Identifier
Created
Classification
Origin
07MONTEVIDEO529
2007-06-04 17:07:00
SECRET//NOFORN
Embassy Montevideo
Cable title:  

(S/NF) VENEZUELAN FOREIGN AID TO URUGUAY

Tags:  PINR VE UY 
pdf how-to read a cable
VZCZCXYZ0031
RR RUEHWEB

DE RUEHMN #0529/01 1551707
ZNY SSSSS ZZH
R 041707Z JUN 07
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 7241
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 2597
RUEHCV/AMEMBASSY CARACAS 0486
RUEHLP/AMEMBASSY LA PAZ JUN LIMA 4886
RUEHSG/AMEMBASSY SANTIAGO 2987
S E C R E T MONTEVIDEO 000529 

SIPDIS

NOFORN
SIPDIS

DEPT ALSO FOR WHA/BSC (KREAD) AND WHA/AND (MWELLS)

E.O. 12958: DECL: 06/02/2017
TAGS: PINR VE UY
SUBJECT: (S/NF) VENEZUELAN FOREIGN AID TO URUGUAY
(C-AL7-00733)

REF: STATE 066324

Classified By: Ambassador Frank E. Baxter
for reasons 1.4 (B) and (D)

S E C R E T MONTEVIDEO 000529

SIPDIS

NOFORN
SIPDIS

DEPT ALSO FOR WHA/BSC (KREAD) AND WHA/AND (MWELLS)

E.O. 12958: DECL: 06/02/2017
TAGS: PINR VE UY
SUBJECT: (S/NF) VENEZUELAN FOREIGN AID TO URUGUAY
(C-AL7-00733)

REF: STATE 066324

Classified By: Ambassador Frank E. Baxter
for reasons 1.4 (B) and (D)


1. (S/NF) Summary: This telegram responds to reftel request
for information. Venezuelan assistance to Uruguay is
growing, but is not yet great. It is also difficult to
calculate, in part because Chavez's aid comes without the
sort of invasive conditions that burden the programs of the
World Bank, IMF, IDB and USAID. Much of Uruguay's oil debt
with Venezuela is set up in a flexible trust fund
("fideicomiso") that can be used for barter and assistance.
Chavez's actions in Uruguay are all about his public
diplomacy, though there is considerable reality (cash) behind
his rhetoric. Some BRV aid is targeted at specific groups
such as the Presidency or the Communist-dominated labor
unions and the Ministry of Social Development. Below,
Washington analysts' questions are repeated in upper case,
and Embassy responses appear in lower case. End Summary.


A. (S/NF) FROM THE VENEZUELAN STANDPOINT, HOW MUCH MONEY HAS
CARACAS ACTUALLY DELIVERED TO RECIPIENT COUNTRIES IN RESPONSE
TO CHAVEZ'S PUBLIC AND PRIVATE COMMITMENTS TO THE RESPECTIVE
GOVERNMENTS?

-- The BRV and the GOU have signed some 78 agreements since
the Frente Amplio took power in March 2005. Some of them are
included in the list below (in Spanish) gathered from the
GOU's Parliament website www.parlamento.gub.uy.

Transporte Aereo. Convenio. Aprobacion; Hospital Clinicas.
Acuerdo Cooperacion Mejora Edilicia Y Equipamiento. Protocolo
Enmienda. Aprobacion; Aulas Escuelas Maldonado (Dpto).
Construccion Recursos Donados Por Venezuela; Cooperacion
Ciencia Y Tecnologia E Industrias Basicas Y Mineria.
Convenio. Aprobacion; Tecnologias Informacion. Industria
Software. Equipamiento Informatico. Comunicaciones.
Cooperacion. Convenio. Aprobacion; Cooperacion Salud Y
Medicina. Convenio. Aprobacion; Buque Hidrografico Rou 22
"Oyarvide". Salida Pais. Autorizacion; Programa Venesat 1.
Convenio. Aprobacion; Desarrollo Social. Convenio.
Aprobacion; Nueva Television Del Sur. Convenio. Aprobacion;
Cooperacion Energetica De Caracas. Convenio. Aprobacion;
Cooperacion Integral Energetica. Convenio. Aprobacion;

Convenio Ampliacion Refineria La Teja (Ancap). Informes.

