VZCZCXYZ0001
PP RUEHWEB

DE RUEHLP #2943/01 3032123
ZNR UUUUU ZZH
P 302123Z OCT 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 1129
INFO RUEHAC/AMEMBASSY ASUNCION 6232
RUEHBO/AMEMBASSY BOGOTA 3552
RUEHBR/AMEMBASSY BRASILIA 7414
RUEHBU/AMEMBASSY BUENOS AIRES 4674
RUEHCV/AMEMBASSY CARACAS 1925
RUEHPE/AMEMBASSY LIMA 1976
RUEHLO/AMEMBASSY LONDON 0089
RUEHMD/AMEMBASSY MADRID 3162
RUEHME/AMEMBASSY MEXICO 1849
RUEHMN/AMEMBASSY MONTEVIDEO 4125
RUEHFR/AMEMBASSY PARIS 0094
RUEHQT/AMEMBASSY QUITO 4563
RUEHSG/AMEMBASSY SANTIAGO 9137
RUEHRI/AMCONSUL RIO DE JANEIRO 0868
RUEHSO/AMCONSUL SAO PAULO 2014
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 002943 
 
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 BL
SUBJECT: GOB ACHIEVES KEY GOAL: NEW GAS CONTRACTS 
 
¶1. (SBU) Summary:  All of the private hydrocarbons 
exploration and production companies operating in Bolivia 
signed new service contracts on October 27 and 28 prior to 
the deadline imposed by the GOB's May 1 nationalization 
decree.  According to the president of Bolivia's state oil 
company, YPFB, the contracts range from 23 to 30 years, and 
the companies committed to invest at least USD 2 billion. 
The contracts must be approved by congress now.  Although the 
companies have signed contracts, details remain to be 
resolved.  In addition, YPFB is still conducting separate 
negotiations with five companies to acquire majority 
ownership, as mandated by the nationalization decree, and 
with Brazil to determine a price for Bolivian gas exports. 
The Bolivian Hydrocarbons Chamber is hopeful that the new 
contracts will provide the legal security needed to 
reactivate the sector.  The GOB is touting the signing of new 
contracts as a victory for the Bolivian people, while social 
sector leaders have declared that the agenda of October 2003, 
which brought down two presidents, has been fulfilled. 
(Septel will report on the growing debate on how increased 
revenues will be divided.)  End summary. 
 
Upstream Companies Sign New Contracts 
------------------------------------- 
¶2. (SBU) The GOB's May 1 nationalization decree required 
hydrocarbons producers to sign new contracts within 180 days. 
 U.S.-owned Vintage Petroleum and French-owned Total were the 
first companies to sign new production contracts on the 
evening of October 27.  The remaining eight production 
companies, including partially U.S.-owned Chaco, 
Brazilian-owned Petrobras, Spanish/Argentine-owned Repsol, 
and British Gas, signed new contracts just before the 
migration deadline late on October 28.  According to 
statements made by Hydrocarbons Minister Carlos Villegas and 
YPFB President Juan Carlos Ortiz to the press, the companies 
agreed to provide services for which they would be 
compensated by YPFB.  The contracts range from 23 to 30 
years, and the companies committed to invest USD 2 billion in 
exploration and exploitation under the contract terms, 
according to the GOB.  The actual contracts have not been 
made public.  Ortiz said that this investment would enable 
Bolivia to meet its contractual commitments of 30 million 
cubic meters per day of gas exports to Brazil and 27.7 
million cubic meters per day to Argentina (within three 
years).  Producers operating large fields must pay up to 82 
percent in taxes and royalties, while producers in small 
fields will pay less.  The contracts must now be approved by 
congress. 
 
Vintage Pleased with Deal 
------------------------- 
¶3. (SBU) The President of U.S.-owned Vintage Petroleum told 
Econoff on October 30 that Vintage had signed a final 
contract, containing all details, on October 27.  Vintage 
gave up its rights to pursue international arbitration in the 
contract.  He said that Vintage, as a producer with small 
fields, would pay significantly less in taxes and royalties 
than producers with large fields and would also be provided 
incentives that would be detailed in a GOB decree.  He said 
that agreed upon tax rates would enable the company to 
profit.  Vintage's contract is for 30 years.  He added that 
he believed Bolivia would be able to meet its ambitious 
contracted gas export commitments to Argentina now and avoid 
paying the hefty penalties that would result from failing to 
deliver. 
 
Pending Issues 
-------------- 
¶4. (SBU) Chaco President Ricardo Srebernic told the press 
that the contract was a preliminary agreement and several 
details remain to be resolved.  In addition, separate 
negotiations are ongoing between YPFB and the five companies 
that were destined for GOB take-over in the May 1 
nationalization decree -- three partially-privatized 
companies:  Chaco, Transredes, and Repsol/Andina; and two 
fully private companies:  Petrobras' refineries and the 
Bolivian Hydrocarbons Logistics Company.  The decree mandated 
that YPFB acquire 50 percent plus one of the shares of the 
companies within an unspecified timeframe, but YPFB's lack of 
capital and legal impediments have hindered the take-overs 
thus far.  YPFB and Petrobras have not yet agreed on the 
price of natural gas exports from Bolivia to Brazil. 
Negotiations are scheduled to continue November 6 - 10 in Rio 
de Janeiro. 
 
Hydrocarbons Chamber Hopeful 
---------------------------- 
¶5. (SBU) The President of the Bolivian Hydrocarbons Chamber 
told the press that the chamber was hopeful that the new 
contracts would provide the legal security needed for sector 
development.  He added that the sector's biggest worry was 
the lack of investment due to uncertainty, but that the 
reactivation of the sector was certain with these new 
contracts. 
 
Political Victory for GOB 
------------------------- 
¶6. (SBU) The GOB has touted the signing of new contracts as a 
victory for the state and the Bolivian people, saying Bolivia 
now owns hydrocarbons production and commercialization 
rights, YPFB will participate (eventually) in all aspects of 
the productive chain, and the state will recoup more 
hydrocarbons revenue.  The government has already announced 
plans for the windfall in the press, such as universal 
healthcare (septel).  A social sector leader from El Alto 
declared that the agenda of October 2003 -- an agenda which 
ousted two presidents from power -- has been fulfilled.  The 
leader added that the people are satisfied, because Bolivians 
can now decide how to use their own resources. 
 
¶7. (SBU) Comment:  The signing of new contracts one year 
after the original deadline imposed by the May 2005 law, 
albeit with several details remaining to be resolved, is a 
true accomplishment for the GOB, which has averted 
international arbitration and guaranteed billions in revenue 
for the state.  It will no doubt boost President Morales' 
approval ratings, which were down to 51 percent prior to the 
signing of contracts.  Morales, who struggles as an 
administrator, has proven himself to be an able political 
tactician, and the glowing press he received over the weekend 
-- including praise from opposition politicians -- has 
improved his battered image.  The investment commitments 
agreed upon are also of vital importance for Bolivia, as they 
may enable it to meet its recently contracted, ambitious 
supply commitments to Argentina.  End comment. 
GOLDBERG