VZCZCXYZ0011
RR RUEHWEB

DE RUEHLP #0600/01 0661932
ZNR UUUUU ZZH
R 071932Z MAR 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC 8329
INFO RUEHAC/AMEMBASSY ASUNCION 5653
RUEHBO/AMEMBASSY BOGOTA 2920
RUEHBR/AMEMBASSY BRASILIA 6791
RUEHBU/AMEMBASSY BUENOS AIRES 4024
RUEHCV/AMEMBASSY CARACAS 1358
RUEHPE/AMEMBASSY LIMA 1263
RUEHMD/AMEMBASSY MADRID 3088
RUEHME/AMEMBASSY MEXICO 1666
RUEHMN/AMEMBASSY MONTEVIDEO 3606
RUEHQT/AMEMBASSY QUITO 3993
RUEHSG/AMEMBASSY SANTIAGO 8514
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

UNCLAS LA PAZ 000600 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND LPETRONI 
COMMERCE FOR JANGLIN 
TREASURY FOR SGOOCH 
 
E.O. 12958: N/A 
TAGS: ETRD EINV ECON PGOV BL
SUBJECT: GOB PROPOSES "DIGNITY TARIFF" FOR ELECTRICITY 
 
 
¶1. (U) Summary: GOB officials recently announced plans to 
lower electricity rates to a still undetermined "dignity 
tariff," demanding that businesses make services less 
expensive for rural populations and the poor.  Leaving little 
room for discussion, the GOB presented a three-point proposal 
to industry representatives and established a joint 
commission to analyze its impact.  Company executives greeted 
the proposal warily, telling the Ambassador March 6 that they 
feared increased GOB interference in their operations and 
expected profits to suffer if tariff rates were substantially 
lowered.  End summary. 
 
¶2. (U) In a February 23 meeting with electricity generation 
and distribution firms, GOB officials announced plans to 
lower electricity rates to a still undetermined "dignity 
tariff," demanding that businesses make services less 
expensive for rural populations and the poor.  Minister of 
Planning Carlos Villegas noted that lowering tariff rates was 
a campaign promise the Morales administration intended to 
keep, suggesting firms could best serve their own interests 
by supporting the GOB's initiative. 
 
¶3. (U) Leaving little room for debate, the GOB presented a 
three-point proposal to industry representatives, noting that 
an agreed version would be incorporated into the National 
Electricity Plan the GOB hopes to reveal later this year. 
The proposal calls for a 25 percent tariff reduction for 
low-income populations in La Paz, Santa Cruz, and Cochabamba; 
a 25 percent tariff reduction for rural populations; and a 
broad review of electricity distribution rates, with 
companies absorbing most of the estimated $5 million costs of 
the changes.  Jose LaFuente, President of Empresa Electrica 
Corani, a subsidiary of U.S.-based Duke Energy International 
and generator of 20 percent of Bolivia's electricity supply, 
told Econoff the proposed tariff reductions could cost the 
company as much as $500,000 per year.  LaFuente will serve on 
a joint commission (to include business representatives and 
officials from the vice ministry and superintendent of 
electricity) to analyze the proposal's impact and will join 
other industry representatives in a second meeting with GOB 
officials in early March. 
 
¶4. (SBU) Executives of Elfec, a subsidiary of U.S.-based PPL 
Corporation and Bolivia's second-largest electricity 
distribution company, greeted the proposal warily, telling 
the Ambassador and Econoffs March 6 that they feared 
increased GOB interference in their operations.  They worried 
that in addition to lowering tariffs, the GOB might raise 
service requirements or compel companies to expand services 
outside their concession areas, pointing out that the GOB 
could hinder companies' operations in several ways.  PPL 
Global Vice President and Chief Counsel Robert Burke told the 
Ambassador he would join Spanish-owned Electropaz and other 
electricity firms in pushing for a comprehensive, long-term 
agreement.  His chief concern, he said, was that if profits 
suffered, PPL's board of directors would look at Elfec more 
as a tax write-off than as a functioning firm and possibly 
decide to leave the country. 
 
¶5. (SBU) Comment: Industry representatives told us they were 
blindsided by the GOB's proposal, having heard nothing more 
than murmurs about tariff reductions until the February 23 
meeting.  Many have said the GOB seems reluctant to 
compromise, with officials indicating the GOB will issue a 
supreme decree lowering rates if companies refuse to 
cooperate.  The government's stance may be an ominous sign 
for other private entities, particularly those capitalized 
(or privatized) under the Sanchez de Lozada administration 
and recently threatened by the GOB's announcement of plans to 
retake control of such enterprises (septel).  In any case, 
the GOB's apparent willingness to run roughshod over the 
private sector does not bode well for investors, foreign or 
domestic.  End comment. 
GREENLEE