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Viewing cable 06MEXICO4494, MESOAMERICAN ENERGY INITIATIVE MOVES AHEAD DESPITE

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Reference ID Created Released Classification Origin
06MEXICO4494 2006-08-11 18:44 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Mexico
VZCZCXRO8401
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #4494/01 2231844
ZNR UUUUU ZZH
P 111844Z AUG 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 2645
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHBE/AMEMBASSY BELIZE 1386
RUEHBO/AMEMBASSY BOGOTA 3676
RUEHGT/AMEMBASSY GUATEMALA 3470
RUEHMU/AMEMBASSY MANAGUA 0904
RUEHZP/AMEMBASSY PANAMA 2120
RUEHSJ/AMEMBASSY SAN JOSE 1497
RUEHSN/AMEMBASSY SAN SALVADOR 2344
RUEHDG/AMEMBASSY SANTO DOMINGO 0696
RUEHTG/AMEMBASSY TEGUCIGALPA 1564
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 03 MEXICO 004494 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC, EB/ESC 
DOE FOR INTERNATIONAL AFFAIRS MPRINIOTAKIS KDEUTSCH AND 
SLADISLAW 
DOC FOR ITA/TD/ENERGY DIVISION 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EPET MX
SUBJECT: MESOAMERICAN ENERGY INITIATIVE MOVES AHEAD DESPITE 
DOUBTS 
 
REF: MEXICO 374 AND PREVIOUS 
 
Sensitive but unclassified, entire text. 
 
------- 
Summary 
------- 
 
1.  (SBU) Under the Mesoamerican Energy Integration Plan 
(PIEM), the GOM is continues to vigorously promote 
construction a refinery in either Panama or Guatemala to 
serve as an outlet for heavy Mexican crude, as well as 
provide development opportunities and reasonably priced 
energy supplies for the region.  Mexican Undersecretary for 
Hydrocarbons, Hector Moreira, the project leader, met with 
energy companies in Houston July 12 to encourage 
participation in the effort.  Participating countries and 
organizations met August 10 in Guatemala to develop 
methodology and a timetable for (1) identifying a private 
firm to construct the facility, or (2) selecting a firm to 
partner with Pemex to build the refinery.  Meanwhile, Pemex 
CEO Luis Ramirez Corso has been quoted in the Mexican press 
expressing his doubts about the project's viability and 
necessity at the same time our GOM interlocutors dismiss his 
comments.  While GOM officials involved understand the 
difficulty of attracting an international oil company to 
build the facility, they remain optimistic.  PIEM 
participants will also announce a contractor to conduct a USD 
600 thousand Interamerican Development Bank feasibility study 
for construction of a natural gas pipeline from Colombia 
through the region to Guatemala. 
 
-------- 
Refinery 
-------- 
 
2.  (SBU) On July 12, 2006 Mexican Hydrocarbon Undersecretary 
Hector Moreira, responsible for the PIEM refinery project, 
briefed IOCs including ExxonMobil, Chevron, Valero, Shell and 
Saudi Aramco in Houston on Mexican plans for the project. 
Moreira sought to build interest in the construction of a 
refinery in Panama, Guatemala, or any other Central American 
country that would want the project. The basis of the 
briefing was the information contained in the IDB/GOM 
documents on the project we previously provided to WHA/EPSC. 
  Moreira explained that Mexico had abandoned its earlier 
idea of an "empresa integradora" that would contract the 
crude and sell the products allowing the refinery to process 
crude on a fee for service basis.  The GOM does appear 
convinced that inputs and output from the facility be 
provided at market prices. 
 
3.  (SBU) As previously reported (reftels), Mexico would 
provide Mayan crude as a feedstock through a long term 
contract.  Econoff met with both the Chevron representative 
who attended the presentation, and the ExxonMobil's Country 
President familiar with the project.  Both reported that 
their engineers were studying the proposal, but without some 
government subsidy, the rate of return for the refinery did 
not seem to be close to the internal thresholds necessary to 
consider it. 
 
4.  (SBU) The company representatives added U.S. firms were 
already supplying the region effectively from Gulf Coast 
refineries.  Any production from the proposed PIEM project 
would result in lost sales from existing facilities.  The 
ExxonMobil President wondered aloud, with the steep decline 
from Cantarell, where Mexico would get the heavy crude to 
load the facility, and whether Mexico would end up purchasing 
crude just to load the PIEM refinery. 
 
5.  (SBU) According to Luis Landa, Director General for 
Bilateral Economic Relations at the Secretariat of Foreign 
Affairs (SRE), Mexican officials met with their Central 
 
MEXICO 00004494  002 OF 003 
 
 
American partners, the IDB, and representatives of KBC, the 
firm that conducted the PIEM refinery feasibility study, 
August 10 in Guatemala to develop a final plan to engage 
interested companies in the project.  KBC was also to present 
the outcome of its study to the group.   While Landa said 
that a plan to move ahead would come out of the August 10 
meeting, he told us the GOM would suggest that Pemex's 
marketing arm (PMI) issue an invitation, likely before the 
end of August, to foreign firms inviting them to build 
refinery.  PMI would also steward the selection process. 
 
