VZCZCXYZ0000
PP RUEHWEB

DE RUEHLP #1285 1311916
ZNR UUUUU ZZH
P 111916Z MAY 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 9168
INFO RUEHAC/AMEMBASSY ASUNCION 5841
RUEHBO/AMEMBASSY BOGOTA 3141
RUEHBR/AMEMBASSY BRASILIA 7002
RUEHBU/AMEMBASSY BUENOS AIRES 4246
RUEHCV/AMEMBASSY CARACAS 1539
RUEHPE/AMEMBASSY LIMA 1516
RUEHMN/AMEMBASSY MONTEVIDEO 3780
RUEHQT/AMEMBASSY QUITO 4179
RUEHSG/AMEMBASSY SANTIAGO 8725
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 001285 
 
SIPDIS 
 
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: GOB ON GAS: TO COMPENSATE OR NOT TO COMPENSATE? 
 
REF: A. LA PAZ 1157 
 
     ¶B. LA PAZ 1198 
     ¶C. LA PAZ 1248 
     ¶D. BRASILIA 882 
 
¶1. (SBU) Summary: President Morales reportedly stated on May 
11 that the GOB did not have to compensate hydrocarbons 
companies for their losses due to nationalization if such 
firms had "recovered investments and accrued some earnings." 
In contradiction to Morales' statement, the GOB agreed on May 
10 to negotiate compensation for the nationalized refineries 
owned by Petrobras (Brazil), as well as discuss the operating 
conditions and contract terms for Petrobras, respecting 
existing legal norms.  End summary. 
 
Morales Says, "No Need to Compensate" 
------------------------------------- 
¶2. (SBU) President Morales, while attending a European Union, 
Latin America, and Caribbean summit in Vienna, stated that 
"if foreign energy firms have recovered investments and 
accrued some earnings, there is no reason to compensate them" 
for nationalization (ref A), according to press reports. 
This statement may confirm sector fears that the GOB does not 
intend to provide compensation for the taking of foreign firm 
assets, including shares, board control (ref C), and the 
ownership of production.  According to Brazilian Embassy 
officials, Brazil will not respond to Morales' statement. 
 
Meanwhile Bolivia and Brazil Agree to Negotiate 
--------------------------------------------- --- 
¶3. (SBU) According to press reports, the Brazilian Minister 
of Energy and Mines, the Bolivian Hydrocarbons Minister, and 
the presidents of YPFB (Bolivian state oil company) and 
Petrobras (Brazilian semi-state company) held a five-hour 
meeting on May 10 to discuss nationalization details, which 
have created increasing tension between the two countries 
(ref B).  The meeting participants reportedly agreed to 
create a high-level commission, as well as three technical 
working groups, to negotiate Petrobras' operating conditions 
during the six-month transition period from May 1 to November 
1, the definition of necessary conditions and contracts for 
the production and commercialization of gas, the mechanisms 
and forms of negotiated compensation for Petrobras' 
refineries, and the price of gas.  Brazil accepted the GOB's 
nationalization decree, as long as it was applied in 
accordance with existing legal and contractual norms, by 
which the GOB agreed to abide (in contradiction to Morales' 
statement above). 
 
¶4. (SBU) Brazilian Embassy official, Alfredo Camargo, told us 
on May 11 that the bilateral meeting was positive and polite 
(in contrast to the May 4 meeting in Puerto Iguazu (ref D), 
during which President Lula accused President Morales of 
betrayal, and Morales claimed that Lula's aides had treated 
him "like an Indian").  Camargo said that the Brazilian 
government's agreement to discuss a gas price increase within 
the framework of the existing Gas Sales Agreement between the 
two countries was quid pro quo for the GOB's agreement to 
discuss compensation for Petrobras' refineries.  GOB 
Hydrocarbons Minister Andres Soliz Rada assured the 
Brazilians that the naming of board members was a public 
show, that the board members would not be installed 
immediately, and that there would be a transition period, 
during which the board take-over would be negotiated with 
Petrobras, according to Camargo.  Camargo added that the 
Brazilian acceptance of the GOB's nationalization decree did 
not mean that Petrobras was giving up its options for legal 
recourse. 
 
¶5. (SBU) Comment:  Even if the GOB does negotiate a 
satisfactory deal with Petrobras, under heavy Brazilian 
government pressure, Morales' remarks in Vienna imply that 
other foreign investors, including those from the U.S., might 
be left out in the cold.  End comment. 
DEBLAUW