VZCZCXYZ0001
PP RUEHWEB

DE RUEHLP #0186/01 0242118
ZNR UUUUU ZZH
P 242118Z JAN 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 7867
INFO RUEHAC/AMEMBASSY ASUNCION 5549
RUEHBO/AMEMBASSY BOGOTA 2812
RUEHBR/AMEMBASSY BRASILIA 6683
RUEHBU/AMEMBASSY BUENOS AIRES 3897
RUEHCV/AMEMBASSY CARACAS 1258
RUEHPE/AMEMBASSY LIMA 1152
RUEHMN/AMEMBASSY MONTEVIDEO 3519
RUEHQT/AMEMBASSY QUITO 3899
RUEHSG/AMEMBASSY SANTIAGO 8411
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 000186 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: BL ECON EINV EMIN ENRG EPET ETRD PGOV
SUBJECT: MAS ECONOMICS TEAM: STRONG SOCIAL AWARENESS, WEAK 
ECONOMICS 
 
REF: 05 LA PAZ 3670 
 
¶1. (SBU) Summary: If reports about its economic transition 
teams are any indication, the future Movement Toward 
Socialism (MAS) government will have lots to learn.  Current 
government ministers have told us that the MAS mining, 
economic development, and hydrocarbons teams conspicuously 
lack technical and administrative experience and have 
unrealistic ideas about mining taxation, free trade, and 
foreign assistance.  The MAS transition teams have requested 
that four hydrocarbons-related supreme decrees be suspended 
and appear to define "nationalization" as state control over 
commercialization and the establishment of service-based 
contracts.  End summary. 
 
Minister of Mining Predicts Royalty Increase 
--------------------------------------------- 
¶2. (SBU) Minister of Mining Dionisio Garzon told the 
Ambassador recently that few of the incoming Morales 
administration's mining transition team members have mining 
or technical backgrounds, noting that some said they wanted 
to impose royalties as high as 11 percent of the value of 
extracted minerals, or roughly half of company profits. 
(Companies currently pay two to seven percent.)  Garzon said 
he had acknowledged that royalties needed to be raised but 
had argued that raising them by that much would render most 
projects unprofitable, potentially forcing companies to 
cancel existing projects or delay new investments.  Garzon 
said the three U.S. companies operating in Bolivia will have 
no legal recourse if the new administration introduces 
royalty hikes because of the special status of mining and 
exploration concessions granted by the state (which differ 
from contracts with the Bolivian Mining Corporation).  Garzon 
believed the new mining minister would likely be associated 
with the mining cooperatives, which often take positions 
antagonistic to large mining multinationals. 
 
Incoming Economic Team Inexperienced 
------------------------------------ 
¶3. (SBU) In recent meetings with Econoffs, Minister of 
Economic Development Carlos Diaz and lead Andean Free Trade 
Agreement (FTA) negotiator Julio Alvarado said that few 
personnel of the relevant MAS transition team had technical 
backgrounds or previous government experience and that many 
evinced a tendency to think on a local rather than on a 
national level.  Alvarado told us a decision on whether to 
continue FTA negotiations would likely be delayed as the 
incoming administration mulls over its priorities.  Minister 
Diaz doubted the team understood the importance of an 
agreement and noted that team members expressed more interest 
in potential salaries for future MAS appointees than in the 
FTA or other economic issues, including the Millennium 
Challenge Account.  Both speculated that the new lead FTA 
negotiator may be Ramiro Uchani, an indigenous leader of 
small and medium enterprise associations in El Alto. 
 
Service Contracts and State-controlled Sales: The Future of 
Hydrocarbons? 
--------------------------------------------- 
¶4. (SBU) Hydrocarbons Minister Mauricio Medinaceli told 
Econoffs recently that he had held four meetings with the MAS 
hydrocarbons transition team, some of whom had 
sector-relevant experience.  These included Carlos Villegas 
(MAS Economic Adviser), Jorge Alvarado (MAS candidate for 
Cochabamba Prefect who has an energy background and some 
knowledge of the sector), Barninia Daza (affiliated with 
YPFB, the State Oil Company), Eduardo Valdiviezo (former 
employee of Chaco oil company), Andres Solis Rada (leftist 
journalist and former NFR deputy), and several individuals 
affiliated with social sector watchdog groups.  Medinaceli 
lamented that his administration would not be able to 
implement four recently drafted supreme decrees (reftel), as 
the incoming administration had pressured them to take no 
action.  The four decrees concern: 1) lowering the price of 
jet fuel for international carriers; 2) changing gas 
 
transportation regulations -- U.S.-invested Transredes is 
waiting for these regulations to secure loans to move forward 
on a pipeline construction project that has been pushed by 
the GOB; 3) regulations concerning royalty payments; and 4) 
regulations on tax breaks for producers with small fields, 
which will affect U.S.-invested Vintage Petroleum.  (Note: 
Vintage representatives are satisfied with the proposed 
regulations.  End note.)  Medinaceli also complained that the 
MAS transition team had disclosed information from the 
meetings to the press, including the idea that the price of 
Bolivian gas sold to Argentina would increase.  Medinaceli 
told us that, judging from his discussions with the 
transition team, the MAS understood "nationalization" to mean 
moving from shared risk contracts to operation or 
service-based contracts, coupled with the state's assuming 
control over the commercialization of gas. 
 
¶5. (SBU) Comment: The MAS economic transition teams appear to 
place a premium on social sector representation rather than 
on subject matter expertise.  This could play well with the 
future government's social sector bases in the early going, 
but the lack of experience and the flirtation with 
investment-unfriendly ideas could prove costly in the longer 
run.  End comment. 
GREENLEE