SENATOR HAGEL DISCUSSES ENERGY, REGIONAL POLITICS

UNCLAS SECTION 01 OF 03 BRASILIA 001267 SENSITIVE SIPDIS STATE FOR WHA/BSC E.O. 12958: N/A TAGS: PAO ETRD PREL ECON BR SUBJECT: SENATOR HAGEL DISCUSSES ENERGY, REGIONAL POLITICS WITH BRAZILIAN MINISTERS REF: A. BRASILIA 001218 ¶B. BRASILIA 01265 ¶1. (SBU) Summary: Senator Chuck Hagel visited Brasilia from August 31 to September 1, during which time he met with key leaders in the Brazilian government, including Minister of Defense Jobim, Minister of Mines and Energy Lobao, and Minister for Strategic Affairs Unger, to discuss Brazil,s dynamic energy sector, the stability of the region, and the future of the bilateral relationship. As in the meetings with President Lula and Minister Amorim, several of the Ministers keyed in on the need to exploit the growing but still largely untapped potential for an ever-closer bilateral relationship rooted in our common heritage and culture. The meetings also highlighted Brazil,s growing potential as a supplier to global energy markets and the need for continue the progress that has been achieved over the past several years in improving relations between the two countries. End summary. ¶2. (U) This cable is the third of five on Senator Hagel,s August 31-September 2 visit to Brasilia and Sao Paulo. See refs A and B for the first two cables in the series. -------------- Tapping Brazil,s Energy Potential -------------- ¶3. (SBU) During dinner on Sunday Agusut 31, Minister of Mines and Energy Lobao provided Senator Hagel with an overview of Brazil,s energy picture, noting that, in addition to biofuels development, Brazil had ample hydropower, had built two nuclear reactors and was building a third, and was developing some solar technology. He discussed Brazil,s new oil finds (which he described as &between 50 billion and 150 billion barrels8),adding that Brazil is already self-sufficient in oil. When Senator Hagel asked whether Brazil was considering a new structure for managing this oil wealth, Lobao responded that Brazil would respect all existing contracts, highlighted that Petrobras is ¬ a Brazilian company8 as the GOB only holds 40 percent of it, and said that the GOB, like those in other countries with new-found oil wealth, is reviewing the legislative and regulatory framework for petroleum production in order to manage it well. The Ambassador mentioned to Senator Hagel that Minister Lobao is planning a trip to the United States, and the Senator offered to host a meeting and to help set up meetings with OPIC and the US Chamber of Commerce,s new energy committee. ¶3. (SBU) In a separate meeting, Senator Hagel met with Marcio Zimmermann, number 2 in the Ministry of Mines and Energy (MME). Zimmermann gave a wide-ranging overview of the energy situation in Brazil, with particular attention paid to the GOB,s plans to expand hydro electricity through more environmentally friendly dams with smaller footprints; Brazil,s plans to add 4 ) 8 thousand megawatts of nuclear energy to the country,s matrix through the addition of 4-6 new power plants by 2030; plans for more refinery capacity to accommodate the vast new pre-salt (more than 4000 meters below the sea) oil reserves; as well as Brazil,s focus on further developing its coal plants, both with new plants using higher quality, cleaner, imported coal, and with environmental modifications to processing using its own high-sulfur content coal. In response to a question by Senator Hagel, Zimmermann said that he foresaw nuclear power eventually making up about five per cent of the Brazilian power matrix. ¶4. (SBU) Senator Hagel also inquired about the infrastructure for blending of ethanol and Under Secretary for Petroleum, Natural Gas, and Renewables Secretary for Petroleum, Natural Gas, and Renewables (equivalent to Assistant Secretary) Jose Lima Neto, explained that blending facilities are located close to the sugar cane fields both because of transport costs and the need to process the ethanol quickly so as to not lose its maximum capacity, which it does soon after production. Ambassador Sobel mentioned the steady flow of BRASILIA 00001267 002 OF 003 interest expressed by U.S. technology firms seeking to develop their next generation technology in Brazil due to the strength of the infrastructure. Zimmermann commented that Brazil is busy identifying five enzymes which they believe are promising in the attempt to produce ethanol from cellulose and should be viable in fourteen to fifteen years barring any major developments from outside Brazil. Ambassador Sobel used the opportunity to note the creativity of the Brazilian government in expanding its energy matrix and expressed his hope that Hagel,s visit would signal the beginning of an active partnership with Brazil in this area. The Ambassador specifically cited the desirability of U.S. Congressional willingness to permit funding for joint research projects in Brazil, as well as encouraging OPIC to become active in this area. Senator Hagel stated his interest in the developing relationship and in particular his willingness to serve as a resource is setting up a trip by Minister Lobao to Washington. ¶5. (SBU) Comment: In a subsequent meeting with Embassy officers, Undersecretary Lima Neto remarked how much he had enjoyed the Hagel meeting at MME. He said he thought it was good for the ministry as a whole and for our bilateral relations because Hagel was so well informed, interested, and engaged that it really helped the tenor of our energy relationship, especially with those at the ministry who doubt the value of outside energy engagement. Notably, although Zimmerman is frequently somewhat frosty in manner, and began the meeting with a very cold, formal approach, Post participants saw him warm up considerably over the course of the meeting. -------------- Laying