ARGENTINA: PLANNING MINISTER DE VIDO ON ARGENTNE TIES WITH U.S., VENEZUELA, AND DOMESTIC STRATEGY TO LAUNCH NEW INFRASTRUCTURE AND "SOCIAL PACT" INITIATIVES

UNCLAS BUENOS AIRES 000568

SIPDIS

SIPDIS
SENSITIVE

TREASURY FOR LTRAN AND MMALLOY
PASS USTR FOR DUCKWORTH
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER

E.O. 12958: N/A
TAGS: ENRG EEPET ECON PREL PGOV AR VZ BR EC
SUBJECT: ARGENTINA: PLANNING MINISTER DE VIDO ON ARGENTNE TIES WITH
U.S., VENEZUELA, AND DOMESTIC STRATEGY TO LAUNCH NEW INFRASTRUCTURE
AND "SOCIAL PACT" INITIATIVES

REF: Buenos Aires 496, 407, 356, 288, 230, 07 BsAs 1892

This cable contains business-sensitive information - not for
internet distribution.

--------------
Summary
--------------


1. (SBU) Planning Minister De Vido called A/S Shannon's visit to
Buenos Aires a positive step in rebuilding bilateral relations
damaged by the earlier Antonini Wilson "suitcase" scandal. He hopes
the postponed visits to the United States by former President Nestor
Kirchner and Chief of Cabinet Alberto Fernandez can be rescheduled
soon and hoped he too might visit the United States. De Vido will
travel to Venezuela shortly to sign agreements on a national oil
company joint venture to construct an LNG receiving plant in Buenos
Aires province's Bahia Blanca. He expressed serious concern over
what he saw as a union-driven process of radicalization in Venezuela
that is pushing President Chavez further to the left and led to
Chavez' decision to nationalize the Argentine-owned Sidor steel
plant. De Vido said he was skeptical that Bolivia will meet its
contractual obligations to provide Argentina natural gas, even when
a second natural gas pipeline linking the two nations is completed
in 2010. He noted his recent trip with President Kirchner to
Ecuador to sign an accord between GoA state-owned energy company
ENARSA and its Ecuadorian counterpart to construct a $1.5 billion
hydro-electric project.


2. (SBU) On agricultural sector strife, De Vido called the GoA's
strategy of sector-specific dialogues on beef, wheat, and milk
"successful" despite ongoing limits on beef and wheat exports that
have prompted accusations of bad faith by agrarian associations. He
admitted, however, that there had not been good GoA dialogue with
farmers earlier. On inflation, he revealed that an upcoming May 7
consumer price index conference here at which U.S., French, and
Spanish experts will participate will help the GoA launch a new,
more credible CPI index. De Vido also signaled plans on Argentina's
May 25 Independence Day for what local pro-government press has
called an effort to "re-launch" and give the government some new
momentum. The GoA will also release a Bicentennial strategic
infrastructure plan detailing development priorities in the
transport, telecom, energy and mining, water and sanitation, and
school sectors for each of Argentina's 24 provinces and the Buenos
Aires metropolitan area. Also on May 25, the GoA will formally
launch a "Social Pact" initiative to help reconcile and coordinate
interests of the GoA with organizations representing Argentina's
industrial, unions and financial service sectors. This is
apparently designed to be an ongoing round table which would stand
in contrast to the lack of dialogue which led to the rural sector
strike. (SEPTELs will examine further). De Vido also defended the
GoA's recent increase in mining sector export tariffs, noted new
generation investment plans by U.S. company AES, and supported
Exxon's decision not to sell its Argentine refining and gas station
assets.
End Summary.

--------------
Praising Shannon's Understanding and Patience
--------------


3. (SBU) In an April 25 meeting with Ambassador, Planning Minister
De Vido offered a tour d'horzon of current domestic political and
regional challenges facing the GoA, as well as background on the
GoA's broad infrastructure development strategic plans and comments
on individual U.S. energy company investments in Argentina. His
comments on the planned May 25 launch of a new "Social Pact"
initiative by the government will be reported Septel.


4. (SBU) De Vido called A/S Shannon's March visit to Buenos Aires a
positive step in rebuilding bilateral relations damaged by the
earlier Antonini Wilson "suitcase" scandal. Shannon, he said,
understands the Latin mindset and appreciates the specific
characteristics and idiosyncrasies of individual nations. Above
all, he praised Shannon's patience, noting that the saying "he who
loses patience loses all" has particular relevance for those
countries who seek to maintain good working relationships with
Argentina.


5. (SBU) On the earlier planned but postponed March visits of former
president Nestor Kirchner and Chief of Cabinet Alberto Fernandez to
New York and Washington, De Vido blamed the extraordinary demands on


Fernandez as a result of the three-week agriculture strike in March.
He agreed that these visits are important steps to build mutual
confidence that should be rescheduled soon. Ambassador suggested
that De Vido himself consider visiting the United States, and DeVido
said he would like to do so later in this year.