-- Assigning dollar estimates to Venezuelan assistance to
Uruguay greatly depends on criteria and the methodology used.
One could make individual cases that it totals $100 million,
$900 million or over $3 billion. This is partly because it is
difficult to distinguish between Chavez's direct foreign aid
and the amount of money he has spent on sweetheart deals. It
also depends on the quid pro quo. For instance, the bailing
out of an ailing parastatal may or may not make good business
sense, but it invariably generates goodwill from the
Communist-dominated labor unions and the people who would
have otherwise lost their jobs. Examples follow below.

Hospital de Clinicas - $17.5 million donation for a project
that is underway to build a cancer treatment wing at a
decrepit major public hospital. President Tabare Vazquez is a
practicing oncologist. Project underway.

Instituto Nacional de Cancer - $3 million donation to
construct a building. President Vazquez laid the cornerstone
at a ceremony in December 2006. Project underway.

Pueblo Bolivar - $300,000 donation for various infrastructure
improvements and small projects at a poor, nondescript town
in Canelones Department that happens to bear the name of
Chavez' hero, Simon Bolivar. Project underway.

BANDES - $10 million; in March 2006, Bandes bought Uruguay's
COFAC, a mainly rural financial institution that was on the
brink of financial collapse. The purchase preserved 437 jobs
at COFAC. In August 2006, Uruguay's Central Bank authorized
Venezuela's BANDES to fully operate in Uruguay. In early
2007, BANDES capitalized its Uruguayan operation with an
additional $35 million. BANDES is working consumer credit
lines, mortgages, and is studying the financing of sectors
that export to Venezuela.

SOL PETROLEO - $15 million; in 2007, PDVSA bought 46 percent
of Petrolera Cono Sur ("Sol Petroleo"),a money-losing
company owned by Uruguay's state-owned oil monopoly (ANCAP).
Sol Petroleo operates 150 gas stations in Argentina that will
be supplied by PDVSA. The deal has significantly reduced
ANCAP,s financial losses.

CALNU - Venezuela loaned $7 million to state-owned CALNU for
its sugar plant in Artigas Department to produce ethanol. The
project is currently underway. None of the ethanol production
will be available for export, even with the successful
completion of the project, as CALNU will have no surpluses to
export. Instead, the project will be mainly used to supply
ethanol for ANCAP. (Note: A recent bill mandates that ANCAP
mix five percent ethanol into its gasoline and two percent
biodiesel into its diesel fuel. End Note.) The rest of the
production will be used to pay Venezuela back on its loan
with ethanol instead of cash.

UTE - Venezuela paid $10 million to CONEX, an IT-consulting
branch of the state-owned electrical company UTE, for a
services contract in Venezuela. Seventy Uruguayan CONEX
experts are currently working on contract in Venezuela.

MIDOVER - Venezuela invested $800,000 in the ailing MIDOVER
leather tannery, thereby preserving/creating some 70 jobs.

ENVIDRIO - Venezuela invested $3.9 million into the failing
glass company ENVIDRIO to produce a new line of glass
receptacles. The GOU will pay Venezuela back by providing
six knowledge transfer programs on bee keeping,
concrete-block fabrication and cheese making/quality control.
The investment reportedly preserved/created some 60 direct
jobs and 300 indirect jobs.

FUNSA - $300,000 invested into FUNSA, Uruguay's traditional
rubber company that produces automobile tires will export 250
tons of tires to Venezuela. Also has started producing rubber
gloves. About six workers from FUNSA and ENVIDRIO are
currently paying Venezuela back through knowledge-transfer
programs.

Ministry of Social Development (MIDES) - On March 21, 2007,
MIDES signed 200 agreements with small firms working on a
wide range of issues, 60 of which entail payments financed by
MIDES, "Ingreso Ciudadano" and Venezuela. Financing is at
the 1,000-2,000 dollar range, and according to MIDES, will
generate 600 jobs. Venezuela has donated $2 million to the
"Fondo Opcion Productiva" and "Fondos de Iniciativas
Locales." The Communist Minister of Social Development
Marina Arismendi also reportedly manages a $3 million
Venezuelan donation to the new "Bolivar/Artigas Foundation"
aimed at promoting social projects and inter-cultural and
technical exchanges.

TELESUR - Started transmitting in July 2005, in Uruguay
transmits on two channels; Channel 5 and TV Libre. On Channel
5, Saturdays and Sundays 2 hours each. On TV Libre one hour
daily. Eleven hours total per week. Uruguay has a ten percent
stake in TELESUR, paid for with content.


