VZCZCXRO2651
PP RUEHRG
DE RUEHBR #0024/01 0041907
ZNR UUUUU ZZH
P 041907Z JAN 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 4091
INFO RUEHSO/AMCONSUL SAO PAULO 6018
RUEHRI/AMCONSUL RIO DE JANEIRO 1261
RUEHRG/AMCONSUL RECIFE 4117
RUEHMN/AMEMBASSY MONTEVIDEO 5953
RUEHBU/AMEMBASSY BUENOS AIRES 3676
RUEHAC/AMEMBASSY ASUNCION 5118
RUEHCV/AMEMBASSY CARACAS 3068
RUEHPE/AMEMBASSY LIMA 2792
RUEHQT/AMEMBASSY QUITO 1684
RUEHSG/AMEMBASSY SANTIAGO 5238
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHDC
RUCPDO/USDOC WASHDC
RHEBAAA/USDOE WASHDC

UNCLAS SECTION 01 OF 02 BRASILIA 000024 
 
SIPDIS 
 
NSC FOR CRONIN 
STATE PASS USTR FOR MSULLIVAN 
TREASURY FOR OASIA - DAS LEE AND FPARODI 
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON 
AID/W FOR LAC/SA 
DOE FOR SLADISLAW 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EPET PREL EFIN BR
SUBJECT: BRAZIL ADOPTS WAIT AND SEE ATTITUDE REGARDING 
BOLIVIAN ENERGY POLICY 
 
REF:  A) 2005 BRASILIA 1503, B) 2005 BRASILIA 943, C) 2005 
SAO PAULO 721 
 
¶1. (U) This cable was coordinated with AmConsulate Rio de 
Janeiro. 
 
¶2. (SBU) Summary. In recent discussions with Embassy 
officials, Ministry of Mines and Energy officials told us 
that Brazil, for various reasons, is adopting a wait and see 
attitude on the Bolivian energy situation in the wake of the 
victory of Bolivian President-elect Morales.  While the Lula 
Administration would like to be supportive of Morales, a 
fellow leftist, at the same time it worries about the loss 
of Petrobras' massive investment in Bolivia and reliability 
of natural gas exports from that country.  With the holiday 
period intervening, only now are high-level Brazilian 
policymakers beginning to seriously consider the Bolivian 
situation.  End Summary. 
 
¶3. (SBU) In the wake of the victory of President-elect 
Morales in last month's Bolivian elections, Brazilian 
energy sector policymakers are anxiously waiting to see what 
develops on their western front.  On January 3, Ministry of 
Mines and Energy (MME) International Affairs Advisor Rubem 
Barbosa told Econoffs that the GOB has three (hopefully not 
inconsistent) objectives with respect to the new 
government's energy policy.  First, given the intense 
turmoil in Bolivia over the past few years, the GOB wants to 
be as supportive as possible to the new Morales-led 
government.  When Lula met with then-presidential candidate 
Morales in Brasilia in late 2005, Barbosa noted, the latter 
had emerged from that session declaring that if elected he 
would seek to buy out/nationalize Petrobras operations in 
Bolivia.  If that was what Morales wanted, Barbosa 
continued, then the Government of Brazil would respect his 
wishes.  Barbosa thought that, so far, President-elect 
Morales has been somewhat restrained regarding his 
statements on energy policy, adding that this could easily 
change as Morales' radical supporters began to demand quick 
results. 
 
¶4. (SBU) Second, Barbosa stated, Brazil also has a key 
interest in defending Petrobras' exploration, refinery, and 
distribution assets; with US$1.6 billion invested in 
Bolivia, Petrobras represents more than 15% of the country's 
GDP and 20% of the tax base.  (Comment:  In his remarks to 
us, Barbosa did not address the apparent contradiction 
between policy goals one and two.  End Comment.)  Thirdly, 
Barbosa noted, Brazil seeks to ensure continued access to 
Bolivian natural gas exports to meet domestic demand. 
Currently, Brazil is importing 23 billion cubic meters of 
gas per day through the pipeline pursuant to its take or pay 
contract.  Given burgeoning domestic demand, MME officials 
would like this total to rise to 30 billion by the end of 
2006, at which point (assuming Bolivia was willing) the two 
sides would negotiate planned investments to expand pipeline 
capacity.  Notwithstanding all the recent instability in 
Bolivia, that country, Barbosa emphasized, has traditionally 
been a reliable supplier and has not restricted the flow of 
gas to Brazil - something that cannot be said of the 
Russians with respect to Ukraine or even Argentina with 
respect to Brazil. 
 
¶5. (SBU) Barbosa noted that several factors complicate the 
Ministry's ability to forge a coherent Bolivia policy. 
First, no one really knew what Morales's bottom line was. 
Second, with the principal Ministries (Foreign Affairs, MME, 
 
BRASILIA 00000024  002 OF 002 
 
 
etc.) in recess from December 18 to early January, the 
Brazilian interagency process had barely begun to deal with 
this issue.  For instance, while Minister of Mines and 
Energy Rondeau was being considered to represent Brazil at 
the January 22 Morales inauguration, Lula could well end up 
selecting someone else.  Similarly, no one knew what 
significance (if any) there was to Cuba being the first stop 
on President-elect Morales' multi-country trip abroad -- and 
Brazil the last.  Indeed, there had been no announcement 
from the Brazilian side regarding the Morales visit, Barbosa 
noted, possibly because so many decisionmakers were either 
on leave or out of the country.  Finally, Barbosa observed 
that Brazilian policymaking was further complicated by the 
division between Petrobras and the Ministry.  Petrobras 
acted in furtherance of its own commercial interests, he 
said, while the Brazilian government took a more policy- 
oriented role.  These two perspectives may not necessarily 
lead to the same result. 
 
¶6. (SBU) Comment.  Barbosa, a career diplomat detailed to 
MFA, tiptoed around what others here have enunciated more 
clearly:  the difficulty of incorporating the independent- 
minded Petrobras into Brazilian government decisionmaking. 
For its part, Petrobras is keeping a low public profile on 
Bolivia issues and is talking neither to the U.S. Mission 
nor the press.  One explanation for this, offered to 
Consulate Rio by the Chief Economist at the industrial giant 
CVRD, is that Petrobras officials understand the delicate 
nature of the situation and are simply acting with 
diplomacy.  An alternative view is that Petrobras now 
realizes that, whether egged on by Brasilia or not, it may 
have erred in sinking so much investment into a country with 
such striking economic, social, and political disparities as 
Bolivia. 
 
¶7. (SBU) Comment continued.  The Brazilian government is 
caught in between a rock and a hard place with no mountain- 
climbing equipment in sight.  Anxious to promote greater 
South American integration (led, of course, by Brazil), from 
a political perspective Lula would like to be as solicitous 
as possible to Morales, even if it means accepting 
nationalization -- with something approaching market 
compensation -- of Petrobras' assets.  However, equally 
aware that the Brazilian economy relies heavily upon 
continued access to Bolivian natural gas (at least in the 
short-term, until Brazil's Campos basin is fully developed, 
circa 2010 at the earliest), the Brazilian government 
realizes that it may have to play hardball.  If Bolivia is 
willing (and capable) of agreeing to a commercial solution 
to both the buy-out/nationalization and gas supply issue 
whereby all remains the same but the Brazilians just end up 
paying more, then this dispute is one that can be resolved. 
If that is not the case, then Brazil is in for some very 
interesting, but possibly politically and financially 
painful, times ahead. 
 
CHICOLA