VZCZCXRO3843
OO RUEHRG
DE RUEHBU #0119/01 0172116
ZNR UUUUU ZZH
O 172116Z JAN 06
FM AMEMBASSY BUENOS AIRES
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UNCLAS SECTION 01 OF 05 BUENOS AIRES 000119 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
WHA FOR AMBASSADOR TOM SHANNON, AMBASSADOR CHARLES SHAPIRO 
AND PATRICK DUFFY 
NSC FOR DAN FISK 
SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA 
USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER 
 
E.O. 12958: N/A 
TAGS: PREL ECON EINV ENRG EFIN AR BL VE
SUBJECT: MINISTER DE VIDO DISCUSSES ECONOMIC AND ENERGY 
ISSUES WITH CODEL MCCONNELL 
 
 
------- 
Summary 
------- 
 
¶1.  (SBU) Minister of Planning Julio DeVido received CODEL 
McConnell on January 11.  DeVido noted that the GOA and the 
U.S. Embassy had a constant dialogue and that they worked 
together to monitor the status of U.S. companies in 
Argentina.  DeVido said he was optimistic about the future of 
the Argentine economy but admitted that inflation is now the 
GOA's major challenge.  He highlighted the GOA's growing 
investment in infrastructure and public works.  DeVido said 
the GOA had been faced with a potential energy crisis when it 
took office and that this crisis had been averted by 
importing natural gas from Bolivia and fuel oil from 
Venezuela.  The Ministry of Planning is now trying to 
negotiate the long-tern purchase of 20 million cubic meters 
of natural gas per day from Bolivia to supply to proposed USD 
1.2 billion Northeastern Natural Gas Pipeline (GNA).  Plans 
are also moving forward for the construction of a USD 11 
billion natural gas pipeline from Puerto Ordaz, Venezuela to 
northeast Brazil and from there to Sao Paulo and on to 
Argentina.  Finally, DeVido said the GOA plans to use the 
greater mandate it obtained in the October 23, 2005 elections 
to pass legislation that would promote investment in the 
energy sector and obtain support for long-term economic 
policies.  End Summary. 
 
---------------------------------------- 
The Status of the Bilateral Relationship 
---------------------------------------- 
 
¶2.  (U) Minister of Planning Julio DeVido received CODEL 
McConnell on January 11.  DeVido was accompanied by economic 
advisor and Secretary of Communications Guillermo Moreno. 
CODEL McConnell was accompanied by the Ambassador and the 
Economic Counselor (notetaker).  DeVido began the meeting by 
reminding the delegation that his first official meeting as 
Minister of Planning was with Senator Mel Martinez when the 
then-U.S. Secretary for Housing and Urban Development led the 
U.S. delegation to the inauguration of President Kirchner on 
May 26, 2003.  Senator Mitch McConnell asked DeVido for his 
thoughts and said that the delegation would later like to ask 
a number of questions. 
 
¶3.  (SBU) DeVido noted that the GOA and the U.S. Embassy had 
a constant dialogue and that they worked together to monitor 
the status of U.S. companies in Argentina.  The venue for 
this joint effort had been his personal office and a series 
of meetings and events at the Ambassador's residence.  DeVido 
explained that Argentina's economic crisis had led to the 
renegotiation of public service contracts.  Thanks to the 
good offices of the U.S. Embassy, a constructive dialogue had 
developed that resulted in U.S. companies like AES and 
Pioneer Natural Resources being the first companies to had 
waive their ICSID international arbitration claims and enter 
into new agreements with the GOA. 
 
¶4.  (SBU) DeVido added that he had traveled to the U.S. in 
December at the invitation of the Council of the Americas in 
New York, where he had met with an audience of 300 
businessmen who were "very interested in investing" in his 
areas of responsibility, e.g., energy, mining, 
transportation, communications, and infrastructure/public 
works.  He had also met separately with Deutschebank, 
Fintech, ExxonMobil, and CMS, all of whom "are interested in 
investing in Argentina."  He said he was now working with 
Argentine Consul General in New York Hector Timmerman to 
organize a reverse visit with U.S. investors in Buenos Aires 
in April. 
 
