WINE AND GAS IN TARIJA: ONE FLOWS FREELY

C O N F I D E N T I A L SECTION 01 OF 03 LA PAZ 002873

SIPDIS

SIPDIS

STATE FOR WHA/EPSC FAITH CORNEILLE

E.O. 12958: DECL: 03/07/2017
TAGS: ECON PGOV AGR PREL EPET BL
SUBJECT: WINE AND GAS IN TARIJA: ONE FLOWS FREELY

REF: A. LA PAZ 2791


B. LA PAZ 2777

Classified By: Acting Ecopol Chief Brian S. Quigley for reasons 1.4 (b)
and (d).

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Summary
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1. (SBU) The Department of Tarija forms the southern base
of the so-called half moon, a grouping of departments
resistant to the Movement Towards Socialism (MAS) agenda. It
is home to both vineyards and almost all of the major
Bolivian gas fields. As a result, Tarija may be the
wealthiest of all Bolivian departments, but it also provides
an excellent example of the economic and political strains
caused by MAS policies and practices. While gas production
remains stagnant and pipeline construction to the region
stalled, local leaders worry about their future prosperity.
On the political side of things, national government attempts
to centralize resources has strengthened local sentiment for
autonomy, but even in Tarija the MAS is adept at exploiting
political divisions within the opposition. End Summary.

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Concerned Prosperity
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2. (C) Tarija enjoys a per capita GDP rate almost four
times the national average of US$1,100. Additionally, both
department and municipal governments have more resources than
ever before (due to local tax collection, gas royalties, the
Direct Hydrocarbon Tax (IDH),and even Venezuelan checks).
This year the prefect initiated a program which provides free
health care for all its citizens. In September Mayor Oscar
Montes received a million dollar commitment from Venezuela to
construct a new wing on the hospital (and a check for
US$468,543 to initiate the project). When asked about
controls over the money, the mayor insisted that once he
accepted the check, it entered the local budget and was
subject to government accountability.


3. (SBU) Tarija, like much of Bolivia, is enjoying the boom
times of high consumer demand (ref A). This prosperity is
illustrated by the high demand for labor. A day laborer in
Tarija earns about double the national average of about US$4
a day, and skilled craftsman are difficult to find, in part
due to their immigration to Spain. The president of the
local chamber of commerce Julio Kohlberg, who is also the
general manager of one of the largest wineries in the country
(Kohlberg),said that the demand for labor was not just a
local phenomenon; he had lost workers to the mines, where
wages have risen some four times higher than the national
average. Moreover, a tradition of seasonal migration from
the highland altiplano to the Tarija for harvest may be
threatened. Overall, however, he admitted that domestic wine
sales been never been so strong and, in fact, they had just
signed a contract for export to the Washington D.C. area,
home to an estimated 300,000 Bolivians.


4. (SBU) The dark cloud that hovers over the region is that
productive investments are lacking. The economic advisor to
the prefect estimated that 70% of investment over the past
year was in construction. As in much of the economy,
activity centers around consumption and construction of
non-productive assets. Reasons for lack of private
investment include: central government threats, lack of
legal protection, and the pervading climate of uncertainty.
This is most evident, and foreboding for Tarija, in the gas
sector.

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Where's My Nationalized Gas?

LA PAZ 00002873 002 OF 003


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5. (C) As most Bolivian gas originates in Tarija, the
department has been active in promoting its use. Currently
however, industries running on gas are only operating at 70%
of their capacity. According to the local chamber of
commerce, this is costing the businesses US$30,000 a day or
nearly one million per month. Moreover, a new ceramics
factory sits idle for lack of gas in the local market (Note:
It is ironic that much of the gas imported to Brazil goes to
ceramic factories which, in turn, are internationally
competitive because the less expensive gas gives them a
competitive edge over diesel fired plants. Moreover, in a
recent victory for Petrobras the amount of gas put in the
pipeline to Sao Paulo has increased from 30Mmcd to slightly
over 31Mmcd. Bolivia argued that the maximum contractual
obligation of 30Mmcd was what needed to be shipped; however,
gas is burned at the pumping stations to power the product
through the line and it appears that Brazil has successfully
argued that 30Mmcd needs to be ultimately delivered not
merely put in the system. According to Jorge Luiz Kauer,
General Manager of Transierra (a pipeline operator),
shipments to Argentina have now fallen below 1Mmcd, far below
the minimum contractual obligation of 4.6Mmcd. End Note).
Two new small diameter pipelines are scheduled to be
completed well behind schedule in November, but even with
this additional gas Tarija will only be able to meet current
demand. It is not until a third, wider diameter pipeline is
constructed that Tarija can contemplate boosting its gas
consumption. Despite the prefect's optimism that this
pipeline will be constructed next year, most industry experts
have serious doubts.


