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Viewing cable 06LAPAZ1782, REPSOL AND PETROBRAS NEGOTIATIONS UPDATE

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Reference ID Created Released Classification Origin
06LAPAZ1782 2006-06-29 15:03 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy La Paz
VZCZCXYZ0000
PP RUEHWEB

DE RUEHLP #1782/01 1801503
ZNR UUUUU ZZH
P 291503Z JUN 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 9805
INFO RUEHAC/AMEMBASSY ASUNCION 5967
RUEHBO/AMEMBASSY BOGOTA 3285
RUEHBR/AMEMBASSY BRASILIA 7134
RUEHBU/AMEMBASSY BUENOS AIRES 4391
RUEHCV/AMEMBASSY CARACAS 1674
RUEHPE/AMEMBASSY LIMA 1676
RUEHMD/AMEMBASSY MADRID 3115
RUEHMN/AMEMBASSY MONTEVIDEO 3888
RUEHQT/AMEMBASSY QUITO 4305
RUEHSG/AMEMBASSY SANTIAGO 8862
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS LA PAZ 001782 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG EPET BL
SUBJECT: REPSOL AND PETROBRAS NEGOTIATIONS UPDATE 
 
REF: LA PAZ 1248 
 
1. (SBU) Summary: Hydrocarbons company Repsol 
(Argentina/Spain) told Econoff June 28 that it expected 
Argentina to agree to a price increase on Bolivian natural 
gas exports on June 29.  Press reports on June 29 indicated 
that the agreement would be in effect until December 31 and 
include an export volume commitment of 7.7 million cubic 
meters per day.  Both Repsol and Petrobras (Brazil) 
executives lamented the slow pace of negotiations with YPFB 
(Bolivia's state oil company) following the GOB's May 1 
hydrocarbons nationalization decree.  Petrobras contacts said 
Brazil is worried about Argentina agreeing to a higher gas 
price, as it would put pressure on Brazil to do the same. 
Petrobras is also concerned about possible gasoline shortages 
that may result from YPFB taking over for gas wholesalers on 
June 30 when the wholesalers' contracts expire.  End summary. 
 
 
Argentina - Bolivia Gas Price Negotiations 
------------------------------------------ 
2. (SBU) The Argentinean energy firm Repsol YPF Bolivia told 
Econoff June 28 that Repsol was not involved in the 
negotiations between the governments of Argentina and Bolivia 
concerning the price of Bolivian natural gas exports to 
Argentina.  Repsol executive Miguel Cirbien speculated that 
the current price of around USD 3.53 per million BTU would be 
increased to approximately USD 5 per million BTU and that the 
new price would be announced on June 29 through the release 
of a bilateral agreement (press reports and televised 
statements by the Bolivian Hydrocarbons Minister confirmed 
this).  He said that the price increase would benefit Repsol 
YPF Bolivia, as it would increase sales earnings, but would 
hurt Repsol YPF Argentina, which buys the gas. 
 
3. (SBU) Press reports indicated that the agreement, in which 
Bolivia would pledge to export up to 7.7 million cubic meters 
per day to Argentina, would be in effect until December 31, 
at which time the two nations would sign a 20-year agreement 
for a new price.  Cirbien speculated that the 20-year 
agreement would contain a commitment by the GOB to increase 
gas exports to Argentina from the current rate of around 5 
million cubic meters per day to around 20 million cubic 
meters.  This increase, he explained, would require the 
construction of an additional pipeline to Argentina, which 
would take three to four years to complete.  Also, 
significant additional investment in the Bolivian gas 
industry, including new well perforation, would be required 
to increase Bolivian production capacity.  The GOB would have 
to provide production incentives to obtain additional 
investment, but such incentives/investment seem unlikely 
given the government's current nationalization and taxation 
policies. 
 
Repsol - YPFB Negotiations 
-------------------------- 
4. (SBU) According to Cirbien, negotiations with YPFB (the 
Bolivian state oil company) following the GOB's May 1 
nationalization decree (reftel) are going slowly, as YPFB is 
insisting on "imposition rather than negotiation."  He said 
that the GOB has not yet provided Repsol with a new model 
contract, but promised to do so soon.  He told us that the 
two board members named by the GOB (reftel) to replace the 
two positions formerly held by the pension funds are actively 
participating in board meetings.  The other two directors 
named by the GOB on May 8 have not yet taken up their 
positions, as the GOB has not yet acquired the additional 
shares from Repsol needed for majority control over the 
company.  YPFB is conducting an audit of Repsol and will 
value its shares based on the audit results.  The government 
has not yet made a purchase offer for the approximately 2 
percent of Repsol shares that it will need to gain majority 
control of the company in accord with the nationalization 
decree.  Cirbien concluded that Repsol wants to reach 
agreement with the GOB, but if that is not possible, Repsol 
will resort to international arbitration. 
 
Petrobras - YPFB Negotiations 
----------------------------- 
5. (SBU) An executive from Brazil's Petrobras, Arturo 
Castanos, told Econoff June 28 that Petrobras' negotiations 
with the GOB were going poorly.  The GOB repeatedly asks 
Petrobras for information, but refuses to enter into serious 
discussions, Castanos explained.  He said that the GOB did 
not understand that it should compensate Petrobras for the 
present value of its refineries, rather than the value that 
it paid for them years ago. 
 
Petrobras Worried About Argentina Price Negotiations 
--------------------------------------------- ------- 
6. (SBU) Castanos said Brazil was worried about the June 29 
meeting between Argentina and Bolivia on gas export prices. 
An agreement by Argentina to pay more for Bolivian gas would 
increase the pressure on Brazil to accept a similar increase. 
 Although higher gas prices would benefit Petrobras' Bolivian 
operations, the cost to its Brazilian operation would 
outweigh the benefit.  He said that the agreement between 
Bolivia and Argentina would be political, without economic 
justification.  He did not see how it would be possible for 
Bolivia to agree to provide Argentina more than 7.7 million 
cubic meters per day, as Bolivia lacked the production 
capacity for a higher quantity. 
 
Potential Gasoline Shortages 
---------------------------- 
7. (SBU) Castanos also expressed concern about the scheduled 
June 30 takeover of gas wholesaler responsibilities by YPFB 
(Bolivian state oil company), which could result in gasoline 
shortages and intensify the existing liquid petroleum gas 
(LPG) shortage, likely leading to blockades and protests.  He 
explained that the gas wholesalers' contracts expire on June 
30 and that YPFB would theoretically begin transporting 
gasoline from Petrobras' refineries to gas stations on that 
date, but that it was not prepared to do so.  Petrobras and 
YPFB were also at an impasse regarding payment of 
transportation costs, which YPFB was trying to make the 
refineries pay.  In addition to taking over the wholesalers' 
functions, YPFB also plans to acquire ownership of the 
nations' 450 gas stations (400 are privately owned, 50 belong 
to YPFB already). 
 
8. (SBU) Comment: Although there is private sector interest 
in investing in an additional pipeline between Argentina and 
Bolivia, there is little interest in investing in Bolivian 
production given the current political climate and high 
taxation rates.  Without this investment, Bolivia would not 
be able to meet additional gas export requirements to 
Argentina, meaning that any agreement to increase export 
volumes would be more of a declaration of intent than a 
binding commitment.  The announcement of a gas price increase 
for Argentina three days prior to constituent assembly 
elections may boost the MAS' (Movement Toward Socialism 
party) popularity at the polls.  However, the current LPG 
shortage and potential gasoline shortages due to GOB policies 
could have the opposite effect, neutralizing the benefit of 
such an announcement.  End comment. 
GREENLEE