YPFB PRESIDENT REPLACED BY HARD-LINER

UNCLAS LA PAZ 000225

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
TREASURY FOR SGOOCH
ENERGY FOR CDAY AND SLADISLAW

E.O. 12958: N/A
TAGS: ECON EINV ENRG EPET BL
SUBJECT: YPFB PRESIDENT REPLACED BY HARD-LINER

REF: A. 2006 LA PAZ 1157

B. 2006 LA PAZ 3361

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Summary
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1. (SBU) Bolivian state oil company YPFB's President Juan
Carlos Ortiz resigned on January 26 due to opposition to his
corporate approach to refounding YPFB by militant members of
the MAS. President Morales named MAS radical Manuel Morales
Olivera as the new head of YPFB on January 29. Prior to his
resignation, Ortiz announced that delivery agreements for
exporting gas to Brazil, which will replace the existing
back-to-back agreements, will be signed beginning on February
1 with all the operators, contingent on the large field
operators agreeing to provide hydrocarbons to the domestic
market first. The replacement of Ortiz with a political
ideologue could be a huge setback for Bolivia's hydrocarbons
industry. End summary.

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Technocratic President Sacked
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2. (SBU) Bolivian state oil company YPFB's President Juan
Carlos Ortiz resigned late on January 26 after five months of
struggling with the task of turning the shell of YPFB into a
participant in every aspect of the hydrocarbons productive
chain, as mandated by the 2005 hydrocarbons law and 2006
decree (ref A). Press reports state that he was forced out
of the position by militant members of the MAS (Movement
Towards Socialism) who did not agree with his corporate
approach to refounding the company and demanded a president
who was "politically committed." Ortiz, from Santa Cruz, has
a background in business administration, and it seems that
his plans for YPFB to function as an autonomous, technical
organization were not in line with the GOB's more statist
view.


3. (SBU) President Morales named Manuel Morales Olivera as
the new head of YPFB on January 29. Morales Olivera is known
as a MAS radical, without technical experience in the gas
industry, who lacks the qualifications legally required for
the position. The new president will have to confront many
outstanding tasks -- the take-over of five companies, the
negotiation of gas prices with Brazil, the revamping of YPFB,
and obtaining investment commitments to meet supply
obligations to Argentina, Brazil, and the domestic market.

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Brazil Sales: Subordinate to Domestic Market
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4. (SBU) Prior to his resignation, Ortiz announced that
delivery agreements for exporting gas to Brazil will be
signed beginning February 1 with all of the operators. The
new agreements will replace the "back to back" contracts that
were signed with the operators after the Gas Sales Agreement
was reached with Brazil in 1993. According to GOB decree and
resolutions, the operators of the large gas fields,
Petrobras, Repsol, British Gas, and Andina must sign delivery
agreements to supply the domestic market before they will be
allowed to export. The companies do not want to sell to the
domestic market due to price caps which make domestic sales
unprofitable. GOB negotiations with Brazil regarding the
price of gas exports are scheduled to conclude in March.

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Comment
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5. (SBU) The ousting of technocrat Juan Carlos Ortiz seems to
represent a victory within the party by MAS hard-liners in
favor of a genuine nationalization. The replacement of Ortiz
with a political ideologue could be a huge setback for
Bolivia's hydrocarbons industry. The development of an
efficient, transparent YPFB is key to the future of the
sector, as YPFB will have a broader role in transportation,
sales, overseeing company operations, and approving company
plans. As private company representatives noted previously
to Econoff (ref B),they are unlikely to agree to invest if
they lack a reasonable counterpart in YPFB with whom to work.
End comment.
GOLDBERG