Fears to Rest on Fourth Fleet -------------- ¶6. (SBU) Southcom Deputy Commander General Spears, who was accompanying Senator Hagel on his visit, took the opportunity to pass along to Zimmerman a message from Southcom Commander Admiral Stavridis addressing Brazilian speculations that the reactivation of the Fourth Fleet may have been motivated by U.S. offensive interests in Brazilian off-shore reserves. General Spears said, &We want to partner with you, only as much as you want to partner with us. Your sovereign resources are yours to protect, which we respect.8 He went on to say &we will always respect your sovereign territory and sovereign resources.8 Zimmermann and his team said nothing but their understanding of the message and appreciation for its intent were evident. -------------- -- Stability in the Region, Brazil,s Primary Goal -------------- -- ¶7. (SBU) During dinner with Defense Minister Nelson Jobim said that technology transfer is a priority for Brazil as it makes plans for new arms purchases. He said that maintaining stability in South America is Brazil,s primary security challenge, and described poverty as the greatest threat to stability. Minister Lobao, added that Brazil goes to great lengths to maintain stability by extending various &kindnesses8 to neighbors*whether by paying a premium to Paraguay for its Itaipu power, ensuring continued energy investment in Bolivia, or helping Argentina out of its energy woes. He added that President Lula is well aware of the need to seek balance in Brazil,s regional relationships, citing his concern that Brazil currently enjoys too large a trade surplus with Venezuela and must seek ways to lower it. -------------- -------------- Defense Reform to Increase Spending, Enhance National Service -------------- -------------- ¶8. (SBU) Over lunch, Strategic Planning Minister Roberto Mangabeira Unger described his work with Jobim to draft the new national defense strategy. Among the ideas he said would be included was one he felt would be controversial in Brazil, a universal selective service program for men and women that BRASILIA 00001267 003 OF 003 would involve either military service or social service in a state other than the selectee,s home state. Unger confirmed that Jobim will seek an increase in the military budget from 1.5 percent of GDP to 2.5 percent of GDP to ensure adequate funding. -------------- -------------- Potential for Cooperation Great, Remains Unexploited -------------- -------------- ¶9. (SBU) Both Lobao and Jobim talked at length about the change in the tone of the relationship between the United States and Brazil over the last few years. Jobim said that an attitude of seeking true partnership has replaced the twentieth century &language of empire.8 Lobao recalled a Reagan-era snub made by a U.S. member of Congress that almost derailed relations between the two countries and required an apology from the Secretary of State, stressing that it was important for Congress to understand the changing dynamic in the relationship. Senator Hagel agreed that there was an important and still not widely understood change both in Brazil,s global presence and in the dynamic of our bilateral relationship. He added that he believed the next president would further deepen this relationship. ¶10. (SBU) Unger, a Harvard Law School professor since 1973, commented on the enormous similarities between the two countries*among them, their multicultural nature, geographic size, and wide income gaps, combined with an enduring belief that prosperity is achievable by anyone. He believes that the potential for the US-Brazil cooperation remains under-exploited, with citizens of each country largely unaware of the similarities. He cited as an example of issues that could benefit from cooperation (one provided to us on several occasions before) the difficulty both national governments have, as a result of their federal systems, in helping failing local schools in a cooperative manner, instead of through court-ordered intervention. Ambassador Sobel, Senator Hagel and Minister Unger discussed the possibilities for a trip by the minister to Washington, and agreed that the end of September would be the best timing. Ambassador Sobel asked Unger about his idea of three-way cooperation between the United States, Mexico, and Brazil. Unger acknowledged that he had considered the possibility, but said that he felt the prospects were not as good as those for U.S.-Brazil cooperation because Mexico was not so similar as our two countries. -------------- Brazil,s Bright Future: No Going Back -------------- ¶11. (SBU) During a meeting with Minister of Communications Helio Costa, Costa gave an overview of the changes Brazil has undergone over the past two decades, including the remarkable strides Brazil has made in consolidating its democracy and reducing poverty. &There has been a complete change in the mindset of Brazilians8, Costa said, alluding to the problems in several countries in the region, &it is unthinkable that Brazilian democracy or its economy will suffer from revolutionary upheavals, as other countries in the region suffer regularly.8 Costa also noted that there is a growing but still largely untapped potential in the areas of biofuels, and that only 1% of Brazilian territory is dedicated to sugar crops. ¶12. (SBU) Asked for his thoughts on Brazilian relations with its neighbors, Costa noted that Venezuelan President Chavez was a wildcard and that nobody in Brazil trusted him. On Bolivia, Costa noted that Petrobras investment there represented such a small and insignificant part of that it would have been petty of Brazil to have made a fuss, and that besides, Brazil has an interest in maintaining stability in the region and has a responsibility to stand in solidarity with its poorer neighbors. KUBISKE