EVO NATIONALIZES GAS TRANSPORT COMPANY

C O N F I D E N T I A L SECTION 01 OF 02 LA PAZ 001244

SIPDIS

E.O. 12958: DECL: 06/02/2018
TAGS: ECON PGOV PREL ENRG EPET EINV BL
SUBJECT: EVO NATIONALIZES GAS TRANSPORT COMPANY

REF: A. LA PAZ 01024 B. LA PAZ 01233

Classified By: EcoPol Chief Mike Hammer for reasons 1.4 (b) and (d).


1. (C) SUMMARY. On Sunday, June 1, President Evo Morales
issued yet another decree nationalizing a portion of the
natural gas sector in Bolivia. The decree, signed by Morales
on June 2 in a takeover ceremony in Santa Cruz, states that
the Bolivian state energy company YPFB will takeover
Tranredes SA at an offered price of $241 million dollars.
Transredes, owned by Anglo-Dutch Shell and British company
Ashmore International, reports a follow-up meeting with
Hydrocarbons Minister Carlos Villegas, where representatives
from the company opposed the decree, calling it "illegal."
The ministry denied the allegations and pointed to a section
of the decree that allows for arrest of any company officials
that try to prevent the takeover. The methods used show that
once again, Evo is taking no prisoners in his vision for
Bolivia. END SUMMARY.

- - - - - - - - - - - -
CONSPIRACY AGAINST EVO?
- - - - - - - - - - - -


2. (U) In a speech on June 1, Morales announced that YPFB
will be taking over Transredes SA, a natural gas
transportation company that provides delivery of the gas to
Argentina and Brazil. Morales' speech followed-up on a May 1
announcement that the government would acquire 51% of
Transredes. (ref A) In the month that led up to the June 1
decree, Morales says that Ashmore stalled and was
uncooperative in the sale. "They wanted to be bosses" and
have YPFB "be the employees," says Morales, who responded
with "Partners are welcome, but we will not accept bosses."
Evo warned that firms "who come here to do political
activities, to conspire, will be expelled." Ministers also
accused Transredes of environment violations and conspiracy
against the Government, "Patience has limits...and we're not
going to support companies that are conspiring, like Enron or
Ashmore." (NOTE: Enron was a founding partner in Transredes.
END NOTE.) Morales made his point clear by holding a
"takeover ceremony" at Transredes Headquarters in Santa Cruz,
attended by several government heavyweights, including
Minister Villegas, Commander of the Armed Forces General Luis
Trigo and other members of the military high command.

- - - - - - - - - - - -
DECREE AND DEAL DETAILS
- - - - - - - - - - - -


3. (C) While international and local press are crying
"Expropriation!" the Bolivian Government has offered to pay
Transredes $48 per share, which amounts to a total of $241
million dollars. The government claims that this is the price
that they have been paying to all large companies in the
industry under their nationalization plan, which was
announced May of 2007. Last record from the Bolivian stock
market for Transredes was from December of 2007 for
approximately $60 per share. After the takeover, YPFB will
own 98% of Transredes; they will continue to purchase the
remaining 2% from smaller owners at a price of $40 per share.


4. (C) YPFB will assume control, administration, direction
and operations of Transredes. Hydrocarbons Minister Villegas
has "guaranteed" that lower-level employees will keep their
jobs and that service will continue as planned. The decree
also contains a paragraph that anyone that tries to impede or
disturb the nationalization of the company can and will be
charged with "anti-economic conduct" and will be tried
according to the Bolivian Penal Code. The government has
already appointed a new president to the company, Gary Daher.
Daher, a poet and novelist by trade, is already being
criticized in the press for his lack of management experience
and insufficient knowledge of the industry.



5. (C) Ashmore and Shell have refused to issue a formal
comment, but an insider told emboff of a "nasty" meeting held
between Ashmore and Shell officials and Minister Villegas on
June 2 after the ceremony. Legal counsel tried to force the
ministry to justify the actions saying they were "illegal,"
but Villegas denied the claims, and pointed to the section of
the decree threatening company officials if they impede the
nationalization. British DCM Steve Townsend tells us that
Ashmore and Shell are prepared to take legal action, but the
current vow of silence could indicate that the companies are
taking the threats seriously and are hoping to "cut their
losses."


- - - - - - - - - - - - - - - - -
BUYER BACKLASH AT HOME AND ABROAD
- - - - - - - - - - - - - - - - -


6. (C) The Bolivian Hydrocarbons Chamber issued a statement
June 3, citing their "regret" about the method used to take
control of Transredes, saying that "(Transredes) during all
of their 11 years here have demonstrated the highest
commitment of operating efficiency." The Chamber also
indirectly expressed its concerns about YPFB's ability to
deliver on the high demand for gas, domestically and abroad.
The statement comes on the heels of an announcement by
Brazilian gas company Petrobras saying they struck a deal
with British BG Group to counter the risks of solely relying
on their Bolivian suppliers. Argentina also recently
announced its plans to diversify, moving into negotiations
with Trinidad and Tobago. When asked about the deal by a
recent CODEL visit, Bolivian Vice-President Garcia Linera
admitted that "Bolivia does not have the money to invest in
order to expand gas production" and blamed the issue on the
Argentines. (ref B)

- - - -
COMMENT
- - - -


7. (C) The Transredes takeover reveals exactly how little
patience Morales has left for "negotiations" and signals
another wrong turn for the hydrocarbons industry. YPFB was
already being criticized for getting in over its head. In the
end, both the act and method of nationalization will continue
to spur uncertainty and curtail investment not only in
hydrocarbons and but also what remains of the Bolivian
private sector in general. END COMMENT.

GOLDBERG