BUENOS AIR 00000119  002 OF 005 
 
 
 
--------------------- 
The Argentine Economy 
--------------------- 
 
¶5.  (SBU)  DeVido said he was optimistic about the future of 
the Argentine economy.  The GOA had renegotiated its private 
debt and had paid off its IMF debt in full.  Total debt has 
been reduced by USD 67 billion to USD 110 billion and debt as 
a percent of GDP has been reduced from 150 percent to 50 
percent.  GDP has increased by 9 percent per year for the 
last three years and the Ministry of Planning believes 
Argentina can reach 9 percent growth again in 2006. 
Unemployment was 23 percent when President Kirchner took 
office and is now 10 percent.  Inflation was 12 percent in 
2005 and is expected to be at the same level or reduced to 11 
percent in 2006.  DeVido also admitted that inflation is now 
the GOA's major challenge.  The solution is for consumer 
protection agencies to establish clearer ground rules for 
competition and for the state "to recover its former ability 
to examine cost structures" to determine adequate pricing. 
 
¶6.  (SBU)  DeVido highlighted the GOA's growing investment in 
infrastructure and public works, including housing, ports, 
airports, roads and bridges.  Investment in infrastructure 
and public works has increased from USD 800 million in 2003 
to USD 1.8 billion in 2004, USD 2.7 billion in 2005 and a 
projected USD 4 billion in 2006.  Regarding the U.S., the 
Ministry of Planning is working with the Secretary of 
Communications in Brazil on the digitization of TV.  The 
Ministry of Planning is very interested in U.S. Secretary of 
Commerce Carlos M. Gutierrez' offer to work with Argentina on 
the U.S. digital TV standard.  President Kirchner will make a 
state visit to Brazil to meet with President Lula on January 
18 and this subject will probably be discussed at that time. 
 
 
--------------------------- 
Argentina's Energy Equation 
--------------------------- 
 
¶7.  (SBU)  DeVido said the GOA had been faced with a 
potential energy crisis when it took office.  This crisis had 
been averted using guidelines provided by President Kirchner 
and the Energy Plan that the Ministry of Planning announced 
in May 2004.  The Energy Plan was based on the expansion of 
the electric transportation system, which is already under 
way, and the construction of additional power generation 
capacity, which will soon be put out for bid.  The Ministry 
of Planning intends to build two combined-cycle power 
generating plants north and south of Rosario, in Santa Fe 
Province, with a combined capacity of 1,000 megawatts.  He 
said that he had already spoken to GE of the U.S., Alcatel 
Alsthom of France, and Mitsubishi of Japan about these 
projects and that he expected great participation in the 
bidding process.  He added that Citigroup of the U.S. had 
recently offered to finance this and other gas-fired thermal 
power projects. 
 
¶8.  (SBU) DeVido explained that Argentina's energy equation 
was heavily dependent on natural gas, with natural gas 
providing over 50 percent of Argentina's energy needs.  The 
production and transport of natural gas was one of the 
bottlenecks that the Ministry of Planning found when he took 
office.  The Ministry of Planning solved this problem in the 
winter of 2004 by: 1) importing 5 million cubic meters of 
natural gas per day via the then-unused Yacuiba-Pocitos 
natural gas pipeline between southern Bolivia and northwest 
Argentina; and 2) importing 200,000 tons of fuel oil from 
Venezuela to be used in Argentina's coastal power plants, 
 
BUENOS AIR 00000119  003 OF 005 
 
 
displacing natural gas for use in other sectors (such as 
industrial manufacturing and residential heating). 
 
