DEAL OR NO DEAL? PULP MILL END GAME APPROACHING

C O N F I D E N T I A L MONTEVIDEO 000846 SIPDIS SIPDIS DEPT FOR WHA/BSC MDRUCKER, CCROFT AND KREAD DEPT ALSO FOR EUR/ERA, EUR/WE (MHILL),EUR/NB (MEVANS) DEPT ALSO FOR EB (BLAMPRON) AND WHA/OAS (DCENTO) DEPT PLEASE PASS USTR FOR EEISSENSTAT AND KDUCKWORTH TREASURY FOR OASIA FOR MMALLOY COMMERCE FOR ITA/MAC WBASTIAN NSC FOR DFISK AND JCARDENAS BRASILIA FOR ABRAGHETTA SOUTHCOM FOR POLAD E.O. 12958: DECL: 09/24/2017 TAGS: PGOV PREL ECON EINV SENV UNGA AORC UY SUBJECT: DEAL OR NO DEAL? PULP MILL END GAME APPROACHING REF: A. BUENOS AIRES 1707 ¶B. BUENOS AIRES 1776 ¶C. MONTEVIDEO 376 Classified By: Ambassador Frank E. Baxter, for reasons 1.4 (b) and (d). ¶1. (C) Summary. A deal may be in the offing that would finally resolve the long-running bilateral dispute between Uruguay and Argentina over the construction of a giant pulp mill on a shared river. Over the past weeks, GOU leaders have publicly and privately hinted that such an agreement was tentatively reached during a secret meeting between two senior officials at the Uruguayan presidential retreat in Anchorena. If so, the deal might be further refined at an upcoming meeting in New York scheduled for September 29 on the margins of the UNGA, and later formally signed by Presidents Vazquez and Kirchner at the November 8 Ibero-American Summit in Santiago, Chile. ¶2. (C) Summary Continued: The possibility of a solution caps a wild couple of weeks in the ongoing pulp mill dispute between Argentina and Uruguay that has involved tersely worded diplomatic exchanges between the two countries, threats of environmental terrorism, the first major Argentine protest on Uruguayan soil and a secret meeting between the two presidential chiefs of staff at the presidential retreat in Anchorena. The elements of the deal as reported in the Uruguayan press and confirmed by post contacts are that a) Uruguay would delay the opening of the plant until after the Argentine national election, b) Argentina would accept the presence of the Botnia plant as a "done deal", c) both countries would agree to joint monitoring of the Uruguay River, d) Uruguay would establish a green belt around Botnia, e) both countries would sign an environmental protocol, and f) land traffic between the two countries would return to normal. Part of the deal may include an agreement by Uruguay not to build future pulp mills on the Uruguay River, but this has not been confirmed. Botnia has recently started experiencing small technical problems which appear to be giving the GOU and Botnia the excuse needed to delay the opening. The situation appears to be a victory for Uruguay, as it essentially mirrors the Uruguayan position to date. However, many Uruguayans are skeptical that the deal is simply a ploy to remove Botnia as an issue during the Argentine elections. End Summary Wild Couple of Weeks -------------- ¶3. (U) The last several weeks have been agitated in the long-running pulp mill saga. On August 14 a minor industrial accident took place at the Botnia plant, only weeks before it was originally scheduled to open. The accident occurred when a group of workers were unloading bags of sodium sulfide without proper safety equipment. Approximately fifteen of the workers had to be hospitalized after experiencing respiratory and skin ailments. The incident was exacerbated by the fact that three of the workers were Argentine. Plant Production Manager Eugenio Garcia said that the accident had no outside environmental impact, and GOU Labor Minister Eduardo Bonomi confirmed that the incident did not have any "repercussions on the other side of the river." U/S for Housing and Environment Jaime Igorra similarly dismissed it by saying that it was "caused by the wind." President Vazquez called the accident "unacceptable", however, and said that the GOU would not issue final authorization to Botnia to start plant operations if the company failed to comply with environmental and labor regulations. Botnia subsequently indicated that it had adopted all of the safety measures required by the government and that the company was ready to begin production in September. Botnia has also proposed to the GOU that they make financial deposits to cover the costs of any future "situations". ¶4. (U) As a result of the accident and President Vazquez's subsequent comments, the Uruguayan Ambassador to Argentina was summoned to the Foreign Ministry in Buenos Aires twice in two days. On August 19, Uruguayan daily El Pais reported that GOU FM Gargano said that Uruguay would no longer exchange diplomatic notes with Argentina over the Botnia issue. The incident comes on the heels of yet another flare-up between the GOU and GOA over recent threats made by activists in Gualeguaychu that FM Gargano said, "bordered on terrorism." On August 14, El Pais reported that Jorge Fritzler, a member of the Gualeguaychu Assembly, told the paper that "there are planned actions (against Botnia) that will begin to be carried out." It was further reported that Fritzler said that the barges carrying cellulose from Fray Bentos to Colonia