VZCZCXYZ0029
RR RUEHWEB

DE RUEHLP #1564 1592128
ZNR UUUUU ZZH
R 082128Z JUN 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC 9517
INFO RUEHAC/AMEMBASSY ASUNCION 5906
RUEHBO/AMEMBASSY BOGOTA 3219
RUEHBR/AMEMBASSY BRASILIA 7067
RUEHBU/AMEMBASSY BUENOS AIRES 4323
RUEHCV/AMEMBASSY CARACAS 1614
RUEHPE/AMEMBASSY LIMA 1606
RUEHMD/AMEMBASSY MADRID 3111
RUEHME/AMEMBASSY MEXICO 1719
RUEHMN/AMEMBASSY MONTEVIDEO 3832
RUEHFR/AMEMBASSY PARIS 0091
RUEHQT/AMEMBASSY QUITO 4248
RUEHSG/AMEMBASSY SANTIAGO 8795
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBS/USEU BRUSSELS
RHEHNSC/NSC WASHINGTON DC

UNCLAS LA PAZ 001564 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND LPETRONI 
ENERGY FOR CDAY AND SLADISLAW 
COMMERCE FOR JANGLIN 
TREASURY FOR SGOOCH 
 
E.O. 12958: N/A 
TAGS: EPET ENRG EINV ECON BL
SUBJECT: HYDROCARBONS CHAMBER SAYS NEGOTIATIONS WILL 
CONTINUE 
 
REF: A. LA PAZ 1157 
 
     ¶B. LA PAZ 0083 
 
¶1. (SBU) Summary: Hydrocarbons Chamber representatives told 
the Ambassador June 7 that hydrocarbons companies would 
negotiate with GOB officials to determine the terms of their 
new contracts (ref A) until they felt they could no longer 
negotiate in good faith - at least until the expiration of 
the 180-day deadline imposed by the GOB's May 1 
nationalization decree.  After that, they said, companies 
would consider alternatives, including (as a last resort) 
international arbitration.  Companies' ultimate decisions 
will likely be shaped by the GOB's flexibility in negotiating 
new tax rates, providing compensation for forcibly acquired 
shares, and defining firms' roles under the new contracts. 
End summary. 
 
¶2. (SBU) Hydrocarbons Chamber President Jose Magela and 
General Manager Raul Kieffer told the Ambassador June 7 that 
hydrocarbons companies would negotiate with GOB officials to 
determine the terms of their new contracts (ref A) until they 
felt they could no longer negotiate in good faith - at least 
until the expiration of the 180-day deadline imposed by the 
GOB's May 1 nationalization decree.  Firms have said they are 
willing to talk but have argued that the decree contradicts 
earlier laws, noting that complying with it would force them 
to violate existing rules and regulations. 
 
¶3. (SBU) According to Magela and Kieffer, the absence of 
concrete government proposals and model contracts has delayed 
negotiations.  Companies have said it may be possible to sign 
new contracts by the nationalization decree's November 1 
deadline, but only if serious negotiations begin soon, and 
only if GOB officials and company executives agree on the 
scope of proposed company audits and select a mutually 
acceptable auditor.  While discussions continue, companies 
have been operating under existing contracts and investing 
only the minimum amount necessary to maintain current 
operations. 
 
¶4. (SBU) If the two sides failed to reach agreement by the 
180-day deadline, Magela and Kieffer said, companies would 
consider alternatives, including (as a last resort) 
international arbitration.  Assuming companies won a case and 
assuming the GOB honored an arbitral court's finding (both 
big assumptions), companies would be concerned about the 
amount and timing of possible settlement payments.  Companies 
have noted that past attempts to pursue arbitration have 
ended unsuccessfully, citing Bechtel's decision to abandon 
arbitration earlier this year in favor of reaching a 
negotiated settlement (ref B). 
 
¶5. (SBU) Comment: Companies' ultimate decisions will likely 
be shaped by the GOB's flexibility in negotiating new tax 
rates, providing compensation for forcibly acquired shares, 
and defining firms' roles under the new contracts.  Companies 
have repeatedly said they do not want to be mere "service" 
providers, but GOB officials have not accepted their position 
or offered alternatives.  Companies may have to play along 
for now, despite the absence of a consistent, coherent 
government plan, while keeping alternatives on the table. 
End comment. 
GREENLEE