FLORIDA STATE GOVERNMENT OFFICIAL TO PETROBRAS: GET OUT OF

C O N F I D E N T I A L SECTION 01 OF 02 RIO DE JANEIRO 000622 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/BSC C O R R E C T E D C O P Y E.O. 12958: 11/23/2017 TAGS: EPEC ECON PREL PGOV BR IR SUBJECT: FLORIDA STATE GOVERNMENT OFFICIAL TO PETROBRAS: GET OUT OF IRAN REF(S): A) RIO DE JANERIO 381, (B) RIO DE JANEIRO 247, (C) RIO DE JANEIRO 196 Classified By: Charge de Affairs Phil Chicola for reasons 1.4 B AND D. ¶1. (C) Summary: During Florida Governor Charlie Crist's visit to Rio on November 7-8, the Governor's Chief of Staff George LeMieux met with Samir Awad, Executive Manager for Petrobras' International Assets, on November 7. They discussed Florida's legislation requiring divestiture of the state's US$137 billion pension fund from any companies doing business in Iran and concerns about Petrobras investing in Iran. Awad reviewed Petrobras' activities there, emphasizing the challenges the oil giant faces in carrying out its business commitments there. Awad confirmed, contrary to public assertions by the GOB, that the GOB is involved in Petrobras decision-making regarding investment. End Summar ¶2. (SBU) LeMieux met with Awad on November 7. He stated that the State of Florida was very concerned about Iran as a source of funding for terrorist attacks against the United States and its allies. LeMieux explained that Governor Crist fully supported recent legislation to divest the state's US$137 billion pension fund from any companies doing business in Iran and that, while Florida has no investments in Petrobras, he wished that the company would reconsider doing business in Iran. ¶3. (SBU) Awad responded that Petrobras must go where the Brazilian Government directs it. However, from an asset manager's perspective, he too would like Petrobras to pull out of Iran. According to Awad, the difficulties of operating in Iran, including obtaining parts and negotiating contracts, makes operating there next to impossible, and is a disincentive to many companies. Petrobras began drilling for oil in Iran in 2002, but has had no major oil discoveries over the last five years. In fact, its first well is eight months behind schedule and 300% over budget (US$80 million has been spent already),but it should be completed in December 2007. Petrobras has the option to negotiate a new contract, but he sees no incentive to do so at this time. Awad admitted that he had already recommended to the Petrobras Board that the company exit Iran as soon as possible, and that Petrobras' legal department had poured over the contracts looking for any loophole to pull out before completing the second well that it had already committed to. Unfortunately, the company is legally bound to finish the second well, which Awad believes should be complete by July 2008. ¶4. (C) LeMieux inquired about media reports about Iranian delegations traveling to Brasilia for diplomatic and business meetings. Awad explained the Iranians were using the press to make it appear that other governments had confidence in their regime. He emphasized that, politics aside, it made no business sense to stay in Iran, and that Petrobras had no directive to remain there. Regarding Bolivia, Awad stated that due to drought, Brazil did not have the hydroelectric power for gas generation, and that worldwide all LNG contracts for the next four years have already been sold, so Brazil badly needed BoliviaQs gas despite increased prices. ¶5. (C) Awad also admitted to being surprised by the information the Ambassador Sobel provided in April 2007 about the Iran Sanctions Act (ILSA) (Ref A). He noted that companies such as Shell, Repsol and Statoil have much larger investments in Iran, with hundreds of millions of dollars invested in gas plants, (implying that our focus on Petrobras was overstated). He also speculated that like Libya, Iran might one day turn a corner and the U.S. might change its policies toward Iran as it did towards Libya Awad went on to emphasize that outside Brazil (where the company reaps 90% of its profits) Petrobras' decisions on where to drill are solely based on economics rather than politics. Inside Brazil is a different matter. ¶6. (U) Awad went on to highlight Petrobras as a global model for a state-run oil company. The firm has heavily invested in Nigeria, Angola and the United States. In the U.S. alone, it plans to invest an additional US$5 billion over the next five years in exploration and production in the Gulf of Mexico and improvements to the Pasadena refinery in Houston, TX in which it has a 50%t stake. Awad highlighted Petrobras' commitment to its investments in the United States despite considerable challenges presented by hurricanes, difficult geology and little return. Petrobras is also exploring opportunities in Pakistan, India and China. ¶7. (SBU) LeMieux concluded by expressing hope that he could one day recommend Petrobras to the Florida legislature and to Florida investors as a terrific company and a sound investment for Floridians. ¶8. (C) Comment: The GOB consistently states in public, for example regarding investments in the Caspian Sea region, that Petrobras is a RIO DE JAN 00000622 002 OF 002 private sector entity that does not take guidance from the GOB. AwadQs statement that Petrobras goes where the Brazilian government directs gives the lie to public GOB statements and confirms that the GOB is involved in such decision-making at Petrobras. This is significant both because of where Petrobras is investing and because the GOB feels it is necessary not to be up- front about its role in directing these investment decisions. End Comment. MARTINEZ