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 -------------- Summary -------------- ¶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. -------------- Technocratic President Sacked -------------- ¶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. -------------- Brazil Sales: Subordinate to Domestic Market -------------- ¶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. -------------- Comment -------------- ¶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