¶9.  (SBU) The Ministry of Planning is now trying to negotiate 
the long-term purchase of 20 million cubic meters of natural 
gas per day from Bolivia to supply the proposed USD 1.2 
billion Northeastern Natural Gas Pipeline (GNA) which would 
provide natural gas for the provinces of Salta, Jujuy, 
Formosa, Chaco, Corrientes, Misiones, Entre Rios and Santa 
Fe, including the industrial center and port of Rosario. 
Describing Argentina's regional energy relationship, DeVido 
said that Argentina consumes 130 million cubic meters of 
natural gas per day, exports 20 million cubic meters per day 
to Chile, imports 5 million cubic meters per day from 
Bolivia, and wants to increase this latter amount to 25 
million cubic meters per day.  This is much different than 
Brazil, which consumes 65 million cubic meters per day and 
imports 27 million cubic meters per day from Bolivia.  This 
means that Brazil is and will continue to be much more 
dependent on natural gas from Bolivia than Argentina, even 
after the proposed construction of the GNA pipeline.  The 
price for the purchase of Bolivian natural gas would be part 
of the President Kirchner discussions with President Lula on 
January 18. 
 
¶10.  (SBU) Plans are also moving forward for the construction 
of a USD 11 billion natural gas pipeline from Puerto Ordaz, 
Venezuela to northeast Brazil and from there down to Sao 
Paulo and on to Argentina.  Brazil would be able to finance 
most of the project, since 90 percent of the pipeline would 
be in Brazil, with only 5 percent in Venezuela and 5 percent 
in Argentina.  The GOA would also go to the international 
markets to help finance its part of the project.  The supply 
of Venezuelan natural gas is very important to the Sao 
Paulo-Rosario-Buenos Aires industrial axis and would have a 
great economic impact on both countries.  Comment: Local 
energy analysts argue that the lack of natural gas reserves 
in Venezuela, high construction costs, lack of financing and 
environmental challenges, such as crossing the Amazon, make 
this project unfeasible.  The explain that much of the 
associated natural gas found in Venezuela is reinjected into 
the fields to extract oil.  At the same time, there is not 
enough unassociated natural gas to justify such a pipeline. 
End Comment. 
 
¶11.  (SBU) Senator Richard Burr asked why the Ministry of 
Planning was involved in organizing the construction of 
additional power generating capacity in a sector that had 
been privatized.  DeVido responded that the Ministry of 
Planning had to subsidize the difference between the fixed 
price of domestically produced natural gas and the imported 
price of fuel oil for power generation in those plants that 
were forced to use fuel oil and that the government had 
required those plants to invest 65 percent of their subsidies 
in additional power generating capacity.  The rest of the 
financing will come from an industrial tariff increase that 
will be refunded to the industrial users after a five year 
grace period. 
 
--------------------- 
Bolivia and Venezuela 
--------------------- 
 
¶12.  (SBU)  Senator John Thune said the U.S. appreciates 
Argentina's contribution to democracy in the hemisphere, its 
support in the UN with non-proliferation in Iran, its 
cooperation on counterterrorism in the tri-border area, its 
economic partnership with U.S. companies in Argentina, and 
its cooperation with security interests in the region.  He 
stressed that both countries had much in common in shared 
 
BUENOS AIR 00000119  004 OF 005 
 
 
values and objectives and congratulated Argentina on its 
economic turnaround.  He then asked DeVido for his assessment 
of developments in Bolivia and Venezuela. 
 
¶13.  (SBU)  Regarding Bolivia, DeVido replied that the GOA 
has always supported the Government of Bolivia and is 
currently providing USD 50 million per year in royalties for 
the purchase of natural gas.  The purchase of additional 
volumes of natural gas from Bolivia would provide even more 
resources for the GOB.  DeVido said he had tried to make 
contact with the Morales team on two occasions, but both 
meetings were canceled.  DeVido observed that it is unclear 
how the leadership within the Morales government will be 
consolidated, since there are divisions between Morales' 
supporters.  President-Elect Evo Morales Ayma, 
Vice-President-Elect Alvaro Garcia Linera and two gas experts 
will be coming to Buenos Aires on January 17, which will be 
the GOA's first opportunity to meet with the Morales team. 
"We can't say that Bolivia is like Venezuela, yet," he said. 
 
