VZCZCXYZ0001
PP RUEHWEB

DE RUEHLP #0890/01 0891943
ZNR UUUUU ZZH
P 301943Z MAR 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 8669
INFO RUEHAC/AMEMBASSY ASUNCION 5741
RUEHBO/AMEMBASSY BOGOTA 3019
RUEHBR/AMEMBASSY BRASILIA 6891
RUEHBU/AMEMBASSY BUENOS AIRES 4128
RUEHCV/AMEMBASSY CARACAS 1441
RUEHPE/AMEMBASSY LIMA 1384
RUEHMD/AMEMBASSY MADRID 3093
RUEHMN/AMEMBASSY MONTEVIDEO 3695
RUEHQT/AMEMBASSY QUITO 4081
RUEHSG/AMEMBASSY SANTIAGO 8618
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 000890 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG EPET PGOV BL
SUBJECT: POLITICIZED JUSTICE: THE CASE OF REPSOL 
 
 
¶1. (SBU) Summary: The Government of Bolivia has pursued a 
highly politicized legal case against Spanish/Argentine-owned 
Repsol YPF, accusing Bolivia's second-largest gas producer of 
contraband and tax evasion.  Repsol Bolivia President, Julio 
Gavito, was arrested for these charges on March 15, and after 
being released on bail, resigned from his position on March 
¶22.  Industry representatives speculate variously that the 
GOB has targeted Repsol because the company embodies the 
hated "neoliberal" economic model; because the government has 
made a deal with Brazilian giant Petrobras to increase its 
market dominance; because Repsol did not pay the required 
"fines" to Bolivian Customs; and/or because the government 
wants to soften company positions in the run up to 
negotiations.  Whatever the real reasons for the government's 
action, justice in the Repsol case is not blind but rather 
wide-eyed and hungry in its pursuit of a political result. 
End Summary. 
 
The Political Plan 
------------------ 
¶2. (SBU) Throughout the election campaign and before the 
inauguration, MAS leaders pledged to crack down on companies 
that had committed fraud, trafficked in contraband or evaded 
taxes.  Many observers speculated that, once in power, the 
MAS would seek to send a political message -- that it was 
firmly in charge -- and to show impatient supporters it was 
moving against hated "transnationals" on the path to promised 
nationalization.  The MAS's public pledges were particularly 
worrisome for Spanish/Argentine gas company Repsol YPF 
(Bolivia's second-largest gas producer and holder of the 
country's largest gas reserves), and also U.S.-invested 
Chaco.  Allegations that both companies had engaged in 
contraband, tax evasion and other crimes had been circulating 
for months.  At the same time, given the pervasiveness of 
corruption and contraband in Bolivia -- close to 70% of the 
economy is estimated to be informal, much of it dealing in 
contraband goods of all kinds, including energy -- the open 
targeting of these companies strongly suggested the search 
for a politically convenient scapegoat. 
 
Raid on Repsol Offices 
---------------------- 
¶3. (SBU) On March 9, the government followed through with its 
threat.  Under the glare of TV cameras, prosecutors in Santa 
Cruz raided the offices of Andina, a local affiliate of 
Repsol, to apprehend its two top executives, claiming that 
the company had illegally exported USD 9.2 million of oil 
between July 2004 and February 2005.  The executives were not 
found in the raid, but on March 15, when he presented himself 
to the prosecutor's office, Repsol Bolivia President Julio 
Gavito was arrested and held in custody for one night.  (He 
was released on bail the following day).  On March 22, Gavito 
resigned his position as president in order to focus on his 
defense, which he told us will take issue with the many 
procedural flaws in the government's case.  On March 27, 
according to news reports, district judges determined that 
Repsol was not legally liable for the USD 50,000 (400,000 
Bolivianos) bond paid for the release of Gavito and another 
Repsol executive after their arrest.  Gavito continues to be 
under a bail order that prevents him from departing the 
country without the government's express permission. 
 
¶4.  (SBU) In a March 20 meeting, Gavito told us that Repsol 
had exported oil without the proper papers, but had not 
evaded any taxes and had subsequently obtained the proper 
documentation.  He added that Chaco, by contrast, had failed 
to obtain the necessary export documents, and that the lack 
of a paper trail in Chaco's case had probably allowed the 
case to fizzle out.  Another industry insider told us Chaco 
had paid a USD 1 million "fine" to Bolivian Customs, which 
caused the case to vanish. 
 
The Reasons 
 
----------- 
¶5. (SBU) Industry representatives, including Gavito, 
speculate variously about the GOB's real reasons for 
targeting Repsol.  Some suggest that the company was singled 
out for being a "big fish," and that moving against it would 
guarantee high political impact.  Others say it reflects the 
GOB's animosity toward privatized companies, of which Repsol 
is a prime example, and by extension toward the "neoliberal 
economic model," which government officials claim has 
seriously damaged Bolivia's economy.  Some whisper about a 
secret government deal with Petrobras to enable the Brazilian 
 
SIPDIS 
giant to increase its current market dominance, while others 
suggest a similar agreement with PdVSA, to reinforce the 
Venezuelan firm's position in Bolivia's gas industry. 
 
¶6.  (SBU) Many surmise that Repsol's reluctance to pay 
required "fines" to Bolivian Customs may have caused Bolivian 
"justice" to clamp down in this case (which suggests the 
ironic possibility that Repsol is being pursued on corruption 
charges for refusing to engage in corruption).  And almost 
everyone believes the government wants to make a show of 
force and to intimidate hydrocarbons companies into softening 
their positions in the run up to coming contract 
negotiations. 
 
Comment: 
-------- 
¶7. (SBU) The GOB persecution of Repsol has U.S.-owned 
hydrocarbons companies worried about their own futures 
(septel), and has heightened their distrust of the Morales 
administration.  Whatever the reasons for the government's 
action, justice in the Repsol case is not blind but rather 
wide-eyed and hungry in its pursuit of a patently political 
result.  End comment. 
GREENLEE