VZCZCXRO7061
RR RUEHDE
DE RUEHCV #2268 2131323
ZNY CCCCC ZZH
R 011323Z AUG 06
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 5670
INFO RUEHHH/OPEC COLLECTIVE
RUEHAC/AMEMBASSY ASUNCION 0676
RUEHBO/AMEMBASSY BOGOTA 6836
RUEHBR/AMEMBASSY BRASILIA 5664
RUEHBU/AMEMBASSY BUENOS AIRES 1362
RUEHLP/AMEMBASSY LA PAZ 2223
RUEHPE/AMEMBASSY LIMA 0471
RUEHSP/AMEMBASSY PORT OF SPAIN 3219
RUEHQT/AMEMBASSY QUITO 2308
RUEHSG/AMEMBASSY SANTIAGO 3667
RUEHDG/AMEMBASSY SANTO DOMINGO 0283
RUEHKO/AMEMBASSY TOKYO 0130
RHEHAAA/WHITEHOUSE WASHDC
RHEBAAA/DEPT OF ENERGY
RUCNDT/USMISSION USUN NEW YORK 0402
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L CARACAS 002268 
 
SIPDIS 
 
SIPDIS 
 
ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD 
NSC FOR DTOMLINSON 
 
E.O. 12958: DECL: 07/07/2016 
TAGS: ECON ENRG EPET ENIV VE
SUBJECT: PDVSA PUMMELS JBIC 
 
 
Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D) 
 
¶1. (C) SUMMARY: The PDVSA board scuttled a major gas project 
in March when it rejected project financing by the Japan Bank 
for International Cooperation (JBIC), Japan's version of 
EXIM.  The decision severely embarrassed JBIC and it is not 
clear if it will be willing to finance Venezuelan projects in 
the future.  END SUMMARY 
 
--------------- 
JBIC LOSES FACE 
--------------- 
¶2.  (C) Two Mitsubishi executives told Petroleum Attache on 
July 31 that their competitors Mitsui and Marubeni had put 
together a major cryogenic project as part of the East-West 
gas pipeline project.  The executives also indicated that 
there were smaller additional projects that were part of the 
package.  JBIC was supposed to finance a major portion of the 
project.  One of the executives stated that although Mitsui 
and Marubeni were Mitsubishi's competitors, he had to admit 
that they had done an excellent job putting together the 
project, including the financing. 
 
¶3.  (C)  According to the executives, JBIC's board had 
approved the financing for the project in early March and its 
Governor had signed off on the project.  However, when the 
project was presented to the PDVSA board, they rejected the 
JBIC financing.  According to the Mitsubishi executives, the 
financing was rejected on two grounds: the interest rate was 
too high and the agreement was governed by U.S. law.  Later 
in the conversation, one of the executives opined that the 
PDVSA board lacked sophistication and found the agreement to 
be too complicated.  They apparently did not like the fact 
that the agreement had provisions for an escrow account and 
an off-shore account in New York. 
 
¶4.  (C) The PDVSA board rejected the project financing on or 
around March 27.  Since JBIC's fiscal year ends on March 31, 
the rejection left JBIC in a difficult situation.  The 
Venezuela project was supposed to take the place of a project 
in Sakhalin that had fallen through.  AS a result, JBIC was 
left with a significant amount of funds that it could not 
disburse.  The executives stated JBIC is currently being 
reorganized by the Japanese government and that the rejected 
deal could not have come at a worse time for JBIC management. 
 In addition, the executives implied that the PDVSA did not 
communicate its rejection of the deal in an appropriate 
manner. 
 
------- 
COMMENT 
------- 
¶5.  (C) According to the executives, the whole incident is 
referred to in their offices as the "funny (or strange) thing 
that happened in March."  As we have repeatedly noted, PDVSA 
has lost most of its commercial acumen.  It is quite 
believable that the PDVSA board had trouble understanding the 
nature of the financing arrangement.  It is also quite 
believable that they did not think through how to best 
present their rejection to JBIC in order not to burn any 
bridges.  According to the Mitsubishi executives, it is not 
clear if JBIC will finance another project in the future. 
Both executives indicated that they did not think Mitsubishi 
would be able to secure JBIC financing for any of its oil or 
gas projects in Venezuela in the future. 
BROWNFIELD