CNPC "agree to disagree" on
the orimulsion issue. The agreement reads "...would include
an extension south of Block MP-3, subject to resolution of
the existent problems between the two companies." Since
there is no indication that the disputes have been resolved,
essentially the agreement is meaningless.

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Comment
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8. (SBU) China and Venezuela have solid reasons for
deepening their energy ties, which has strategic implications
for both nations. To reduce Venezuelan economic dependence
on the United States, Chavez is looking to China as a
destination for Venezuelan oil exports and a substitute
location for refineries. In Venezuela as in other countries,
China is looking for a long-term relationship with an
oil-producing state to fuel its rocketing economic growth and
increased oil consumption. That said, the failure of the two

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nations to come to an agreement on a key substantive issue
with which the two state oil companies were grappling shows
that the recent signings were largely about political
theatre. Industry contacts in the oil services industry,
however, think that of all the countries who have signed
deals in the Faja, China could be the most likely to
seriously commit to the projects. Venezuela also represents
a potentially lucrative market for Chinese service companies.

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Bio Note
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9. (U) Li Changchun, 58, was born in 1944 in Liaoning
Province (Northeastern China) and holds an engineering
degree. Jiang Zemin appointed Changchun as the youngest-ever
member of China's nine-man Politburo in 1997, and he
currently is the PRC's top propaganda official (source:
www.chinavitae.com).

BROWNFIELD