B. (S/NF) IN REFERENCE TO THE "VENEZUELA DOLLAR DIPLOMACY"
SPREADSHEET POSTED ON THE SIPRNET SITE FOR EMBASSY CARACAS
(HTTP://WWW.STATE.SGOV.GOV/P/WHA/CARACAS),HOW MUCH MONEY HAS
VENEZUELA ACTUALLY DELIVERED TO RECIPIENT COUNTRIES? DO
THESE TOTALS DIFFER FROM WHAT VENEZUELA CLAIMS TO HAVE
DELIVERED?

-- We have referred to Embassy Caracas' excellent spreadsheet
posted on its SIPRNET site and note only a few discrepancies
with our own data. For example, the $2.2 million aviation
transaction (purchase of Pluna by VZ,s Conviasa) can be
struck from the list because Pluna was finally bought by
Leadgate, a consortium of U.S., German, Argentine and
Uruguayan investors. Also we believe that two of the health
projects cited may be one and the same: i.e. the total is a
$17.5 million donation to Hospital de Clinicas.

-- We have also perused the BRV's government website at
http://www.venezuela.gov.ve/, as well as various GOU sites,
but have been unable to discover a centralized source of
reliable statistics on Venezuelan foreign aid either promised
or delivered. We expect that the Presidency and MFA track the
data, but keep it under wraps. Most of our information was
gathered from open news reports and private conversations.


C. (S/NF) WHAT IS THE STATUS OF CARACAS'S FOLLOW-THROUGH ON
ENERGY DEALS, INCLUDING SHIPMENTS OF CRUDE AND REFINED
PRODUCTS TO PETROCARIBE, AND PROMISES TO BUILD REFINERIES,
PIPELINES, AND OTHER ENERGY INFRASTRUCTURE OUTSIDE OF (OR
TRAVERSING IN SOME CASES) VENEZUELA?

-- Embassy is not aware of any recent developments on PDVSA's
proposal to invest $600 million in Uruguay's aging La Teja
oil refinery that would allow it to process heavy crude oil.
We understand that it remains a serious offer, however.

OIL IMPORTS/1 - Uruguayan/Venezuelan bilateral trade peaked
in 2001 at 197 million, largely due to Venezuelan oil sales
worth 175 million. Uruguay's oil imports from Venezuela fell
to 45 million in 2002 and were nil in 2003 and 2004, as
Uruguay increased its purchases from Russia, Nigeria and
Iran. In 2005 and 2006, imports from Venezuela boomed due to
the resumption of oil imports that climbed from nil in 2004
to over 600 million in 2006. Venezuela is currently Uruguay's
principal oil supplier providing 75 percent of total oil
imports ($602 million out of the $802 million total). In
2006, UY bought 10.4 million barrels of crude oil from
Venezuela. Other suppliers are Iran, Nigeria and Equatorial
Guinea, with $60 - $70 million each. Ninety-nine percent of
Uruguay's imports from Venezuela consist of crude oil.

OIL IMPORTS/2 - The oil agreement signed in March 2005
enables Uruguay to make in-kind payments for up to 75 percent
of its oil bill with Venezuela, and grants the remaining 25
percent a fifteen-year term with a two-year grace period and
a low 2 percent interest rate. If not paid with barter trade,
the 75 percent portion can be paid in 90 days with a 2
percent interest. ANCAP director Riet told Emboffs that after
every two or three purchases from Venezuela, ANCAP makes a
public call for prices. He also said that what makes it more
attractive is the financing of the 25 percent. He brought two
'yellow lights' to Emboff's attention; the need to preserve
other suppliers and a growing indebtedness with Venezuela.

JOINT PROSPECTING AND EXPLORATION IN THE ORINOCO BASIN -
There is a MOU in effect between PDVSA, Argentina ENARSA and
ANCAP that may lead to the creation of a company to exploit
oil in a portion on the Orinoco basin. Thus far, things are
still in the exploration stage, and the firm has not been
created. Once launched, it would be 60 percent owned by
Venezuela, 20 percent by ANCAP and 20 percent by Enarsa.
There's no free lunch, however, as Uruguay would have to pay
Venezuela royalties for the oil and adapt the La Teja
refinery to work with heavy crude. ANCAP's president
Martinez has stated that, according to initial estimates, the
crude that ANCAP could get from the Orinoco would meet all of
Uruguay's needs - UY could get 50,000 barrels per day and
only consumes 43,000 bpd. ANCAP,s president Martinez expects
to finish discussions by October 2007 and to create the
company by November. If successful, over the mid-term, this
operation could lead to a 10-20 percent reduction in the
local price of fuels. Once adapted to distill heavy crude,
ANCAP could also buy from Brazil. Brazil has also invited the
GOU to joint exploration/production of Brazilian oil, which
is lighter than Venezuela's. PDVSA and Banco de Fomento y
Desarrollo Economico de Venezuela have offices in Montevideo.


