SECRETARY KESSEL DISCUSSES BILATERAL ENERGY COOPERATON;

UNCLAS SECTION 01 OF 03 MEXICO 003222 SENSITIVE, SIPDIS STATE FOR WHA/MEX, WHA/EPSC STATE FOR EEB/ESC, OES/OPA, L/OES STATE ALSO FOR S/CIEA DAVID GOLDWYN DOE FOR A/S SANDALOW, G.WARD, A.LOCKWOOD AND R.DAVIS NSC FOR RACHEL WALSH E.O. 12958: N/A TAGS: ECON ENRG EINV PGOV SENV MX SUBJECT: SECRETARY KESSEL DISCUSSES BILATERAL ENERGY COOPERATON; WELCOMES PROGRESS ON TRANS-BOUNDARY DISCUSSION ¶A. Mexico 2440 ¶B. Mexico 2445 ¶C. Mexico 3098 ¶D. Mexico 3107 ¶1. (SBU) Summary: Energy Secretary Georgina Kessel told Ambassador Pascual November 5 that she was pleased with progress made at the October 19 trans-boundary energy reservoir meeting in Villahermosa and welcomed news that the USG seeks to extend the moratorium in the Western Gap. Kessel welcomed the opportunity to collaborate more closely with the USG on smart electrical grids, emissions inventories and other areas under the Clean Energy and Climate Change Framework, and looked forward to learning more about the proposed Bilateral Working Group meeting in Washington in January. Kessel was enthusiastic about the level of attention the USG is giving to the energy relationship and told her staff after the meeting to make following up on the bilateral agenda their highest priority. End Summary. ¶2. (SBU) The Ambassador's November 5 meeting with Secretary Kessel allowed both to discuss recent developments on the bilateral energy agenda and to consider next steps on possible trans-boundary reservoirs, electricity cooperation and renewable energy. Under Secretary for Electricity Benjamin Contreras, Under Secretary for Hydrocarbons Mario Gabriel Budebo, Chief of Staff Carlos Petersen, Director General for International Affairs Aldo Flores, and Econoff also participated in the meeting. ¶3. (SBU) Both the Ambassador and Secretary Kessel were pleased with the results of the October 19 meeting on trans-boundary reservoirs (ref c) in Villahermosa. The Ambassador said that jointly reviewing the seismic data in the boundary area was particularly useful for the U.S. delegation. He noted that the U.S. is working to extend the moratorium in the western gap and that consultations with Congress are underway. The Ambassador added that the State Department has developed a mechanism to work with Mexico on Presidential Permits to facilitate cross-border infrastructure. ¶4. (SBU) Secretary Kessel was pleased with this news and said it would help to relieve some of the political pressure the Calderon Administration is facing from the Mexican Congress to show progress on discussions with the US on trans-boundary reservoirs. She emphasized that energy security is in both countries interests and that a trans-boundary agreement would be a move in the right direction by giving legal certainty to companies on both sides of the boundary. Kessel welcomed an upcoming visit of State Coordinator for International Energy Affairs David Goldwyn to further these discussions. ¶5. (SBU) The Ambassador noted that the National Hydrocarbons Commission (CNH) has expressed interest in learning more about USG procedures and regulations for oil and gas metering, flaring and other procedures. He noted that the Embassy would be happy to facilitate a Voluntary Visitors Program for CNH to the US to share this information with them. Kessel was enthusiastic about the USG offer and said that the GOM would work with the Embassy on names of participants and dates for the visit. FUEL SUBSIDIES: -------------- ¶6. (SBU) Referring to the commitment G-20 countries made in Pittsburgh to phase out fuel subsidies, the Ambassador inquired about what measures Mexico had planned and whether the USG could provide assistance. Secretary Kessel confirmed that Mexico had taken steps in 2008 to gradually eliminate the gasoline subsidy. Due to the economic crisis, however, this policy was frozen. She confirmed that Mexico would resume the policy of phasing out fuel subsidies in 2010. ¶7. (SBU) Kessel added that, in the meantime, the Secretariat of Energy (SENER) is working with other Mexican government agencies to develop a program to provide targeted support for lower income Mexicans. Kessel noted that existing programs like Opportunidades target the rural poor, whereas fuel subsidy support will be more important for the urban poor and require a different approach. She added that the proposal should be completed by early 2010, and implemented 4-6 months after that. Secretary Kessel welcomed the Ambassador's suggestion that SENER consider whether the methodology for the fuel subsidy support program could be used for other urban poverty relief initiatives. THE ELECTRICAL UTILITY LUZ Y FUERZA: MEXICO 00003222 002 OF 003 -------------- ¶8. (SBU) The Ambassador congratulated Secretary Kessel for the GOM's successful action to tackle the problematic state owned electrical utility Luz y Fuerza (LFC)(ref d and previous). Secretary Kessel noted that the GOM basically developed a strategy to take on LFC in the mid 1980s, but that no previous administration had the courage or the long term vision to implement it. She noted that it was a complex decision, and that President Calderon was well aware of the potential implications when he decided to act. Kessel added that the worst case scenario - massive demonstrations, power outages and sabotage - has not occurred. The LFC union has called for a national strike, but has delayed the date twice. With