VZCZCXRO0956
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHZP #1518/01 2161555
ZNY CCCCC ZZH
R 041555Z AUG 06
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 8679
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 2382
RUEHCV/AMEMBASSY CARACAS 1061
RUEHME/AMEMBASSY MEXICO 3169
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHXC/ALL US CONSULATES MEXICO COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 PANAMA 001518

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/18/2016
TAGS: ENRG ETRD PREL PGOV PM
SUBJECT: GOP DIVIDED ON REGIONAL ENERGY POLICY

REF: A. PANAMA 651

     ¶B. PANAMA 1213
     ¶C. PANAMA 1293
     ¶D. 2005PANAMA2342

Classified By: Amb William A. Eaton for Reasons 1.4 (b) & (d)

¶1. (C) SUMMARY.  On July 17, Minister of Trade and Industry
Alejandro Ferrer told Ambassador and Econchief that he
remains committed to the Occidental Petroleum refinery
project (Ref A) but finds himself a lone voice.  He said
President Martin Torrijos, VP/FM Samuel Lewis Navarro, and
other cabinet members were eager proponents of further
cooperation with Venezuela on energy despite the GOV's track
record of non-delivery and unproductive meetings with the
GOP.  At this time, Ferrer is trying to advance the gas
pipeline through Colombia only (Refs B & C).  The GOP
stealthily approved legislation July 12 permitting a
state-run company with the right to explore, transport,
store, import, export and refine hydrocarbons.  The GOP's
initial interest appears to be in fuel storage facilities and
may be paving the way for the transport sector to enter the
fuel market via a deal with PDVSA.  For President Torrijos
and VP/FM Lewis, the criteria for supporting a particular
initiative may not be economic viability, but placating a
powerful and disgruntled transport sector and avoiding any
increase in bus fares in the lead up to the Oct 22 Canal
referendum. END SUMMARY.

--------------------------------------------- ---
PUBLIC OR PRIVATE SECTOR LED REGIONAL REFINERY ?
--------------------------------------------- ---

¶2.  (C) According to Ferrer, Venezuelan President Hugo Chavez
spontaneously offered to build a refinery when Panama refused
to sign up for PetroAmerica during Chavez's June 22-23 visit
to Panama.  To the delight of the GOP cabinet, Chavez claimed
the refinery could process 150,000 barrels a day, be built in
four months and would cost $400 million.  A follow up visit
by Venezuelan technical personnel, however, produced no
viable next steps and focused mainly on possible asphalt
sales to Panama instead.

¶3.  (C) Ferrer told Ambassador and Econ Chief he remains
committed to the Oxy refinery.  He contrasted the substantive
expertise of their consulting partners, their detailed
studies, and Oxy's multi-million dollar investment to date
with the confusing, disorganized rhetoric and activities of
the Meso American and Venezuelan initiatives.  (Comment:
Although Oxy remains the most advanced and well-planned
effort to date, the Oxy deal still needs financial partner(s)
and an operator.  If the Oxy deal does not get financed in
the international capital markets (as the MEI/IDB deal has
not to date), the pressure on the GOP to pursue the Chavez
option may be substantial.  End Comment.)

¶4.  (SBU) On July 6, Ferrer told oil industry reps of two
additional agreements signed by the GOP and GOV during the
Chavez visit, neither of which were published on the Ministry
of Industry and Commerce websites.  One, signed by Presidents
Torrijos and Chavez, is a framework for mutual cooperation in
the areas of social development and poverty reduction, trade
and investment, energy, the environment and natural
resources, science and technology, mining, fishing,
agriculture, transportation, housing, tourism, health,
education, culture and sports.  The second, signed by Lewis
and Venezuelan Foreign Minister Rodriguez, repeats the
objectives of energy sector cooperation.

--------------------------------------------- -
STEALTH LEGISLATION ENABLES STATE RUN OIL FIRM
--------------------------------------------- -

¶5.  (SBU) On July 6, Ferrer informed Panama's hydrocarbons
industry the GOP was modifying existing legislation to allow
the creation of a state owned hydrocarbons enterprise. (Note:
 This provision was an amendment to an unrelated bill on
minting coins).  The Assembly passed the law on July 12, one
day before the industry could submit its response.

¶6.  (SBU) The subsequent written industry response expressed
dismay at the lack of consultation and the on-going decline
in the relationship between this administration and the
hydrocarbons industry (Ref D).  Chief among industry concerns
was the safety of their existing assets and operations should
a state owned enterprise not be subject to the same
regulations and tax environment.  They pointed out the
unanimous agreement among financial analysts that Panama
enjoys the lowest fuel prices of any non-oil producing
country in Central America and the historically poor price
performance of state run enterprises in the region.

¶7.  (C) Ferrer told Ambassador that this legislation had been
under consideration for "some time", although he recommended
against the timing of its submission because it would be
linked to the recent Chavez visit.  However, during Ferrer's
trip to Chile, other cabinet members proceeded anyway.
Minister Ferrer told Ambassador that he recommended against a
wholly-owned and operated state run enterprise but believes
the GOP could benefit from the influence and revenue from
being a shareholder (as the GOP is in the electricity and
telecommunication sectors).

------------------------
IT'S ALL ABOUT THE TANKS
------------------------

¶8. (C) On July 17, Exxon-Mobil and Chevron-Texaco country
managers told Econoffs that the initial interest of the GOP
is in identifying available tank and storage facilities.
Panama has substantial fuel storage facilities to support its
maritime sector.  Fuel storage facilities in Panama are
either privately owned or a GOP concession to a private
company.  Popular perception (fueled by some in the GOP) is
that those who "control" fuel storage capacity in Panama
intentionally prevent the entrance of new players to the fuel
sector.  (Comment: Panama's fuel sector has five major
players, three international and five national, and almost
500 service stations for a country of 3.5 million.  Industry
experts do not believe Panama suffers from a lack of
competition but rather there are too many players for this
market. End Comment)

¶9. (C) The media reported in June and July that a partnership
between Lucky Petrol and CODETRAP sought to import "cheaper"
diesel from Venezuela as soon as they could identify
appropriate storage facilities.  MICI Deputy Director of
Hydrocarbons confirmed to Econasst that Lucky Petrol, a
subsidiary of PDVSA, has an import/distributor license.
CODETRAP is a transport sector co-op.  According to Ferrer,
Chavez refuses to deal with any private sector company and
will only sell oil to a state run enterprise.

-------
COMMENT
-------

¶10.  (C) Although the GOP's initial interest appears to be in
fuel storage, the new legislation opens the door for
substantial GOP participation in the petroleum sector, for
this and future administrations.  A disgruntled transport
sector, an upcoming canal referendum and the political goals
of President Torrijos and VP/FM Lewis are powerful factors in
a time of historically high oil prices.  The GOP's interest
in fuel storage could foreshadow the market entrance of the
transport sector seeking to import "cheap" Venezuelan fuel.
This new player may not be as concerned about the safety,
insurance, or environmental compliance of shipments from
Venezuela.  Ironically, the legislative right to enter the
hydrocarbons market may in the end become a political
obligation for the GOP and leave them with no out when they
fail to deliver cheaper prices at the pump.  At this time,
Minister Ferrer professes to be the only GOP cabinet member
who wishes to avoid GOV entanglement on energy.
EATON