RUSSIA INCREASES COOPERATION WITH CHAVEZ?

C O N F I D E N T I A L MOSCOW 002944

SIPDIS

E.O. 12958: DECL: 10/01/2018
TAGS: PGOV PREL EPET ENRG ETRD EINV MASS RS VE
SUBJECT: RUSSIA INCREASES COOPERATION WITH CHAVEZ?

REF: A. MOSCOW 2127

B. MOSCOW 2789

C. MOSCOW 2843

Classified By: Political M/C Alice G. Wells. Reasons 1.4 (b) and (d).


1. (C) Summary: Two months since President Hugo Chavez's
last visit to Russia, and two weeks after Tu-160 bombers flew
to Venezuela, Chavez and a delegation of Venezuelan officials
were warmly received by President Medvedev in Orenburg on
September 26. They observed military exercises and continued
discussions over expanding economic and military cooperation.
The signing of yet another MOU by Gazprom with the
Venezuelan nationalized company came with few details, and
TNK-BP officials acknowledged the "political" impulse behind
the initiative. Russia also reportedly gave a USD 1 billion
loan to Venezuela for military-technical cooperation. Chavez
also met with PM Putin and discussed the future of nuclear
energy cooperation. This visit can be viewed as part of
Russia's broader foreign policy goal of advancing a
"multi-polar" framework and balancing U.S. influence in the
world, sending a "primitive" message that Russia can meddle
in the U.S. backyard. End Summary.

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Warm Reception
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2. (SBU) During a joint press appearance of the two
presidents, Medvedev lauded Chavez for the well-organized
reception of the Tu-160 strategic bombers, and said they were
planning to hold joint naval exercises in late November.
Medvedev characterized cooperation with Venezuela as
important "evidence of the strategic framework our relations
are taking on." Chavez also praised the reception of the
Russian bombers and used his speaking opportunity to taunt
the U.S. saying, "someone to the north of our continent said
these were old planes, but we were thrilled with these
excellent Tu-160 aircraft." Even though Venezuela has not
recognized the independence of South Ossetia and Abkhazia,
Medvedev thanked Chavez for Venezuelan support of Russia's
actions in the Caucasus, which Chavez characterized as
"modest but resolute."

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Arms Cooperation
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3. (SBU) The GOR did not announce any new arms sales
agreements with Venezuela, but press reports indicate that
Moscow extended a USD 1 billion loan for the implementation
of a military-technical cooperation program. While details
are lacking, press reports and experts indicate this loan
could be used to finance the purchase of 20 Tor M1 missile
systems and three Varshavyanka submarines, 20 patrol planes
designed on the basis of Ilyushin Il-114s, and for setting up
special technical maintenance centers in Venezuela to
maintain military hardware, as part of Caracas's plan to
spend over USD 30 billion on weapons and military equipment
to rearm the Venezuelan armed forces.

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Conceivable Nuclear Cooperation
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4. (SBU) In a new area of Russian-Venezuelan cooperation,
Putin told Chavez that the Russians were ready to consider
the possibilities of collaboration in using atomic energy for
peaceful purposes. After returning to Venezuela, Chavez has
claimed that the GOR offered to help Venezuela build a
peaceful nuclear energy program.

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Energy Cooperation: A Colossus Is Born?
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5. (SBU) Building on its presence in Venezuela and its
previous agreements (ref A),Gazprom signed yet another MOU
with the Venezuelan national oil company, PDVSA, that foresaw
"large-scale interaction" between the companies in the entire
range of oil and gas exploration, development,
transportation, and processing. Various press reports
indicated that Gazprom and PDVSA would lead a consortium of
companies, to include state-owned Rosneft, Lukoil, TNK-BP,
and Surgutneftegaz, with PDVSA as the majority shareholder.
None of the other companies, however, officially announced
anything related to this proposed consortium. Energy
Minister Shmatko was quoted in the press that Russian oil
companies "would pour tens of billions of dollars" into
Venezuela, and Chavez reportedly proclaimed that "a colossus
was being born." No details emerged, however, to support
these claims.


6. (C) TNK-BP's Vice President for International Affairs,
Shawn McCormick, told us the consortium could help the
companies involved share costs and mitigate the risks
associated with the huge investments needed to upgrade
facilities to process Venezuela's heavy oil. However,
McCormick implied the deal had a heavy political component,
with Chavez looking for Russian support to counter American
influence in Latin America. According to McCormick, PDVSA
would also create a bank to finance the consortium,
indicating it would not necessarily find adequate commercial
financing.


7. (C) BP Russia president Richard Spies told us the effort
on energy cooperation with Venezuela was being headed by
Deputy Premier Igor Sechin and that TNK-BP's board had not
approved anything beyond joint studies with PDVSA. He
suggested this could be an example of the lack of commercial
discipline at TNK-BP, with an agreement being made prior to
board approval. Lena Zemskova, External Relations Director
at ConocoPhillips Russia (Lukoil's partner),told us she
believed the consortium would be established in the spring of
2009, but had no more details.


8. (C) The politics of the deal were exposed by statements by
Shmatko and Gazprom President Alexey Miller noting that
Russia would also seek to develop projects in Cuba and
Bolivia.

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Comment
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9. (C) Experts note that, beyond arms sales, Russia's main
interest in Venezuela is showing that Moscow can tinker in
the U.S. backyard (ref B),with most analysts conceding the
"primitiveness" of the Russian gesture, given the absence of
geopolitical interests in Latin America. Chavez's visit came
during a press of Russian diplomacy designed to show Moscow
is not isolated after the conflict in Georgia (ref C).
Venezuela's previous offers of exploration projects to
Russian companies have been less than favorable and elicited
little interest on the part of Russian companies (ref A).
Even if the deal goes through, it seems to us the major risk
is the potential to waste billions of exploration and
production dollars through inefficient state-owned entities.
It remains to be seen whether Chavez will offer more
attractive opportunities in relation to this consortium and
whether any of the other areas of cooperation allegedly
agreed during the visit amount to anything more than talk.
BEYRLE