CHAVEZ COMES TO TOWN

UNCLAS SECTION 01 OF 02 PRETORIA 001968 SIPDIS SENSITIVE STATE PLEASE PASS USAID STATE PLEASE PASS USGS DEPT FOR AF/S, ISN, EEB/ESC AND CBA DOE FOR T.SPERL, G.PERSON, A.BIENAWSKI, M.SCOTT, L.PARKER E.O. 12958: N/A TAGS: ENRG EPET EMIN SENV EWWT ELTN SF VE SUBJECT: CHAVEZ COMES TO TOWN Ref: A) Pretoria 386 B) Pretoria 351 ¶1. (SBU) SUMMARY: The historic September 2 state visit of Venezuelan President Hugo Chavez to South Africa resulted in an excited announcement of energy cooperation agreements. It is not clear that the vague and broad agreements will result in any actual energy cooperation, because there may not be clear economic grounds to support implementation. End Summary. ¶2. (SBU) In the wake of the first-time September 2 state visit of Venezuela President Hugo Chavez to South Africa, the two governments reportedly signed ambitious energy framework and cooperation agreements aimed to strengthen economic and political bilateral ties. (Note: A state visit for Chavez originally planned for a year ago was postponed for unspecified reasons. Post heard from insiders that Chavez demanded high-profile mass public affairs events that President Mbeki was uncomfortable with. End Note.) According to press reports, targeted cooperation would include: -- South African state oil and gas company PetroSA would qualify as an operator in Venezuela for offshore gas exploration. PetroSA has been invited to participate in exploration and production in Venezuela's Orinoco Oil Belt, where the company would conduct a study to quantify and certify reserves in the Boyaca 4 Block. -- Venezuelan state oil and gas company PDVSA has been invited to participate as a joint venture partner with PetroSA in the proposed crude oil refinery at Coega near Port Elizabeth. PDVSA has also been invited to use South Africa's 45 million barrel crude oil storage facilities at the port of Saldanha (Ref A) in the Western Cape. In addition, PDVSA would evaluate the possibility of acquiring an interest in PetroSA's exploration assets in Africa. -- The two national oil companies would pursue a "strategic integrated proposal" for a framework for cooperation in oil and gas. PetroSA has offered to share its low-temperature gas-to-liquids technology with PDVSA, which could use it to commercialize its Venezuelan gas assets. Comment: A PDVSA decision to participate in the Coega refinery would require a refinery that was designed to burn Venezuelan heavy sour crude. A local editorial pointed out that this dependence on a single source would reduce South Africa's energy security. End comment. -------------- South/South Solidarity...and Its Limits -------------- ¶3. (SBU) In a joint September 2 press conference with the two Presidents extolling the south-south moment, President Chavez enthused, "It is justice...it will be a wonderful day when the first Venezuelan tanker stops to leave oil for South Africa. Today our north is the south. It is critically important that as we build this partnership, we do so in the context of developing our south-south relationship." He touted the agreement as "an example of a strategic alliance that will see them begin to define their destiny and discard their colonial past." President Mbeki commented Qdestiny and discard their colonial past." President Mbeki commented that the relationship would help reduce the cost of electricity to South Africans, without providing any details. PetroSA CEO Sipho Mkhize subsequently cautioned against reports that South Africa was to buy oil from Venezuela that would be cheaper than market value, saying there was no such contract. Mkhize said business between the two state-owned companies would reduce costs at a later stage by cutting out the middleman. -------------- Comment - Substance or Show? -------------- ¶4. (SBU) The Hugo Chavez state visit was a political opportunity for the two presidents to showcase south-south solidarity. The ruling African National Congress has a deep tradition of radical liberation ideology which has propelled South African leadership in PRETORIA 00001968 002 OF 002 the Non-aligned Movement and the Group of 77 (and China). SAG officials encounter Chavez in progressive political events in Cuba, Bolivia and other western hemispheric conclaves. Chavez has expressed his admiration for the ANC, Nelson Mandela and the success of the anti-apartheid movement which plays well among local audiences. Elements within the ANC coalition have expressed admiration for Chavez's standing up to the U.S., his policy of nationalization of oil and other industries and showing solidarity with Latin American and African developing countries. 5.(SBU) Although details are not yet available, the energy cooperation agreement is a commercial deliverable that appears vague and lacking in clear commitments, other than intent to explore opportunities. PetroSA faces its own skill challenges and is not known for its exploration expertise (Ref B). It is not clear that South African power plants or existing or potential refineries can technically or economically make use of Venezuelan heavy oils. The SAG desires to show active steps to add to South African energy security given its dependence on oil imports, only mitigated to a limited extent by its coal- and gas-to-liquid technology. Beyond a photo opportunity to show solidarity, it is not clear that there will be any practical results as the SAG and PetroSA pragmatically deal with ample energy challenges. End Comment. La Lime