(S/NF) VENEZUELAN FOREIGN AID TO URUGUAY

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 �A;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