VZCZCXYZ0019
OO RUEHWEB

DE RUEHQT #0173/01 0221841
ZNR UUUUU ZZH
O 221841Z JAN 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6146
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6364
RUEHCV/AMEMBASSY CARACAS PRIORITY 2310
RUEHLP/AMEMBASSY LA PAZ JAN 0359
RUEHPE/AMEMBASSY LIMA PRIORITY 1326
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 1747
RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 000173 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/EPSC FAITH CORNEILLE 
TREASURY FOR SGOOCH 
 
E.O. 12958: N/A 
TAGS: ECON EPET EFIN EC VE
SUBJECT: VENEZUELA AND ECUADOR SIGN COOPERATION ACCORDS 
 
REF: A. QUITO 128 
 
      ¶B. QUITO 1612 
 
¶1. (SBU) Summary:  Five cooperation agreements were signed between 
Venezuela and Ecuador January 16, capping Venezuelan President 
Chavez's visit to Ecuador for President Correa's inauguration. 
These accords seek to strengthen bilateral cooperation and 
integration focusing on social welfare, banking, and energy, with 
particular emphasis on an exchange of crude oil from Ecuador for 
petroleum derivatives from Venezuela.  End summary. 
 
¶2.  (U) The energy cooperation agreement pledges cooperation and 
integration in oil, natural gas, electricity, and petrochemicals. 
Per  the agreement, Venezuela will support modernization of 
Ecuador's existing refineries and increasing Ecuador's refining 
capacity; the support will include technical and financial 
assistance (renovation of the aging refinery in Esmeraldas and 
building a new refinery are two of Correa's energy sector 
priorities).  The agreement also provides for creating a "mixed 
enterprise" between PDVSA (Venezuela's state oil company) and 
Petroecuador (Ecuador's state oil company) for joint projects in 
exploration, production, refining, processing, and 
commercialization.  It also mentions generating biofuels such as 
ethanol. 
 
¶3.  (SBU) A separate petroleum exchange agreement between 
Petroecuador and PDVSA provides that Petroecuador will sell crude 
oil to PDVSA at "market rates" for refining, while PDVSA will 
deliver derivatives to Ecuador at a to-be-determined price (the 
contract notes "platts (a published market rate) plus a 
differential").  Derivative products will include unleaded gasoline, 
diesel fuel, fuel oil, and LPG.  The exchange is planned to start at 
the end of February, with a shipment of 220,000 barrels of diesel 
from Venezuela to Ecuador.  Ecuador will reportedly ship up to 
36,000 barrels per day (bpd) of crude to Venezuela for refining 
(although the contract allows for adjustments up to 100,000 bpd). 
According to new Petroecuador president Carlos Pareja, Ecuador will 
save money by cutting out intermediaries, although an industry 
insider believes the exchange is a way for Chavez to subsidize 
derivatives for Ecuador. (In 2006, the GOE spent over a billion 
dollars to subsidize the importation of petroleum derivatives that 
are sold at below cost.) 
 
¶4.  (U) Venezuelan and Ecuadorian Ministers also signed an MOU to 
cooperate on social welfare issues and improve the quality of life 
by strengthening productive sectors, dignified employment, popular 
participation, and fair trade.  This would be achieved through 
exchanging instructors and technicians to develop training courses, 
communal banks and other cooperative measures, and by promoting 
"fair trade" of goods and services between the institutions and 
popular organizations of each country. 
 
¶5.  (U) A joint declaration by the two countries on solidarity, 
integration, and cooperation announced Venezuela's intent to open a 
consultative office of its Economic and Social Development Bank 
(Bandes) in Ecuador and create an Economic and Financial Cooperation 
Fund.  The fund will be capitalized with an initial amount of USD 25 
million, of which USD 15 million will be for cooperative association 
project loans and USD 10 million for grants for social projects. The 
two countries agreed to form a working group to create a proposal 
for a "Bank of the South" as soon as possible (reftel A). 
 
¶6.  (SBU) The declaration also reaffirmed the importance of Ecuador 
joining TELESUR, a pan-Latin American television news network touted 
as an "alternative to CNN" with majority ownership by the government 
of Venezuela (GOV)and minority ownership by partner countries, and 
in the planned Radio del Sur, which would be a similar network for 
radio.  A separate accord created a high-level "mixed commission" to 
work on bilateral issues. 
 
¶7.  (SBU) Comment:  As in previous accords, these agreements between 
Ecuador and Venezuela largely lack details on how they would be 
implemented (other than the petroleum exchange contract).  Chavez 
signed a similar energy cooperation agreement with former President 
Palacio in summer 2006 calling for Venezuelan refining of Ecuadorian 
crude, but the agreement was never implemented (reftel B).  We 
understand that Venezuelan energy agreements with other countries 
also have not been implemented, and that Venezuelan refineries are 
facing capacity restraints.  It remains to be seen whether Venezuela 
will be able to implement the swap of Ecuadorian crude for refined 
products on terms that will be better than what Ecuador could obtain 
on the open market, but Chavez and Correa may be more intent on 
making at least some of these agreements work this time around. 
 
JEWELL