-------------- --------------
Ag Sector Strike, Inflation and Curbing the Press
-------------- --------------


6. (SBU) On ongoing GoA negotiations with the agriculture sector on
polemical export tariff increases, De Vido was confident that some
equitable resolution would be achieved, though he declined to say
whether that could happen before the agrarian associations' May 2
strike deadline. He called the GoA's strategy of sector-specific
dialogues on beef, wheat, and milk "successful" despite coincident
limits on beef and wheat exports managed by Internal Commerce
Secretary Moreno that have prompted accusations of bad faith by

SIPDIS
agrarian associations. De Vido noted that Brazil has recently
followed Argentina's policy lead in announcing restrictions on rice
exports to ensure domestic supplies. But when discussing this idea
of a new "Social Pact"/round table among business, unions and
government, De Vido said it would be designed to avoid the lack of
dialogue between government and the farm organizations which led to
the rural sector strike.


7. (SBU) Speaking of domestic inflation, De Vido offered his
"personal opinion" that there is an urgent need to reach some
domestic consensus on how to develop a viable cost of living index
that bridges the gap between the GoA's (widely discredited) CPI
index and the interest of everyone in moderating inflationary
expectations. He noted the upcoming May 7 INDEC CPI conference at
which U.S., French and Spanish CPI experts will participate as a
step in that direction. On the GoA's high-profile campaign against
Clarin, De Vido insisted there were high levels of "disinformation"
that justified the GoA's efforts to modify Argentina's radio
broadcast law. "If you don't put limits (on the media),they'll say
anything," De Vido commented.

--------------
Regional Ties - Energy Focus
--------------


8. (SBU) De Vido said that he would return to Venezuela shortly to
sign agreements on a PDVSA/ENARSA joint-venture project (Ref BsAs
288) to construct an LNG receiving plant in Buenos Aires Province's
Bahia Blanca. He expressed concern at a union-driven process of
radicalization in Venezuela that is pushing President Chavez further
and further to the left. De Vido called the GoBRV's decision to
nationalize Techint steelmaker Sidor (Ref BsAs 496) a case in point,
where demands by seven separate steel factory unions provided the
impetus for Chavez' nationalization announcement.


9. (SBU) De Vido said he was skeptical that Bolivia would meet its
contractual obligations to provide Argentina natural gas, even when
a second natural gas pipeline linking the two nations is completed
in 2010. He called the President's unsuccessful request at the
February 2008 trilateral Argentina/Brazil/Bolivia summit in Buenos
Aires that Brazil cede a portion of its Bolivian gas to Argentina an
embarrassing "bad call" (Ref BsAs 230). The request should have
been posed to President Lula quietly in a bilateral meeting.


10. (SBU) De Vido noted his recent trip with CFK to Ecuador to sign
an accord between GoA state-owned energy company ENARSA and its
Ecuadorian counterpart to construct a $1.5 billion hydro-electric
project. He clarified that the GoA would not/not be contributing
capital in support of its 30% share of the project, but rather would
work with a number of Argentine private sector players to "channel"
their participation in the project. He noted that Eduardo
Eurnekian's Americas Group would be in charge of financing, and
Enrique Pescarmona's IMPSA group would build turbines for the
project.

-------------- -
Bicentennial Infrastructure Plan & Social Pact
-------------- -


11. (SBU) On May 25 (one of Argentina's two independence days, the
day the first national government was established in 1810, as well
as the date former president Nestor Kirchner assumed office in
2003),the GoA will release its Bicentennial strategic
infrastructure development plan. De Vido gave Ambassador a bound


300-page text that outlines GoA plans for transport,
telecommunications, energy, mining, water, sanitation, and school
development for each of Argentina's 24 provinces and the Buenos
Aires metropolitan area. "We have a plan, we have a vision," he
said. De Vido confirmed that the GoA will also announce on May 25 a
"Social Pact" initiative to help reconcile and coordinate interests
of the GoA with organizations representing Argentina's industrial,
unions, and financial service sectors. Local pro-government press is
presenting this Independence Day effort as a means to "relaunch" the
government and regain momentum. (Septel will examine this in more
detail).

--------------
Energy and Mining Sectors
--------------


12. (SBU) De Vido noted that AES Energy would see him shortly after
his meeting with the Ambassador to discuss a new potential
generation investment in southern Patagonia. (AES had earlier
informed Embassy the company planned to convey to De Vido AES'
strong interest in investing roughly $200 million to build a
greenfield 180 MW combined cycle gas generation plant in southern
Patagonia. AES currently generates a total of 2,830 MW in nine
generation plants here, roughly 12% of total Argentine generation
capacity. AES called their new generation investment strategy a
"defensive" measure given their large installed generation base here
and the GoA's insistence on new investment as a "social obligation"
of current sector players.)


