(C) GUATEMALA GIVING SERIOUS CONSIDERATION TO

C O N F I D E N T I A L GUATEMALA 000178

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/20/2018
TAGS: PREL ENRG ECON VZ GT
SUBJECT: (C) GUATEMALA GIVING SERIOUS CONSIDERATION TO
PETROCARIBE DEAL

REF: GUATEMALA 104

Classified By: Ambassador James M. Derham for reasons 1.4 (b&d).


1. (C) Summary. Acting Foreign Minister Miguel Ibarra told
us privately that Guatemala would likely sign a PetroCaribe
deal with the GOV to meet a small percentage of Guatemala's
energy needs. This initial agreement would allow the GOG to
assess Venezuela's ability to meet its needs, while
maintaining intact Guatemala's relationships with major
international oil suppliers. The GOG would like to take
advantage of the favorable terms the GOV is offering, but is
unwilling to make political concessions, Ibarra said. A deal
could be signed as soon as early March. End Summary.


2. (C) Acting Foreign Minister Miguel Angel Ibarra told
Pol/Econ Couns February 19 that Guatemala would likely sign a
small-volume, trial agreement with PetroCaribe. A GOV/PDVSA
delegation, led by the Director General of PetroCaribe, had
made a visit to Guatemala in early February which both sides
had kept from public attention (reftel). While the
Venezuelan side had been anxious for the GOG to make the
political gesture of signing on to PetroCaribe immediately,
and preferred to defer a detailed examination of Guatemala's
energy needs until later, the GOG delegation had insisted on
focusing on Guatemala's energy needs. No agreement had been
signed, Ibarra said, but Venezuela's terms were favorable.
The Petrocaribe delegation had offered to allow the GOG to
pay for fuel oil via a mix of long-term, low interest loans
and bartered agricultural goods. The GOG found those terms
attractive, Ibarra said. The GOG would not set up its own
state oil company, but would rather auction the Venezuelan
oil to Guatemala's private distributors. (Note: There have
been indications in the press that the GOG would set up a
state oil company to receive Venezuelan deliveries.) Asked
whether Guatemala had a facility in which to store Venezuelan
oil deliveries, Ibarra said that it did, but that the
facility would require some refurbishment.


3. (C) The GOG remained concerned that the GOV would attempt
to exact political concessions as part of the deal, Ibarra
said. Therefore, the GOG would first sign a trial agreement
for supply of only 5,000 barrels of Guatemala's total daily
requirement of 70,000 barrels. This would allow the GOG to
test whether PDVSA would be a reliable supplier, and see what
sort of political pressure the GOV might apply. The GOG
would under no circumstances make political concessions,
Ibarra said, and would maintain relationships with
international commercial suppliers in the meantime. Ibarra
acknowledged the potential downsides of signing any
PetroCaribe agreement.


4. (C) MFA Director General Carlos Morales, who also
participated in the meeting with the GOV/PDVSA delegation,
offered further details during a separate, February 20
conversation with Pol/Econ Couns. Energy and Mines Minister
Carlos Meany, who had led GOG participation in the meeting,
had insisted on a detailed, almost day-long discussion of
Guatemala's energy needs, frustrating the Venezuelans' rush
to sign an agreement. Meany described Guatemala's current
power sources and the relative costs of each. Most expensive
was power purchased from Tampa Electric Co., a subsidiary of
Teco Energy, which had signed a lucrative deal in the early
QTeco Energy, which had signed a lucrative deal in the early
1990's to build a 78-megawatt, diesel-fueled generation
plant, called Alborada. Per the terms of the agreement,
Tampa receives $21.5 million per year simply for maintaining
its plant. Guatemala draws from the plant only at times of
peak usage, as power supplied by the plant costs almost four
times as much per unit as does hydro-electric power. (These
high costs reflect both current world oil prices and the
terms of Tampa's agreement with the GOG.) Minister Meany
told the Venezuelans that for now he would be interested in
having Petrocaribe provide only enough fuel oil to substitute
Alborada's limited output. Meany has since been quoted in
the press as saying that the GOG may try to buy out its
contract with Tampa Electric, which is supposed to run
through 2013. Only if the GOG is able to buy its way out of
the Tampa contract would it then sign a PetroCaribe deal,
Morales said. (Comment: We note that there is a significant
discrepancy between Morales' stated understanding of the
outcome of the meeting, and that of Ibarra, his superior at
the MFA.)


5. (C) Morales said that the Venezuelan delegation had left
displeased that the GOG had been unwilling to immediately

sign an agreement, as some other Central American countries
had done. Nonetheless, the Venezuelans would return during
early March to enter into a more detailed negotiation. The
GOG perceives that a PetroCaribe deal could help meet two of
its principal objectives, Morales said: it would furnish an
urgently needed additional source of energy, and the GOV's
willingness to receive payment in agricultural products would
contribute to the Colom Government's objective of increasing
market opportunities for small farmers. The GOG would
purchase foodstuffs from small farmers' cooperatives for
transfer to the GOV.


6. (C) Comment: Minister of Energy and Mines Meany
previously told Embassy that there is presidential pressure
to sign a PetroCaribe deal quickly. While some in the Colom
Administration have concerns over embarking on this new
commercial relationship with Caracas, others believe that the
potential for addressing energy needs at low prices is worth
the risk.
Derham