D. (S/NF) HOW MUCH HUMANITARIAN AND NON-MONETARY AID HAS
CHAVEZ DELIVERED, IN TERMS OF TYPE AND ESTIMATED VALUE?

If one narrowly defines humanitarian projects to mean only
health ($17.5m $3m),education ($3m),social services ($3m)
and aid to the town of Bolivar ($300k),the total we are
aware of is $26.3 million. However, if one looks at
investments in failing enterprises, the figure is much
higher. Embassy has no data on non-monetary aid, unless oil
is considered in this category. If oil is factored, the
figure would be high. Venezuela assists Cuba in providing
transportation for Uruguayans traveling to Havana for eye
operations under Cuba's "Operaction Milago" program.


E. (S/NF) WHAT IS THE COST OF EDUCATIONAL SERVICES THAT
VENEZUELA (POSSIBLY IN TANDEM WITH CUBA) HAS PROVIDED?

-- In December 2005, Chavez promised $3 million to construct

a children's school. We don't know the status of the project.
In July 2006, the GOV and GOU signed an education exchange
agreement. We do not know the amounts (if any) of money
involved. Cuba reportedly provides some classes to fight
illiteracy among adults.


F. (S/NF) TO WHAT DEGREE HAS CHAVEZ FOLLOWED THROUGH ON HIS
VARIOUS COMMITMENTS TO PURCHASE BONDS OR OFFER OTHER TYPES
FINANCIAL ASSISTANCE, TO INCLUDE DEBT FORBEARANCE OR
FORGIVENESS?

-- In February 2007, ANCAP proposed paying PDVSA one quarter
of its crude oil bill with 15-year Uruguayan bonds. We
understand that no firm decision has been made yet and that
Uruguay's reluctance to join Venezuela's Banco Sur project
possibly impacts the eventual decision. The trade picture is
also relevant to this question.

URUGUAYAN EXPORTS DOUBLED IN 2006, AND DIVERSIFIED - Exports
to VZ doubled in 2006 to 77 million, led by sales of dairy
products - milk and cheese are the traditional sales that
account for over half of the total exports. But UY has also
diversified its sales to Venezuela; the list of items worth
over 200K rose from 10 products in 2005 to 24 products in

2006. Top three new goods include aluminum bars, carpentry
pieces for construction and live cows (there's an agreement
with the Ministry of Agriculture (MGAP) to purchase 1,500
milk cows for $6 million). In mid-2006 UY sold the first 200
prefabricated houses to VZ; the contract is to provide 12,200
houses in one year. UY is also exporting poultry, wood,
cigarettes and paints.

TRADE WITH VZ (millions of US Dollars) - Exports to
Venezuela, Imports from Venezuela - 1998 Export (27.7)
Import (38.1); 1999 (28.0)(124.3); 2000 (15.2)(149.9); 2001
(22.4)(174.5); 2002 (11.2)(44.2); 2003 (5.7)(1.1); 2004
(32.7)(1.8); 2005 (33.5)(244.7); 2006 (77.1)(607.1)

HOWEVER, TRADE IS NOT THAT FLUID - When negotiating the
adherence of Venezuela into MERCOSUR it was agreed that
Uruguay and Paraguay would have lists of products that would
enjoy immediate duty free access to the Venezuelan market.
The negotiation over which products would be included was
very tense. While exports doubled, the oil-for-goods program
continues to be underutilized. 75 percent of total oil
imports would mean 450 million of barter trade, well above
the 77 million sold in 2007.


G. (S/NF) WHICH GOVERNMENTS ARE PUBLICLY OR PRIVATELY
COMPLAINING THAT VENEZUELAN AID HAS FALLEN SHORT OF WHAT WAS
PROMISED? HAS ANYONE IN THE BUSINESS COMMUNITY COMPLAINED?
CONVERSELY, WHICH GOVERNMENTS ARE LAUDING VENEZUELA FOR
DELIVERING ON ITS MYRIAD COMMITMENTS?