13. (SBU) On Exxon's recent decision not to sell its Argentine
refinery and service station assets, De Vido admitted that the GoA
had rejected a possible Esso sale to Brazil's Petrobras to avoid
"excessive" Brazilian participation in the downstream refining and
retailing sector. But, he said, the GoA had never really wanted
Exxon to leave Argentina. De Vido quoted an old Argentine saying:
"He that goes without being thrown out, returns without being
called." (Exxon's September 2007 decision to shop its Argentine
assets reflected a headquarters-mandated strategic retrenchment in
South America -- Exxon subsequently announced it would be selling
off its Venezuelan and Brazilian holdings -- as well as growing
frustration by Exxon's Argentine execs at a complex and distortive
range of GoA market interventions that have made Exxon's Argentine
operation only nominally profitable -- Ref 07 BsAs 1892.)


14. (SBU) De Vido referred to Apache Energy's longstanding complaint
that the GoA's decision to cut gas exports to Chile from Tierra del
Fuego has "stranded" large volumes of natural gas in this island
province pending a planned expansion of the gas pipeline network
connecting Tierra del Fuego with the Argentine mainland. This has
had a significant impact on Apache's profitability since
over-injection into the existing Tierra del Fuego gas pipeline by
Petrobras and Total has forced Apache to re-inject a substantial
volume of gas back into the ground. De Vido noted that the cut-off
of Tierra del Fuego gas exports to the Canadian-owned Methenex plant
in Chile would be "regularized" in the coming months and provide
Apache a source of export revenue. The GOA, he added, would soon
bid out the construction of the new gas pipeline from Tierra del
Fuego to the Argentine mainland. Once this pipeline is completed in
2 years' time, he said, oil and gas producers in Tierra del Fuego
should be able to expand production for domestic consumption
significantly.


15. (SBU) On GoA efforts to build-up domestic energy infrastructure,
De Vido noted the President's recent inauguration of the first of
two gas turbines at a Campagna, Buenos Aires province generation
facility. The turbines were funded by existing electricity
generators in Argentina via agreed withholdings of capacity and
variable cost payments due them by GA electricity wholesaler
CAMMESA. The second turbine, he said, would be up and running in
May, for a total addition to domestic generation capacity of 1,100
MW. Looking to the future, De Vido said that the 700 MW Atucha II
atomic energy facility is scheduled for completion in October 2010
with 5,000 workers currently employed in its construction.


16. (SBU) Ambassador noted Energy Secretary Daniel Cameron's
participation in the February 2008 WIREC renewable energy (RE)
conference in Washington. He encouraged Argentina to move forward
on Cameron's earlier idea (Ref BsAs 407) of joining the more than
100 nations who have made voluntary WIREC pledges, taking credit for
Argentina's current RE efforts, including legislation on the books
requiring that 5% of diesel fuel be sourced from bio-diesel by

2010.




17. (SBU) On the polemical November 2007 increase in mining sector
export tariffs, De Vido acknowledged that this could be interpreted
as contradicting 1990s-era mining legislation that ensured 30 years
of contractual stability. But the increase in global commodity
prices, he said, had boosted mining sector profit margins from the
15-18% range to the 28% range, and the GoA was committed to
recycling a portion of additional revenues collected via increased
export tariffs to mining province-specific infrastructure
development to maintain a "virtuous investment cycle." He noted the
example of UK/Swiss mining company Xstrata which controls the
world-class Bajo de Alumbrera gold mine in Catamarca province.
Additional taxes collected from this company will be used to fund a
$200 million/year fiduciary fund to develop provincial
infrastructure, including roads and electricity public works that
will benefit the mining operation itself.

--------------
Comment
--------------


18. (SBU) In his role as Planning Minister, De Vido is directly
responsible for Argentina's public infrastructure, energy, telecom,
transportation, and mining sectors. He also oversees a large -- and
rapidly growing -- volume of government transfers and subsidies to
these sectors that mark the GoA's interventionist economic policy
model. As a senior advisor, presidential confidant and "penguin,"
one of a loyal inner circle who served with Nestor Kirchner while he
was governor of Santa Cruz province, De Vido has taken on a broader
"super minister" profile, and is considered by many to be
Argentina's de facto Foreign Minister to Venezuela, Bolivia, and
Ecuador.
De Vido is also widely reported to be the leading figure of the
government faction battling with cabinet chief Alberto Fernandez and
his allies. De Vido's group is portrayed in the press as more
"interventionist" than Alberto Fernandez's group.


19. (SBU) De Vido has proven himself an important GoA interlocutor
to address U.S. investor concerns. Post will continue to advocate
aggressively on behalf of U.S. companies in Argentina many of whom,
while profitable, remain concerned by infrastructure bottlenecks and
unpredictable shifts in the GoA's regulatory and tax regimes.

WAYNE