would be targets for the environmentalists. There were subsequent pictures in the Uruguayan media showing a Falklands War era air-to-ground missile hanging in the window of a gun shop in Gualeguaychu with a sign saying, "no to the paper mills." Vazquez and Gargano publicly stated that the picture of a missile and the accompanying statements that Botnia is "doomed" and that "only the execution date has to be set," overstepped "all boundaries" and exhibited, Vazquez said, "Usama bin Laden's terrorist attitude." Vice President Rodolfo Nin Novoa responded harshly against possible actions against Botnia and said that Uruguay would resort to "international organizations" if necessary. Uruguay subsequently sent a diplomatic note to Argentina complaining about the threats and the lack of GOA action in response. Secret Meeting at Anchorena SIPDIS -------------- ¶5. (U) On August 28, in what appears to have been an effort on both side to calm down the situation, Argentina's Cabinet Chief Alberto Fernandez and Uruguay's Presidential Chief of Staff Gonzalo Fernandez ("Los Fernandezes, as they are called in the Uruguayan media) met secretly at the Anchorena presidential retreat in Uruguay. Also reported to be present were Uruguay's Ambassador to Argentina Francisco Bustillo and the Argentine Foreign Minister Jorge Taiana. The meeting was reportedly held at the behest of Spanish King Juan Carlos, who is keen to show tangible results of his mediation efforts at the upcoming November 8 summit in Santiago of Latin American and Iberian countries. Although the meeting was reported to be conducted in a "diplomatic fashion at all times," there were reports of yelling, shouting and accusations back and forth across the negotiating table. In addition, although the framework for a potential deal is being reported in the Uruguayan media, on September 6, the respected business weekly Busqueda reported that, "...sources made it clear that at the moment there is not a formal agreement and that the relationship between the two governments is still unstable." Both sides agreed to hold a high-level meeting at the end of September, which will take place on the margins of UNGA. It now appears that in fact an agreement was reached during this meeting, which is supported by public statements by President Vazquez during his September trip to Europe (see paragraph 12). Fray Bentos/Nueva Palmira Protests -------------- ¶6. (U) As a backdrop to the diplomatic and political maneuvering between the GOA and GOU, several highly publicized protests took place in both Nueva Palmira and in Fray Bentos. On August 29 in the port city of Nueva Palmira a flotilla of Argentine small boats, laden with Argentine environmentalists converged on the port to protest its opening. Nueva Palmira is the primary ocean-going port in Uruguay that will service the Botnia plant. The opening was attended by Uruguayan President Tabare Vazquez. During Vazquez's helicopter landing at the principal wharf of the new port, ten of the Argentine boats eluded the Uruguayan naval patrol guarding the dock, coming within only a few meters of Vazquez himself, and breaching his ring of security. The Uruguayan Navy claimed that their priority was to ensure that no accidents occurred among the fleet of activists. ¶7. (U) On September 2, some 850 Argentine demonstrators crossed into Uruguay to demonstrate against the upcoming opening of the pulp mill. The GOU elected to authorize the entry of the Argentine demonstrators with the political objective of strengthening its claims lodged at the International Court of Justice against Argentina in favor of the free circulation across the bridges over the Uruguay River. However, in advance of the protest, the GOU announced that it intended to search each vehicle attempting to cross the border in an effort to maintain security during the demonstration. It is likely that this contributed to the small showing at the event. In a sign of national unity on the day of the demonstrations, Rio Negro Mayor Omar Lafluf and local legislators from the Frente Amplio, the National Party (PN),and the Colorado Party (PC) issued a jointly-signed press release urging people to hang flags in their homes and to keep calm. Senators Jorge Larranaga (PN) and Washington Abdala (PC),both potential 2009 presidential candidates, arrived in Fray Bentos that morning to express their support for the people of Fray Bentos and to call for calm. The restrained response of the residents of Fray Bentos was characterized in the press in a very nationalistic, pro-Uruguay fashion. ¶8. (U) On September 6 a flotilla of Argentine environmentalists in small water craft chased down the first barge to travel between Nueva Palmira and Fray Bentos, leading the GOU to announce that all further barges will be escorted by elements of the Uruguayan Coast Guard. GOU Environmental U/S Igorra - "Don't delay opening" -------------- -------------- ¶9. (C) On September 6, POLOFF and ESTH LES met with Uruguayan Undersecretary for Environment Jaime Igorra. Igorra described the Gualeguaychu Citizens' Assembly (GCA) as a "weird group." He said that they raise funds to continue their operations by collecting money from Argentine businesses that do not want locals crossing into Uruguay to purchase food and other goods, and they take bribes from both Uruguayan and Argentine truck drivers who need to cross the border. He said that in proposing a settlement to the conflict, Kirchner is trying to "clean the landscape" for the upcoming electoral triumph of his wife Christina Fernandez de Kirchner. On the proposed agreement and Kirchner's expected about-face, Igorra said that it was outlined by Argentine Secretary of Environment Romina Picolotti in a letter to the SIPDIS Gualeguaychu assembly to "test the waters" and that the response from the group to the GOA was immediate and highly negative. On reports that the agreement would include a provision in which Uruguay would agree not to build any additional pulp mills along the Uruguay River, Igorra said that this was not confirmed, but that if true, "Uruguay should by no means agree to such a provision." He also indicated that he had spoken with Ron Baer, CEO for Botnia's operations in Uruguay the night before (September 5),and strongly advised him against any delays in opening the plant. When asked about the potential for the deal to resolve the conflict, Igorra responded that "things are not going to change." ¶10. (C) On September 12, POLOFF and POL LES met with Frente Amplio (FA) Congressman and Chairman of the House Defense Committee Jorge Menendez and FA Congressman and Vice-President of the House Industry and Energy Committee Fernando Longo. When asked directly whether or not there was a deal reached at the meeting in Anchorena, Menendez nodded his head affirmatively and then indicated that the negotiations were being exclusively handled at the highest level of the Vazquez administration. Menendez and Longo continued to say that they both "completely agreed" with their National Party colleagues in Congress about the need to remain firm on Botnia. They said that although the present issue between Argentina and Uruguay may end after the Argentine elections, their real concern was the long-term Argentine strategy to undermine Uruguay's efforts to be the "door to the Uruguay River." They both indicated their strong opposition to any restrictions on future Uruguayan or foreign investment along the Uruguay River as part of any potential deal. ¶11. (C) Minister of Industry Jorge Lepra recently told Ambassador in confidence that an agreement has most likely been reached. On September 24, UY Chief of Staff Gonzalo Fernandez indicated to the Ambassador that he was traveling to New York to participate in the September 29 meeting, but offered no additional information. (Comment. Both Fernandez and Gargano will be in New York at the same time, and will both presumably be involved in the meeting. It is possible that as FM, Gargano will have a higher profile public role than Fernandez during the negotiations. However, post has no doubt that Fernandez is calling the shots as President's Vazquez's personal representative and any involvement of Gargano is merely window dressing. End Comment.) Vazquez - "There is now a better climate than before." -------------- -------------- ¶12. (U) During President Vazquez's recent trip to Europe, he has made several public statements indicating major progress toward an agreement. Although Vazquez continues to refrain from directly saying that an agreement has been reached, he is sending out strong signals that a deal is either done or very close. On September 19, El Observador reported Vazquez saying, "I have a stronger optimism about it than I had a few months ago." El Pais reported on September 20 that, "Vazquez said that there are 'ideas' for the Botnia agreement. The Fernandez' formula is taking shape...we were able to resume an amicable discussion about this issue, that up until now did not exist. It had gone cold." ¶13. (C) Comment: There are strong indications that Argentina and Uruguay may be close to some sort of an agreement on the pulp mill dispute that has soured bilateral relations over the past two years. As the deal stands now, there appear to be no expensive concessions on the Uruguayan side, other than the possibility of delaying the opening of the plant. This would change dramatically if part of the deal ends up including an agreement by Uruguay not to build future plants on the Uruguay River. The opposition would clamor against such an agreement as an unacceptable surrender of Uruguayan sovereignty. There is also no guarantee that Argentina would honor the agreement after the election, or that Kirchner and Entre Rios Governor Busti would be able to control the increasingly radical protesters in Gualeguaychu that they have let loose over the past couple of years. The Uruguayan position continues to be to proceed with the opening of the plant and to ignore the constant provocation from the GOA and the protesters in Gualeguaychu. In Uruguay, the construction of the Botnia plant is seen as a national cause for which there is no going back. End Comment. Baxter