There have been very few public complaints by private
individuals that Venezuelan aid has fallen short of what was
promised. In May 2007, the opposition Parties (Blancos and
Colorados) held extensive hearings ("interpelacion") with
Energy Minister Jorge Lepra to examine the growing energy and
financial dependency Uruguay is developing with Venezuela.
The Marxist PIT-CNT umbrella labor union, and Uruguay's
anti-US Foreign Minister Reinaldo Gargano are among Chavez'
most enthusiastic fans here.


H. (S/NF) HAVE ANY INTERNAL LAWS OF THE HOST GOVERNMENT BEEN
BROKEN BY THE ADMINISTRATION OF THE AID?

-- Possibly. As discussed during the lengthy Congressional
hearings (see para G above),PDVSA's proposal to invest USD
600 million in Uruguay's aging La Teja oil refinery may
contravene a law stemming from a binding referendum that
effectively prohibits Uruguay's state-owned oil company
(ANCAP) from engaging in joint ventures for the refinery.

-- Also, Cuba's "Operacion Milagro" (to provide free eye
operations) may violate local laws because the Cuban doctors
do not possess Uruguayan medical licences. Venezuela provides
logistical support for "Operacion Milagro".

-- SATELLITE VENESAT 1 - Past December, Uruguay's parliament
ratified access to Venezuela of one of its two orbital
positions in exchange for using 10 percent of the satellite's
capacity. According to the deal, the satellite will be

exclusively used for traffic of government information. The
satellite is expected to be operating by 2008 and Venezuela
will pay for all the investment and maintenance costs. Local
parliamentary debate over the issue was heated, especially
by the opposition Blanco party members present. Venezuela was
previously entitled to an orbital position shared with other
members of the Andean Community, but would not use it since
it broke with the Andean Community. Therefore, Venezuela was
required to search for alternative orbits.


I. (S/NF) WHICH VENEZUELAN GOVERNMENT OFFICIALS (IF ANY)
HAVE BEEN CHARGED WITH ENSURING THAT VENEZUELA FOLLOW UP ON
ITS PLEDGES? HOW ARE THESE PROJECTS BEING FUNDED? IN
RECIPIENT COUNTRIES, WHICH OFFICIALS (IF ANY) HAVE BEEN
CHARGED WITH ENSURING FOLLOW-UP?

-- Embassy is not aware of any BRV official specifically
charged with ensuring the follow-up on Venezuela's pledges,
other than Ambassador Franklin Gonzalez who is the BRV's
official representative in Uruguay. Many of the pledges seem
to have emanated during official visits. Chavez has visited
Uruguay four times: March 1, 2005 (Vazquez' inauguration),
August 8, 2005, December 8, 2005 and December 6, 2006 (before
traveling together to the second summit of the Community of
South American Nations). President Vazquez has traveled to
Caracas twice: March 14, 2006 and July 4, 2006 (to
participate in Venezuela's admission into Mercosur).

-- Embassy does not know how all the projects are funded. The
normal procedure should be to coordinate all foreign
assistance or grants through the MFA's Office of
International Cooperation. This office is also responsible
for following up as well. But we don't believe it works this
way -- and have heard anecdotally that Vice President Rudolfo
Nin Novoa "manages business with Venezuela" and that the
Venezuelan ambassador hands out checks and donations directly
to some officials and ministries.

COMMENT:
--------------

2. (S/NF) Embassy greatly appreciates Washington analysts'

attention to the critical issue of Chavez's assistance in the
region. In completing this exercise, however, we could not
help but to compare his aid with our own, which in the case
of Uruguay is practically nil. We won the Cold War, in part,
because we outspent the Soviet Union on both guns and butter.
The Soviet Union couldn't keep up, and ultimately collapsed.
It is remarkable that in this current contest we are being
outspent by two impoverished countries: Cuba and Venezuela.
We offer a small Fulbright program; they offer a thousand
medical scholarships. We offer a half dozen brief IV
programs to "future leaders"; they offer thousands of eye
operations to poor people. We offer complex free trade
agreements someday; they offer oil at favorable rates today.
Perhaps we should not be surprised that Chavez is winning
friends and influencing people at our expense. End Comment.

Baxter