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DE RUEHLP #0251/01 0331932
ZNR UUUUU ZZH
P 021932Z FEB 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 7925
INFO RUEHAC/AMEMBASSY ASUNCION 5572
RUEHBO/AMEMBASSY BOGOTA 2837
RUEHBR/AMEMBASSY BRASILIA 6706
RUEHBU/AMEMBASSY BUENOS AIRES 3919
RUEHCV/AMEMBASSY CARACAS 1281
RUEHPE/AMEMBASSY LIMA 1178
RUEHMN/AMEMBASSY MONTEVIDEO 3539
RUEHQT/AMEMBASSY QUITO 3922
RUEHSG/AMEMBASSY SANTIAGO 8435
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 000251 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON BL
SUBJECT: PETROBRAS TALKS WITH GOB 
 
 
¶1. (SBU) Summary: Petrobras, the largest player in the 
Bolivian hydrocarbons industry, had its first meeting with 
the Bolivian government on January 31 to begin discussing a 
new relationship.  According to a Petrobras official, Arturo 
Castanos, the GOB representatives were cordial, but they only 
discussed the negotiation process and did not touch on 
complex issues such as transportation tariffs, contract 
migration, and forming a partnership with YPFB, the Bolivian 
state oil company, as reported in the press.  Petrobras hopes 
to sign a Memorandum of Understanding about the negotiation 
process with the GOB in February and begin formal 
negotiations in March.  Petrobras is concerned about 
Venezuela's influence on YPFB.  The press reported that the 
GOB will nationalize two refineries owned by Petrobras. 
According to Castanos, the GOB has not yet made a purchase 
offer for the refineries, but Petrobras is willing to sell if 
the price is right.  Castanos explained that there is little 
room for GOB negotiation on gas prices with Brazil.  End 
summary. 
 
Petrobras Meets with GOB 
------------------------ 
¶2. (SBU) On January 31, Petrobras representatives, including 
Arturo Castanos, met with the Bolivian Hydrocarbons Minister, 
Andres Soliz Rada, and the head of YPFB, Jorge Alvarado, to 
discuss how to move forward on politically-sensitive 
hydrocarbons issues.  Castanos told Econoffs on February 1 
that the meeting was cordial and that Soliz Rada, 
surprisingly, appeared rather open and reasonable.  According 
to Castanos, the only agreement reached in the meeting was to 
meet again to draft a Memorandum of Understanding in February 
and begin serious talks in March.  He added that although 
Petrobras is vitally interested in transportation tariff 
regulations and contract migration questions, these topics 
were not raised.  The press reported on February 1 that 
Petrobras, which is involved in the entire hydrocarbons 
productive chain from exploration to distribution, wants to 
form a 50% partnership with YPFB in all of the productive 
areas; however, Castanos said that no such idea was discussed 
in the meeting and would not be of interest to Petrobras. 
 
Venezuelan Woes 
-------------- 
¶3. (SBU) Castanos expressed several worries about the state 
of Bolivia in general, and in particular about Venezuelan 
influence.  He cited the recent opening of a PDVSA 
(Venezuelan state oil company) office with several PDVSA 
employees in La Paz, Venezuela's offer to barter Venezuelan 
diesel for Bolivian food, and YPFB head Jorge Alvarado's 
strong ties to Venezuela.  Castanos explained that Petrobras 
does not have a good relationship with PDVSA and would see 
increased PDVSA operations here as a "thorn in its side".  He 
added that although YPFB's Alvarado would be the logical 
choice for interlocutor, he would rather negotiate with 
Minister Soliz Rada due to the fact that Alvarado spent 
several years living in Venezuela and might be susceptible to 
PDVSA influence. 
 
Petrobras Willing to Sell Refineries If. . . 
-------------------------------------------- 
¶4. (SBU) Castanos explained that Petrobras purchased two 
refineries from the Bolivian government for US$ 105 million 
in 2000 and has had problems ever since.  In 2000, the 
refineries had a profit margin of US$ 6 per barrel, but by 
2003, thanks to the GOB's fuel price manipulations, the 
margin was negative.  Castanos stated that Petrobras is happy 
to sell the refineries to the GOB if it will pay the full 
value of the refineries.  Petrobras would only consider a 
partnership with the GOB if Petrobras continued to operate 
the refineries.  To date, Petrobras has not received an offer 
from the GOB (despite press reports that the GOB plans to 
nationalize the two refineries), and they have not had 
serious discussions on the topic. 
 
Bolivia's Gas Price Illusions 
----------------------------- 
¶5. (SBU) GOB representatives have stated that they intend to 
increase the price of gas sold to Brazil.  Brazil and Bolivia 
are partners to a Gas Supply Agreement (GSA) that is in 
effect until 2019.  The agreement contains a price-setting 
formula, which is based on the amount of gas sold and a 
weighted basket of world fuel prices.  According to the 
contract, every year the parties have the right to request 
price-revision negotiations, and every five years the parties 
must conduct a thorough price negotiation.  Brazil had 
planned to request negotiations last year to seek to lower 
the price, but did not push the process forward given the 
political climate in Bolivia.  Brazil is currently paying US$ 
3.25 per MCF, which comes to almost US$ 4.75 including 
transportation costs to Sao Paulo.  Castanos explained that, 
contrary to public perception in Bolivia, Brazil does have 
alternatives to Bolivian gas, i.e., developing its own 
fields, lowering gas subsidies, and developing biodiesel and 
nuclear energy, and would not agree to pay much more than US$ 
4 to 5 per MCF.  Castanos lamented that the GOB does not 
appear to understand that gas prices are regional (because of 
the difficulty of transporting it, gas is not a commodity 
with a common world price) and that prices in South America 
cannot be compared to prices in Europe or the United States. 
 
¶6. (SBU) Comment: Although he emphasized that Petrobras would 
only accept a favorable commercial outcome in future 
negotiations, Castanos was clear that the company is willing 
to arrive at a comprehensive deal with the GOB, even if it 
means sacrificing some of their profit margin.  End comment. 
GREENLEE