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C O N F I D E N T I A L PANAMA 001213

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/20/2016
TAGS: ETRD ENRG PREL PM
SUBJECT: PANAMA & VENEZUELA TO SIGN ENERGY AGREEMENT


Classified By: Classified by CDA Luis A. Arreaga for reasons 1.5 (b) an
d (d)

¶1. (C) Summary:  Minister of Trade and Industry Alejandro
Ferrer told Econ Chief June 19 that the GOP expects to sign a
framework agreement and two related agreements on energy with
Venezuela during the June 22 visit of Hugo Chavez.  He
stressed that the deals would be limited to general
agreements "to discuss" future cooperation on energy and that
he does not expect them to materialize into any concrete or
meaningful outcomes.  Ferrer said he rejected a GOV ploy to
get Panama into the "Bolivarian Alternative for the Americas"
(ALBA).  The GOP will sign FTAs with Singapore and Chile in
the coming week to counter Chavez's likely anti-free trade
rhetoric.  End Summary.

GOP and GOV Agree "To Discuss" Future Energy Cooperation
--------------------------------------------- -----------

¶2. (C) Ferrer said that he has been under growing pressure
from Venezuelan Energy Minister Rafael Ramirez to have an
energy-related deliverable for Chavez's visit.  At GOV
insistence, he met on June 17 with Petroleos de Venezuela
(PDVSA) representatives, who pressed Ferrer on a deal to buy
refined product through Petro Caribe under "special"
financing terms.  When PDVSA confirmed that a condition of
buying through Petro Caribe would be Panama's joining the
ALBA, Ferrer says he refused.

¶3. (C) However, under pressure from President Torrijos and
certain other GOP ministers to do anything to get "cheap
Venezuelan oil," Ferrer said he went along reluctantly with
the planned agreement limited to "future discussions."  He
said that other GOP ministers did not understand the
unfavorable economics of the GOV's offer and, therefore,
mistakenly believe that Panama would see lower energy prices
from the deal.  The only other reason they'd want the deal,
he said, is for the political boost the GOP might score with
Chavez sympathizers in Panama.  When Econ Chief suggested
that Ferrer encourage his fellow ministers to consult with
PDVSA's customers elsewhere in the region, Ferrer chuckled
knowingly, as he recognized PDVSA's poor history in
delivering on its commitments.

¶4. (C) In addition to a framework agreement, the GOP and GOV
will sign two subordinate agreements: one to discuss
Venezuelan crude supplies for a refining in Panama and one to
discuss energy-related "logistics."  Ferrer acknowledged that
the latter could theoretically open the door to
reconsideration of reversing pipeline flow from Panama's
Caribbean side to Puerto Armuelles on the Pacific.  He was
quick to add, however, that he has never seen any
follow-through from the GOV in the past.  He expects the GOV
will simply take the short-lived PR gains from this week's
visit and then forget about any serious follow-up.

¶5. (C) Ferrer was uncertain as to how Panamanians will react
to the energy deal.  He said the reactions will likely range
from unrealistic hopes that Venezuelas oil will lower
Panama's energy prices to criticism for either signing such a
vague, meaningless deal or for agreeing to anything with
Chavez.  Either way, he said, he expects to be "crucified."

FTA Signings to Counter "Risky" Chavez Visit and Rhetoric
--------------------------------------------- ------------

¶6. (C) To help counter Chavez's likely anti-free trade
rhetoric, Ferrer said the GOP will sign with great fanfare
today (June 20) its FTA with Singapore.  Likewise, the GOP
will announce Ferrer's June 23 departure for Santiago to sign
the Panama-Chile FTA.  Ferrer claimed he had "no idea" why
the GOP invited Chavez to visit Panama and acknowledged that
it was a "risky" proposition given Chavez's penchant for
unhelpful surprises.  Noting that the GOP sees the main
opposition to the proposed Panama Canal expansion coming from
Chavez-inspired groups in Panama, Ferrer suggested that this
was an effort to curry favor with Chavez, thereby blunting
the Canal expansion opponents.

Comment:  GOP anxious to Dampen USG Concerns
--------------------------------------------

¶7. (C) We take Ferrer's comments that he is unaware of the
GOP's reasons for inviting Chavez with a grain of salt.  This
visit has been in the making for quite some time.  We take
Ferrer's outreach as part of the GOP's "gringo handling"
strategy for the Chavez visit.  The GOP is clearly anxious to
dampen USG concern that Chavez's June 22 visit presages a
Panamanian move into the Bolivarian orbit or a repudiation of
the GOP's commitment to free trade.  However, we draw little
comfort from the GOP's lack of a more compelling explanation
for their admittedly risky invitation to Chavez during the
potentially volatile run-up to a referendum on the proposed
Canal expansion.  End comment.
ARREAGA