BRAZIL IN BOLIVIA: BIOFUELS AND PETROBRAS

C O N F I D E N T I A L SECTION 01 OF 02 LA PAZ 001828 SIPDIS E.O. 12958: DECL: 08/28/2018 TAGS: ECON PGOV PREL ENRG EPET EINV BL SUBJECT: BRAZIL IN BOLIVIA: BIOFUELS AND PETROBRAS Classified By: EcoPol Chief Mike Hammer for reasons 1.4 (b) and (d). - - - - Summary - - - - ¶1. (C) Last year, the Brazilian Ambassador in La Paz called relations with Bolivia "tense and dense." Lula's subsequent visits have seemingly put the relationship back on course. However, official Brazilians working in Bolivia are subject to sudden mandates from Brasilia and the Ministry of Foreign Affairs (Itamaraty),complicating our cooperation with them. Recently, after working several months together with the Embassy to jointly sponsor two biofuels conferences, the Brazilian Ambassador was told by Itamaraty to withhold any participation. The events were subsequently canceled. Additionally, Petrobras President in Bolivia Claudio Castejon confided that political dictates come to him with no advanced warning, generally from President Lula himself. Castejon also said that there is a political agenda in Bolivia and Petrobras is here for as long as the Bolivians will tolerate them. End summary. - - - - - - - - - - - - - - - - - - - - - Biofuels with the U.S., Too Hot to Handle - - - - - - - - - - - - - - - - - - - - - ¶2. (C) In early May, we began to work with Embassy Brazil to stage two biofuels conferences in Santa Cruz and La Paz. EconOff coordinated with the Brazilian Economic Counselor, Carlos Franca, to organize the events and define Brazilian participation. Embassy La Paz received EEB funding to advance the events and Brazilian participation was solicited both to increase the likelihood of Bolivian government participation and to show that the USG and Brazil could work together in South America to advance biofuel development. ¶3. (C) By the end of July, the Brazilian Embassy had worked with us to identify an appropriate speaker at the principal sugar cane producers association in Sao Paulo (UNICA) and lobbied the organization to send a representative. Moreover, they were recruiting the participation of Alberto Oliveira, the head of the Petrobras biofuels research organization CENPES, who was in Santa Cruz for another event. The Brazilian Embassy agreed to pay the UNICA speaker's airfare to La Paz, the hotel costs, and had also organized the La Paz conference venue. Additionally, the Bolivian Minister of Planning had agreed to have her ministry participate, a central goal of both embassies. We also counted on the participation of Conservation International scientist Tim Killeen, who gave the conference environmental credentials. However, the day after the invitations were sent out in early August, we received a call from the Brazilian Ambassador informing us that the Brazilian Embassy would not be able to co-sponsor the events. The Brazilian Ambassador explained that there was a "gentleman's agreement" between Secretary Rice and Foreign Minister Amorim that Brazil and the U.S. would not jointly participate in biofuels in South America. ¶4. (C) At the working level, Franca appeared genuinely surprised. In calling to apologize, he told EconOff that he suspected it was something that came out of the presidential meetings between Lula, Evo, Chavez and Kirchner, but he truly didn't know the reason. He said that the Undersecretary of Political Affairs, Everton Vira Vargas had called the ambassador and told him to cancel any Brazilian participation. It came as a surprise because in preparing for the events, Franca had received the blessing from the head of the Department of Energy in Brazil and had also worked with Itamaraty to secure the funding. Franca said he communicated with the "coordinating unit" within Itamaraty that is responsible for supporting embassy initiatives and events. The unit was hesitant at first, but after one day LA PAZ 00001828 002 OF 002 they agreed to pay for a portion of the costs. For the Brazilian Embassy in La Paz, the withdraw of support appears to have caught them off guard and the order appears to have come from the top levels of the Brazilian government. Without Brazilian participation, the events had to be canceled. - - - - - - - - - - - - - - - - - - - - - - Petrobras in Bolivia: A Political Mandate - - - - - - - - - - - - - - - - - - - - - - ¶5. (C) Claudio Castejon, President of Petrobras in Bolivia, frankly told EconOff that Petrobras has a political agenda in Bolivia. Despite the often harsh treatment meted out to the company by the Bolivian government, Castejon said that Petrobras will not leave Bolivia unless they are kicked out. While Petrobras has recouped its investments in Bolivia, it is currently planning to invest another billion dollars over the next five years in order to maintain the flow of gas to Brazil. In addition to political considerations, Castejon added that Sao Paulo simply needs the gas. While Castejon meets with the Brazilian Embassy in La Paz every two weeks or so, he said that political mandates from Brasilia tend to come with no warning and, he suspects, are issued directly from President Lula. ¶6. (C) When asked about the possibility of a new state-owned company in Brazil, Castejon said that it appeared the government was headed in that direction. While Petrobras was not being directly involved in shaping the new entity, he said that it would most likely operate like a shell company, taking in revenue and allocating it per government demands. He saw Petrobras relegated to operate like "any other company" in Brazil. As to the motives for creating the new company, Castejon thought that the large percentage of foreign ownership in Petrobras' preferred shares (he put the figure at 70 percent owned by U.S. concerns) was of great concern to many political figures in Brazil. Personally, Castejon thought the new company was a bad idea, but nobody asked his opinion. ¶7. (C) In discussing Petrobras' activities throughout the region, Castejon did not see the new discoveries in Brazil as forcing a retreat from other international commitments. However, he did think that expansion would slow, and international activity might stagnate as Petrobras turned to address internal hydrocarbon developments. Castejon was very curious to know how the Embassy sees the situation in Peru. Petrobras is now very cautious about Peru and is backing off of any additional investments there. They see the situation as likely to develop along a similar pattern as in Peru's two Andean neighbors. GOLDBERG