Identifier
Created
Classification
Origin
09ASUNCION567
2009-09-11 15:43:00
CONFIDENTIAL
Embassy Asuncion
Cable title:  

PETROPAR'S DEBT ALBATROSS WITH PDVSA

Tags:  ECON EFIN ENRG PGOV PREL VE PA 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHAC #0567/01 2541543
ZNY CCCCC ZZH
R 111543Z SEP 09
FM AMEMBASSY ASUNCION
TO RUEHC/SECSTATE WASHDC 0016
INFO MERCOSUR COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHCV/AMEMBASSY CARACAS 0002
C O N F I D E N T I A L ASUNCION 000567 

SIPDIS
STATE FOR WHA/BSC MDASCHBACH, WHA/EPSC FCORNEILE

E.O. 12958: DECL: 2034/09/11
TAGS: ECON EFIN ENRG PGOV PREL VE PA
SUBJECT: PETROPAR'S DEBT ALBATROSS WITH PDVSA

REF: A. 09 ASUNCION 288; B. 08 ASUNCION 721; C. 08 ASUNCION 473

D. 08 ASUNCION 378; E. 08 ASUNCION 228

CLASSIFIED BY: Perry Holloway, DCM; REASON: 1.4(B),(D)
C O N F I D E N T I A L ASUNCION 000567

SIPDIS
STATE FOR WHA/BSC MDASCHBACH, WHA/EPSC FCORNEILE

E.O. 12958: DECL: 2034/09/11
TAGS: ECON EFIN ENRG PGOV PREL VE PA
SUBJECT: PETROPAR'S DEBT ALBATROSS WITH PDVSA

REF: A. 09 ASUNCION 288; B. 08 ASUNCION 721; C. 08 ASUNCION 473

D. 08 ASUNCION 378; E. 08 ASUNCION 228

CLASSIFIED BY: Perry Holloway, DCM; REASON: 1.4(B),(D)

1.(C)SUMMARY: Paraguay's state-owned oil company PETROPAR is in
negotiations with Venezuela's PDVSA about PETROPAR's USD 269
million past due debt. The press reported in August conflicting
versions about possible Venezuelan debt forgiveness, but PETROPAR
confirmed that PDVSA did not offer to condone the debt. PETROPAR's
President Gonzalez Meyer told Econoff August 17 he refused PDVSA's
strong push for joint ventures (storage and fuel stations) as a
payment mechanism. According to Meyer, PDVSA's offer was an attempt
to take advantage of PETROPAR's weak financial position by seeking
control of important PETROPAR assets. PETROPAR and PDVSA agreed to
restructure USD 232 million of the debt, but USD 37 million remains
in dispute. PETROPAR has so far successfully held firm against
PDVSA. However, PETROPAR is in a vulnerable position because its
options for fuel supply and debt refinancing are limited -- sooner
or later PETROPAR will concede to PDVSA's joint venture advances.
END SUMMARY.



--------------

ABOUT THE NEGOTIATIONS

--------------




2. (SBU) Paraguay's state-owned oil company PETROPAR is in
negotiations with Venezuela's PDVSA about PETROPAR's USD 269
million debt past due (reftels a, b, e). The press reported in
August conflicting versions about possible Venezuelan debt
forgiveness. Finance Minister Borda publically affirmed that
PETROPAR's negotiations with PDVSA were ongoing but he did not
discuss details about possible debt forgiveness by Venezuela.
Industry and Commerce Minister Rivas, however, publically stated
that PETROPAR has never asked PDVSA to condone the debt. Meanwhile,
Liberal Party Senator Alfredo Jaeggli told the press that a
Venezuelan debt pardon would be in exchange for Paraguay's use of
the funds to support special "social" programs.





3. (C) PETROPAR President Juan Alberto Gonzalez Meyer told Econoff
August 17 that PDVSA did not offer to condone the debt. Meyer,
Paraguay's lead negotiator with PDVSA, explained that PDVSA
proposed a payment of USD 162 million over two years and long-term
refinancing for part of the remaining USD 107 million. Meyer
expressed concern about PETROPAR's capacity to pay USD 162 million
in two years, but emphasized that it could be possible if PETROPAR
generates a minimum profit margin of about USD 0.05 per liter.
Meyer said PETROPAR is exploring other alternatives to pay or
refinance its debt including international private lenders,
multilaterals, a bond issue, and an increase in the price of
diesel.