each passing day, Kessel added, more LFC workers are accepting the generous government buyout, and it is becoming less likely that the LFC union can muster support for a national strike. ¶9. (SBU) According to Kessel, the way the dissolution of LFC has evolved is close to the GOM's best case scenario. She mentioned three factors that contributed to this: internal division within the union; LFC only operates in a handful of Mexican states; and the LFC union is affiliated with the smaller opposition party, Democratic Revolutionary Party (PRD),and has not received support from the larger Institutional Revolutionary Party (PRI) affiliated unions. SMART GRIDS: -------------- ¶10. (SBU) The Ambassador mentioned that during a recent trip to Tijuana, he discussed energy issues in general and smart grid technology in particular with various state government, university and private sector participants. He noted that there is a concern in that region that as the U.S. moves forward with smart grid technology, it could create problems for Baja California which is connected to the California grid and not to the rest of Mexico. He suggested that smart grid technology and the interconnections between the US and Mexico should be an important point on the agenda for the US-Mexico Clean Energy and Climate Change working group. The Ambassador added that US Trade Development Agency (USTDA) is interested in working on clean energy technology in the border region and will send a project identification team to Mexico soon to identify projects. USTDA could be helpful in identifying specific smart grid projects in the border region. ¶11. (SBU) Secretary Kessel responded enthusiastically to the Ambassador's suggestion that the US and Mexico cooperate more closely on smart grid technologies. She noted that the countries work closely together to study potential problems in the border region and share information on research and development. She acknowledged that this is a complicated issue, but said that Mexico needs to "get on the train" with smart grid technology or risk being left behind. Secretary Kessel welcomed the Ambassador's suggestion that the Embassy organize a second Voluntary Visitor Program focused on smart grids. Emission Inventories: -------------- ¶12. (SBU) The Ambassador mentioned that in order to create a carbon offset program in the border region, the US and Mexico will need to do more work to create an emissions inventory. EPA is already undertaking a number of pilot projects in Mexico. As part of this process, the US and Mexico should work more closely on monitoring, reporting and verifying emissions. He suggested that creating an emissions inventory be an agenda item for the Bilateral Clean Energy and Climate Change working group. Secretary Kessel noted that the Secretariat of Environment (SEMARNAT) has the lead on emissions, but that SENER would collaborate with them on this. She welcomed the opportunity to exchange information on the topic. Bilateral Working Group and ECPA: -------------- ¶13. (SBU) The Ambassador told Secretary Kessel that the USG will be inviting Mexico to a meeting of the Clean Energy and Climate Change Working Group in Washington DC in January. Secretary Kessel welcomed the news and looked forward to more details. ¶14. (SBU) The Ambassador extended Secretary Chu's invitation to Secretary Kessel for the Environment and Climate Partnership of the Americas(ECPA)meeting April 15-16, 2010 in Washington. Secretary MEXICO 00003222 003 OF 003 Kessel welcomed the invite and noted that ministerials of this type were extremely important to moving the agenda forward. She regretted that she had to cancel her participation at a recent meeting in London. Secretary Kessel confirmed that Mexico is interested in leading a group on energy efficiency under ECPA, and suggested that ECPA build on the work that Mexico and other countries in Latin America are already doing under the auspices of OLADE (Latin American Energy Association). NOTE: SENER officials made a similar suggestion to visiting WHA/EPSC Director Matt Rooney in August 2009. OLADE, the umbrella association of the LAC Energy Ministers is heavily influenced by Venezuela and counts Cuba, Ecuador, Nicaragua, Venezuela and Bolivia among its members. Rooney responded at that time that the USG is already looking at the OAS and other regional organizations to provide technical support. END NOTE. Comment: GOM pleased with USG attention -------------- ¶15. (SBU) SENER contacts told ECONOFF that Secretary Kessel and her staff were pleased with the level of attention the USG is paying to the bilateral energy agenda. By including two Under Secretaries in the meeting, Kessel clearly signaled the importance she places on the topics discussed. After the Ambassador left, contacts told us Secretary Kessel instructed her staff to make following up on her conversation with the Ambassador their top priority. This is a welcome change in attitudes. After years, if not decades, of Mexican reticence to discuss the energy agenda - especially oil and gas issues - the Calderon Administration recently has opened its doors to information exchanges and collaboration on a range of issues. Embassy Mexico welcomes a potential visit by State Coordinator for International Energy Affairs Goldwyn and the upcoming Bilateral Energy and Climate Change working group meetings as an opportunity to move our energy relationship forward. PASCUAL