 
¶14.  (SBU)  Concerning Venezuela, DeVido responded that the 
GOA had increased Argentina's commercial relationship with 
Venezuela from USD 150 million to USD 1 billion.  The GOA 
purchased fuel oil from Venezuela in 2004 and 2005 and the 
payment for this fuel oil has gone into a fund that has been 
used to purchase hydroelectric equipment from an Argentine 
turbine manufacturer, agricultural tractors and combines, 
medical equipment, and agricultural technology, especially in 
the areas of soybeans and beef.  The newly established 
Argentine state oil company ENARSA will also be working with 
private oil companies to exploit a heavy oil area along the 
Orinoco River.  The Ministry of Planning has also invited 
Venezuelan oil company PDVSA to explore for oil and gas in 
Argentina's offshore blocks, but the Ministry of Planning 
"has not signed anything yet."  Comment: The GOA announced on 
January 11 that Repsol YPF of Spain, Petrobras of Brazil, 
ANCAP of Uruguay and ENARSA had agreed to invest between USD 
40 and USD 100 million in the exploration of oil in the 
Cuenca Colorado Marina offshore block east of Buenos Aires 
Province.  This will be the GOA/ENARSA's first entry into oil 
and gas activities since formerly state-owned YPF was 
privatized in 1999.  End Comment. 
 
¶15.  (SBU)  Senator Thune said the GOA was in a position to 
use Argentina's growing economic relationship with Venezuela 
to support democracy in that country.  DeVido responded that 
President Kirchner had met with the Venezuelan opposition. 
He also thought it was a mistake for the Venezuelan 
opposition to refuse to participate in the recent national 
elections.  "You can lose one election," he reasoned, "but 
you can win another." 
 
--------------------- 
Intellectual Property 
--------------------- 
 
¶16.  (SBU)  Senator Burr said that U.S. investors needed to 
know that their intellectual property would be protected if 
they invested in Argentina.  He then asked how the Ministry 
of Planning treated intellectual property from outside the 
country.  DeVido said that the royalties in his areas of 
responsibility were always paid and that he did not know if 
any IPR conflicts in his area.  He acknowledged that there 
were conflicts in the agricultural and pharmaceutical 
sectors, but these areas were outside his area of 
responsibility, in which case it would be better to consult 
with the Ministry of Foreign Affairs.  Senator Burr noted 
that there was an issue regarding the analog to digital 
conversion of broadcast TV to protect movie producers from 
 
BUENOS AIR 00000119  005 OF 005 
 
 
illegal reproduction.  DeVido replied that he understood the 
Senator's concern. 
 
¶17.  (SBU)  Senator Martinez congratulated DeVido on the GOA 
for its success in overcoming a severe economic and political 
crisis and for having restored peace of mind to the Argentine 
people.  He added that the U.S. is concerned about Latin 
America and wants to establish a better and closer 
relationship with the region. 
 
¶18.  (SBU)  Senator McConnell asked what the GOA planned to 
do with the greater mandate it had obtained as a result of 
the October 23, 2005 national elections.  DeVido replied that 
governance would be much easier since the GOA now had the 
simple majority that is needed for the passage of most 
legislation.  The GOA also has a series of bills that it 
hopes to pass this year.  For example, the Ministry of 
Planning has prepared draft legislation that would convert a 
presidential decree into a law to promote investment in the 
energy sector, such as oil and natural gas pipelines and 
power plants.  Converting the presidential decree into a law 
will provide greater judicial security for investors, lower 
the interest rates on the financing needed for projects in 
the sector, and thereby facilitate investment.  The GOA will 
also use its mandate to work with the political opposition to 
obtain support for long-term economic policies. 
 
GUTIERREZ