6. (C) Investment plans for the sector over the coming year
are generally limited to maintaining current production
levels. Additionally, there certainly has been no further
action on a US$450 million gas separation plant for the
department which was promised with much fanfare during the
visit of Presidents Kirschner and Chavez in August. One
Petrobras geologist did confide that the company would
conduct new exploration (the first and only report of new
exploration by any major company),but only as a necessity to
meet its own contractual obligations. Meanwhile, consumers
in Tarija are likely to go without. In addition to
industrial uses, the prefect has actively promoted the use of
Vehicular Natural Gas (GNV) and much of the city fleet has
been converted to GNV use. In this Tarija is not alone;
nationwide the number of vehicles using GNV has risen from
4,364 in 1998 to over 63,000 in 2006. With no current excess
supply, and little hope of short term production increases,
growing demand will not be met nationwide. Despite its
rhetoric that the domestic market comes first, the national
government, via the national oil company (YPFB) may soon be
deciding which regions get the GNV they demand and which
don't: not a good scenario for Tarija.

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Politics: United Up Front, Bickering In Back
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7. (C) Both the Prefect Dr. Mario Cossio and the Mayor
Oscar Montes enjoy strong local popularity. Both are also
set to vigorously defend their respective share of the Direct
Hydrocarbon Tax (IDH),which is under threat from the
national government (ref B). According to these respective
leaders, the IDH represents around 50% of the municipal
budget, while it accounts for only about 4% of the department
budget. Opposition to the central government's plans does
not come without a cost however. The state's representative
in La Paz, Hugo Carvajal, said that all doors to the
ministries were shut and the department's Secretary of
Economic Development, Ernesto Farfan, said that they had been
"placed in the refrigerator" by the Morales Administration.


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8. (C) Opposition is also likely to take a personal toll.
Both the department's planning minister and secretary of
economic development have been accused of corruption by
Minister of the Presidency Quintana and both thought that
such personal attacks were likely to continue. The prefect
has approved the construction of an East/West highway across
the state and even budgeted for their 30% share of the
project, but there is no movement at the national level to
come up with their proposed 70% share. (Note: Tarija also is
likely to suffer from the poor construction and oversight of
the North/South highway link to Potosi and the heartland of
the country. Recently the contract with the Brazilian firm
working on the project was canceled over accusations of
shoddy construction. The project is likely to linger in legal
limbo for the foreseeable future. End note).


9. (C) The united front against the central government
masks intense personal dislike and rivalry between the mayor
and prefect. This rivalry does not escape the MAS, who have
proven adept at exploiting divisions among the opposition.
Reynaldo Bayard, President of the Civic Committee, asserted
that when the mayor and prefect are fighting, support for the
MAS is likely to rise up to 10%. He further bemoaned the
lack of an effective communication system to combat MAS
rhetoric (which has an official radio network across the
state). Finally, unofficially, contacts in both the Senate
and local organizations admitted that they didn't trust
Cossio and that he was trying to centralize too much local
power. Publicly, however, they all felt it was more
important to unite behind the banner of an autonomous Tarija
than to criticize his governance.

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Comment
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10. (C) Leaders in Tarija are content to allow Santa Cruz
to play the lead role as the department of opposition.
However, the economic and social situations in each
department vary significantly, and Tarija should not be
underestimated when it comes to defending its own interests.
End Comment.
GOLDBERG