VZCZCXYZ0015
PP RUEHWEB

DE RUEHLP #0216/01 0302026
ZNR UUUUU ZZH
P 302026Z JAN 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 7896
INFO RUEHAC/AMEMBASSY ASUNCION 5564
RUEHBO/AMEMBASSY BOGOTA 2827
RUEHBR/AMEMBASSY BRASILIA 6698
RUEHBU/AMEMBASSY BUENOS AIRES 3912
RUEHCV/AMEMBASSY CARACAS 1273
RUEHPE/AMEMBASSY LIMA 1167
RUEHLO/AMEMBASSY LONDON 0075
RUEHMD/AMEMBASSY MADRID 3086
RUEHMN/AMEMBASSY MONTEVIDEO 3532
RUEHFR/AMEMBASSY PARIS 0072
RUEHQT/AMEMBASSY QUITO 3914
RUEHSG/AMEMBASSY SANTIAGO 8426
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 000216 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: BEXP BL ECON EINV ENRG EPET PGOV
SUBJECT: HYDROCARBONS COMPANIES PESSIMISTIC, BUT WILLING TO 
NEGOTIATE 
 
REF: LA PAZ 195 
 
¶1. (SBU) Summary: In a recent meeting with the Ambassador, 
hydrocarbons company representatives discussed their concerns 
about negotiations with the incoming administration.  They 
worried in particular about the likely absence of reasonable 
GOB interlocutors (subsequent ministerial appointments proved 
these worries well-founded), preferential treatment to 
state-owned companies such as Brazil's Petrobras and 
potentially Venezuela's PDVSA, and politicized charges of 
alleged contraband activities.  Despite these worries, 
company representatives expressed a willingness to negotiate 
with the government over contract details (and to consider 
making additional investments) as long as they were assured 
of making a profit.  Separately, January 27 news headlines 
announced that Repsol's share value dropped by 8%, in 
significant part due to the situation in Bolivia.  End 
summary. 
 
Reasonable Interlocutors are Key 
-------------------------------- 
¶2. (SBU) In a January 18 roundtable meeting in Santa Cruz 
with the Ambassador, representatives from Petrobras (Brazil), 
Repsol (Spain/Argentina), Total (France), Transredes (U.S.), 
Vintage (U.S.), and Chaco (U.S) were unanimous about the need 
for credible and trustworthy interlocutors in the 
Hydrocarbons Ministry and YPFB (the state oil company), 
underscoring that these positions would be key to the success 
of their negotiations with the future GOB.  At the same time, 
they doubted they would get what they needed.  In a separate 
meeting, the president of British Gas in Bolivia (BG - 
Britain) echoed that concern.  (Comment: In the case of the 
hydrocarbons minister, the companies' worries deepened with 
the appointment of radical journalist and committed 
nationalizer, Andres Soliz Rada.  They view the new YPFB 
chief, former MAS deputy and candidate for governor of 
Cochabamba, Jorge Alvarado, as better than Soliz, but only by 
comparison.  End comment.) 
 
A Host of Worries Plagues the Industry 
-------------------------------------- 
¶3. (SBU) The Repsol representative emphasized that, 
notwithstanding Evo Morales' assurances during his world tour 
that his government would protect hydrocarbons investments, 
the industry was in for some rough times.  Several 
representatives expressed concern that "politically correct" 
state-owned Petrobras and Venezuela's state-owned 
hydrocarbons company PDVSA, would receive more favorable 
treatment than private companies.  The Chaco representative 
worried that PDVSA would "enter Bolivia through the back 
door", by buying shares of Bolivian pension funds that the 
May 2005 hydrocarbons law stipulates are to be transferred 
from privatized companies to YPFB, and gain increasing 
influence in Bolivia.  (Note: PDVSA has recently opened an 
office in La Paz.  End Note.)  In addition, the Repsol and 
Chaco representatives were deeply worried about what they 
described as the politicized allegations that their companies 
were selling contraband and/or dodging taxes.  (President Evo 
Morales and VP Alvaro Garcia Linera have repeatedly stated 
that the GOB would deal harshly with companies guilty of such 
charges, including by rescinding their contracts and pursuing 
legal action.)  In addition, Transredes (the U.S.-owned 
pipeline operator), which is facing potential prosecution for 
a recent pipeline explosion, expressed concern that it could 
be added to the political hit list. 
 
Despite Uncertainty, Some May Invest More 
----------------------------------------- 
¶4. (SBU) Despite their many concerns, company representatives 
expressed a willingness to negotiate with the new 
 
administration as soon as possible.  With an air of 
resignation, they suggested they could be flexible on the 
details of a new hydrocarbons regime -- e.g., changing 
contracts/agreeing to more state control over 
commercialization -- as long as they were able to protect 
their bottom lines.  (Note: January 21 press reports stating 
that Repsol and Total had agreed to withdraw their 
arbitration trigger letters and negotiate with the GOB, which 
President Morales cited in his meeting with A/S Shannon -- 
reftel, are somewhat misleading.  According to Repsol 
representatives, the company has not officially withdrawn its 
trigger letter, but rather agreed to pause the process until 
June 2006, at which time it will decide how to proceed based 
on the outcome of prospective negotiations.  End note.) 
Furthermore, the President of BG told the Ambassador that his 
company, in a joint venture with Pan-American and Repsol, is 
considering going ahead with a US$ 1 billion development of 
Margarita, one of Bolivia's largest gas fields.  He explained 
that the company must think of the long term, as development 
beginning this year would not yield results until 2010 and 
BG's license for Margarita will expire in 2025. 
 
Repsol Shares Crash 
------------------- 
¶5. (SBU) Separately, January 27 news headlines announced that 
Repsol's share value on the New York Stock Exchange dropped 
by close to 8%, in large part due to the Bolivia situation. 
News reports indicated that the drop was mainly caused by 
Repsol's reclassification of its reserves in Bolivia and 
Argentina.  According to the press, Repsol revised its 
accounting practices to include only those Bolivian reserves 
that will be used to fulfill the company's commitments under 
the Gas Supply Agreement (GSA) between YPFB and Brazil that 
is in effect until 2019.  All other reserves in country were 
written off.  Repsol Bolivia President Julio Gavito told us 
that political and legal uncertainty -- the May 2005 
hydrocarbons law coupled with the deeply uncertain plans of 
the new government -- had called into question the company's 
ability to extract other previously counted Bolivian 
reserves.  Gavito added that other hydrocarbons companies in 
Bolivia, including Petrobras and Total, were in roughly the 
same boat. 
GREENLEE