4. (C) Meyer was critical of PETROPAR's past management decisions,
characterizing as "draconian" the latest contracts PETROPAR signed
with PDVSA. (NOTE: The terms of the contracts included an 18
percent default rate, and assigned legal jurisdiction to Venezuela
in case of a contractual dispute (reftel a) END NOTE). Meyer said
PETROPAR's previous dealings with PDVSA reflect a "blatant
disregard of best business practices". (NOTE: PETROPAR makes its
fuel bid requests every six months. The contracts referenced by
Meyer were signed by Alejandro Takahashi (appointed by Duarte
Frutos) in mid-2008 and by Cibar Granado (appointed by Fernando
Lugo) in early 2009. END NOTE.)




5. (C) Meyer said PDVSA proposed joint ventures as an alternative
payment mechanism for PETROPAR's debt. According to Meyer, PDVSA
suggested a joint venture to build storage capacity at PETROPAR's
facility in Port Zarate, Argentina.(NOTE: Port Zarate is
strategically located on the Paraguay-Parana Waterway. The
Paraguay-Parana Waterway is Paraguay's most important transport

route, moving over 90 percent of the country's traded goods. END
NOTE.) Meyer said PDVSA also proposed a joint venture to use
PETROPAR's service stations. Meyer explained that PDVSA referred to
the Paraguay-Venezuela 2005 energy cooperation agreement (reftel e)
to justify the joint venture proposals. (NOTE: The 2005 energy
cooperation agreement mentions the interest of both countries in
pursuing joint ventures. END NOTE.)




6. (C) Meyer described PDVSA's proposals as an unwelcome attempt to
control key PETROPAR assets, trying to take advantage of PETROPAR's
weak financial position. Meyer contended that PETROPAR will not
entertain any joint venture proposals until its debt problem is
solved. Meyers said PDVSA "is using the debt to pressure PETROPAR",
and he refused PDVSA's proposals as inequitable. The negotiations
with PDVSA, according to Meyer, have not impacted Paraguay's diesel
supply from PDVSA. Meyer said that PETROPAR secured orders for the
next six months with PDVSA, as PDVSA is consistently bidding the
lowest price for PETROPAR's bid requests.



--------------

AGREED TERMS AND PENDING ISSUES

--------------




7. (SBU) According to the local press, Paraguayan President
Fernando Lugo and Venezuelan President Hugo Chavez discussed
PETROPAR's debt on the margins of the UNASUR meeting August 28. The
understanding between Lugo and Chavez included: a) freezing USD 162
million for one year (at a rate of 2 percent) to give Paraguay time
to figure out how it will pay its debt; b) refinancing USD 60
million to 15 years at an annual rate of 2 percent with a grace
period of 2 years; c) paying USD 10 million in 2009; and d)
renegotiating a transport fee charge of USD 37 million that
Paraguay maintains is illegal.




8. (C) PDVSA delegates arrived in Asuncion September 3-4 to discuss
with PETROPAR the disputed USD 37 million. PDVSA proposed that
PETROPAR pay at least 15 percent of that total. PETROPAR argued
that the entire amount is illegal and inconsistent with the 2005
Paraguay-Venezuela energy cooperation agreement. Each side held
firm in its position, and the talks ended without any agreement.




9. (C) PETROPAR and Paraguayan barges servicing PETROPAR publically
denounced in early September PDVSA's interest in Paraguay's river
transport business. PDVSA announced in late August a venture with
Argentine company Fluviomar to transport food products and
hydrocarbons on the Paraguay-ParanC! Waterway. (NOTE: The Waterway
river transport system links five countries in the Plata River
Basin: Argentina, Bolivia, Brazil, Paraguay, and Uruguay. END
NOTE). PETROPAR is concerned about PDVSA's attempts to control fuel
shipments to Paraguay. Paraguayan-flagged barges servicing PETROPAR
are concerned about a crowd-out from international barges. (NOTE:
Paraguayan-flagged barges are part of PETROPAR's systemic
corruption problems. END NOTE.)



10.(C) COMMENT: Meyer has so far successfully held firm against
PDVSA in the negotiations, but PETROPAR is increasingly reliant on
PDVSA for its fuel supply (reftel a). PETROPAR's dire financial
situation makes it a vulnerable target for PDVSA, although
PETROPAR's negotiations with PDVSA appear to be moving forward.
PDVSA will likely continue to use its leverage to pressure
Paraguay, despite Venezuela's public discourse about solidarity
with Paraguay. PETROPAR could presumably hold out until next year
before it concedes to PDVSA's joint-venture advances. However,
Paraguay's options for supply and financing are limited -- sooner
or later PETROPAR will yield to PDVSA's push for key PETROPAR
assets through joint ventures. END COMMENT.
AYALDE