VZCZCXYZ0000
PP RUEHWEB

DE RUEHLP #2880 2981207
ZNR UUUUU ZZH
P 251207Z OCT 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 1025
INFO RUEHAC/AMEMBASSY ASUNCION 6208
RUEHBO/AMEMBASSY BOGOTA 3525
RUEHBR/AMEMBASSY BRASILIA 7387
RUEHBU/AMEMBASSY BUENOS AIRES 4647
RUEHCV/AMEMBASSY CARACAS 1898
RUEHPE/AMEMBASSY LIMA 1949
RUEHME/AMEMBASSY MEXICO 1833
RUEHMN/AMEMBASSY MONTEVIDEO 4105
RUEHQT/AMEMBASSY QUITO 4536
RUEHSG/AMEMBASSY SANTIAGO 9110
RUEHSO/AMCONSUL SAO PAULO 2008
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 002880 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG EPET PGOV PREL BL
SUBJECT: ARGENTINA AND BOLIVIA SIGN GAS DEAL 
 
REF: LA PAZ 2817 
 
¶1. (U) Argentina and Bolivia signed a twenty-year energy 
agreement October 19 in Santa Cruz, Bolivia (reftel) that 
will go into effect on January 1, 2007.  In addition to 
increasing the volume of natural gas that Bolivia will supply 
to Argentina to 27.7 million cubic meters per day within 
three years (a 20 million cubic meter increase over current 
commitments) and setting a price formula with the current 
price of USD 5 per million BTU as the base price (reftel), 
the agreement also included a commitment by Argentina to 
construct a liquid separation plant in Bolivia to produce 
gasoline and liquid petroleum gas for export.  Argentine 
President Kirchner reportedly stated that Argentina would 
invest in gas production in Bolivia if private companies 
refused to sign new contracts and increase their investments 
sufficiently to supply the Argentine market.  The gas supply 
contract contains a clause that states that if YPFB 
(Bolivia's state oil company) fails to provide Enarsa 
(Argentina's state oil company) with the daily amount of gas 
set by Enarsa, up to the daily contracted amount, YPFB must 
pay Enarsa the difference between the amount requested and 
the amount supplied multiplied by the price of gas that day 
based on the formula.  The two countries also signed a second 
agreement in which Argentina agreed to provide a USD 70 
million line of credit to Bolivia to enable farmers to access 
loans to buy agricultural machinery made in Argentina. 
Nation Bank of Argentina will provide the funds and Bolivian 
financial entities will administer them. 
 
¶2. (SBU) As relations with Argentina tighten, tensions with 
Brazil continue to rise.  The Brazilian Charge told Econoff 
on October 20 that Bolivia had sent an envoy to Brazil to 
reiterate that the contract negotiation deadline of October 
28 with Petrobras over its production operations and refinery 
control was firm.  The press reported that President Lula da 
Silva's adviser, Marco Aurelio Garcia, stated that if the 
Petrobras contract was not optimal, then Petrobras would not 
sign it but would pull out of Bolivia and seek compensation. 
 
 
¶3. (SBU) Comment:  The sealing of the energy deal just nine 
days before the deadline for YPFB (Bolivia's state-owned oil 
company) to negotiate new contracts with gas producers may 
benefit the GOB in negotiations, because the possibility of 
tapping into the Argentine market appeals to private 
investors.  However, investors have told us that the model 
contracts provided to date are unacceptable.  The price 
agreement with Argentina will put pressure on Brazil to agree 
to a similar price increase in its negotiations with YPFB. 
However, because the GOB will not be able to reach the 
agreement's targets without substantial investment in 
production -- some sources indicate up to USD 3 billion will 
be needed, the agreement, which is intended to boost 
President Morales' sagging popularity, will be difficult to 
implement, and Bolivia will likely be forced to pay for its 
failure to comply.  Neither YPFB nor Argentina's state-owned 
company Enarsa have the capacity to carry out the investment 
without private cooperation.  End comment. 
GOLDBERG