6.  (SBU) The firms invited to consider partnering in the 
refinery would likely be asked to pay USD 10 to 20,000 as an 
"information fee" giving them access to the feasibility 
studies done by KBC, as well as the right to interview 
"anyone in Central America" about the project.  Once the 
firms paid the information fee, they would likely have a 
relatively short time -- about a month -- to state 
unequivocally whether they would want to pursue the bid. 
 
7.  (SBU) Mexico, represented by Pemex, along with Panama, 
and Guatemala would decide between the firms, if more than 
one firm wanted to move forward following the due diligence 
phase, though Landa admitted that it was much more likely 
that no company would show interest in the project.  In that 
case, he described a "Plan B" in which Pemex, partnering with 
a private firm, would seek build the Central American 
facility. 
 
8.  (SBU) After all participants agreed on a path forward at 
the August 10 meeting, Landa foresaw Energy Ministers from 
the participating countries meeting in Panama August 25 to 
"bless" the agreed on process.  At the August 25 meeting, 
Pemex would also introduce the idea that Pemex, through PMI, 
represent the interest of all the parties when dealing with 
the IOCs. 
 
9.  (SBU) Landa noted that as the companies decide whether or 
not to participate in the refinery project, they will be free 
to negotiate terms with Guatemala or Panama -- the countries 
selected by the KBC study -- or any other location in Central 
America they wish.   According to Landa, under current GOM 
thinking, Pemex would supply crude for the project under a 
long term contract at market based prices and product from 
the refinery would be available to the region at market 
prices.  The host country, whether Guatemala, Panama, or any 
other Central American state, would offer incentives to the 
refinery owner such as free land, water, or electricity; tax 
abatements; or housing and education for refinery employees. 
KBC would provide all parties with a "checklist" of 
"appropriate" incentives for the refinery owner. 
 
 
10.  (SBU) Despite Landa's assessment of Pemex participation, 
Pemex officials do not all seem to support the effort.   The 
Mexican Daily Reforma published an interview with Pemex CEO 
Luis Ramirez Corso in which he said supplying the PIEM 
refinery would interfere with Pemex's own plans to build a 
new train at their Salina Cruz refinery.  The PIEM project, 
Ramirez Corso added, would need 230 thousand barrels per day 
or more of Mexican crude that Pemex would rather refine 
itself.  After the article appeared, we spoke with a Pemex 
representative who confided that, while the company would 
comply with the Fox Administration's wishes, it did not see 
the Central American project as an attractive option. 
 
11.  (SBU) In response to Ramirez Corso's statements, Energy 
Secretary Canales said that Mexico needed to diversify its 
 
SIPDIS 
own outlets for crude.  The article went on to quote an 
unnamed Energy Secretariat (SENER) source who said the 
opposing views between the government and Pemex were simply a 
difference in strategy, a position we also heard from SENER 
officials directly.  We were also told that Hacienda would 
not approve funds for Pemex's planned expansion of the Salina 
 
MEXICO 00004494  003 OF 003 
 
 
Cruz refinery. 
 
12.  (SBU) In closing, Landa was realistic about the 
refinery's chances for success calling it "a long shot."  The 
IOCs had told Mexico they would need refining margins "as 
wide as they are right now" guaranteed for the life of the 
project.  No country could guarantee that, but Mexico would 
provide potential investors with guaranteed crude supply, a 
local market, and the country that would host the project 
would provide incentives.  He added that KBC had suggested 
that a Guatemala refinery could be used as a mechanism to use 
Mexican crude to supply gasoline to California -- an 
attractive bonus.     While most companies remained 
skeptical, Landa suggested that Valero was the most 
interested of the refiners. 
 
------------------- 
Other PIEM Projects 
------------------- 
 
13.  (SBU) Landa added that the IDB was preparing to announce 
at the August 10 meeting, the consulting firm that would 
complete the study of the proposed Central American gas 
pipeline.  The winning firm will receive USD 600 thousand to 
develop a feasibility study for the pipeline that the 
participating countries propose will run from Columbia, 
through Central America to Guatemala to supply Colombian gas 
to the region.  Officials expect the consulting firm will 
have the initial feasibility study completed by October 31. 
The study will address pipeline routing as well as assess the 
likelihood that the countries could create natural gas demand 
through construction of distribution systems and gas fired 
power plants.  The GOM continues to work with Central 
American governments on the renewable and energy efficiency 
agendas that are also part of the PIEM plan. 
 
 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
 
GARZA