VZCZCXYZ0002
PP RUEHWEB

DE RUEHBU #0414/01 0641414
ZNR UUUUU ZZH
P 051414Z MAR 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC PRIORITY 7445
INFO RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC PRIORITY
RHMFIUU/HQ USSOUTHCOM MIAMI FL PRIORITY
RUCPDOC/USDOC WASHINGTON DC PRIORITY

UNCLAS BUENOS AIRES 000414 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
 
E.O. 12958: N/A 
TAGS: BEXP ECON EINV PREL SENV AR
SUBJECT: AMBASSADORIAL TRAVELS IN PATAGONIA -- MAJOR US 
INVESTMENTS IN OIL/GAS, BUT GOVERNORS EAGER FOR MORE 
 
Summary 
------- 
¶1. (SBU) The fast-growing provinces that make up Argentine 
Patagonia are hungry for investment, particularly in energy 
and tourism, and they are eager to attract U.S. investors, 
tourists, and airlines.  This according to the Governors of 
Argentina's three southernmost provinces -- Chubut, Santa 
Cruz, and Tierra del Fuego -- who hosted the Ambassador and 
Emboffs during a six-city, five-day tour of the southern half 
of Argentine Patagonia.  Although these three provinces 
contribute only 5% of Argentina's total GDP and only 2% of 
its population, they produce roughly 50% of Argentina's total 
crude oil and over 30% of its natural gas, and host 
fast-growing tourism and agricultural industries.  The 
Ambassador met with Argentine government, civic, and 
scientific leaders, toured the Argentine Navy's southernmost 
base and U.S. hydrocarbon companies' production facilities, 
and met with Patagonian cherry farmers who recently began 
exporting to the U.S.  The trip raised the profile of 
positive USG engagement in the region, highlighted 
U.S.-Argentine scientific, educational, and cultural 
collaboration, and provided opportunities for business 
advocacy on behalf of significant U.S. business interests in 
the petroleum sector.  End Summary. 
 
Embassy outreach in Patagonia 
----------------------------- 
¶2. (SBU) The Ambassador's February 13-18 Patagonia trip was 
the Embassy's latest effort to enhance the image of the U.S. 
and highlight the good works of the USG and U.S. investors 
and private citizens in Argentina, the country with the 
lowest U.S. approval rating in Latin America.  The Ambassador 
and State, USDA, Commerce, and U.S. military officers 
crisscrossed the southernmost Patagonian Provinces, traveling 
milair (in Buenos Aires DAO's C-12), meeting with Provincial 
Governors and Ministers in Chubut, Santa Cruz, and Tierra del 
Fuego.  They toured the Chubut facilities of Occidental 
Petroleum and Lufkin Industries, accompanied Apache 
Corporation's Country Director on a helicopter tour of its 
oil and gas fields in Tierra del Fuego. 
 
¶3. (SBU) Although the Patagonia trip had a commercial and 
business advocacy focus, the Ambassador also met with civic 
leaders and donated books to the BiNational Center and a 
popular library in Chubut and also to the Binational Center 
in Tierra del Fuego.  He also toured the Austral Navy Base, 
the Austral Center for Scientific Study (CADIC), and the 
National Park in Ushuaia, Tierra del Fuego.  Navy Rear 
Admiral Guillermo Estevez, who came across as pro-American 
and eager for enhanced bilateral cooperation, particularly 
with DAO, explained that the base plays a crucial role in 
tracking commercial shipping through the straits of Magellan 
and Beagle Channel, and supports research stations in 
Antarctica.  The CADIC research station is a valuable center 
for climatic change research, and CADIC and U.S. agencies and 
private institutions cooperate on a wide range of related 
scientific endeavors.  The entire trip received extensive and 
positive press coverage in the Patagonian region, and equally 
positive but more limited coverage in Buenos Aires. 
 
Chubut Province -- whales, cherries, and oil 
-------------------------------------------- 
¶4. (SBU) Governor Mario Das Neves explained that the 
petroleum, livestock, and fishing industries are the main 
drivers of Chubut's economy, but tourism is growing at 10% 
per year.  Chubut is known for its beaches and sightseeing 
tours for whales, sea lions, and Magellan penguins on the 
Valdes Peninsula.  Chubut also has some of the best fly 
fishing in the world.  Das Neves complained of a lack of 
quality hotels and limited air service to the province, and 
asked for Post assistance to attract U.S. investors into the 
tourism sector.  Ambassador agreed that Embassy FCS section 
would work with the Governor's staff to develop leads. 
 
¶5. (SBU) The Ambassador highlighted the positive economic 
impact of U.S. investments in Chubut's petroleum sector. 
(Note:  Chubut produces 23% of total Argentine crude oil and 
8% of total natural gas, and it is the only province in 
Argentina where crude production is increasing.  End Note). 
Occidental Petroleum, in particular, had begun an aggressive 
$1 billion-plus capital Argentine exploration and development 
program, concentrated mainly in Chubut and Santa Cruz 
provinces.  This was noteworthy, the Ambassador said, given 
President Kirchner's frequent complaints that oil companies 
are not investing in exploration and new production. 
Occidental also has a generous social responsibility program. 
 (Note: the lack of investment is a direct result of GoA 
 
market interventions, including export price controls, export 
taxes and domestic allocation requirements.  Occidental says 
the impact of these policies is to make gas exploration 
uneconomical and reduce the effective price that Oxy receives 
for crude oil substantially below world market levels.  End 
Note) 
 
¶6. (SBU) The Ambassador urged Governor Das Neves to negotiate 
soon with Oxy on an extension of its concession contract, 
which expires in less than 10 years -- a short horizon for 
exploration companies.  Das Neves welcomed Oxy's presence in 
the Province.  His Economic Minister noted that the Province 
was beginning negotiations with PanAmerican, the largest 
producer in the province, and would then use that contract as 
the model for negotiations with other producers. 
 
¶7. (SBU) Agriculture is also a key sector, and the Ambassador 
and Province officials toured Chubut's cherry growing sector. 
 2006/2007 was the first season that Patagonian growers were 
allowed to export cherries to the U.S. without have to 
undergo damaging cold treatment.  This follows a December 
2005 APHIS ruling that Patagonia was fruit fly free.  Total 
Patagonian cherry exports to the U.S. were only approximately 
$1 million (13% of which came from Chubut), but growers 
expect exports to increase rapidly.  (Note:  Chubut livestock 
producers are also eager to access the U.S. market.  The 
comment period for the proposed APHIS rule declaring 
Patagonia south of the 42nd parallel free of Foot and Mouth 
disease ends March 6, after which Chubut and other Patagonian 
livestock producers should be able to export fresh lamb and 
beef to the U.S.  End Note) 
 
¶8. (U) Ambassador received extensive press and TV coverage 
with a book donation, story reading, and question and answer 
session with children at a local community library. 
 
Santa Cruz Province -- glaciers, tourists, and oil 
--------------------------------------------- ----- 
¶9. (SBU) Santa Cruz Governor Carlos Sancho and his Ministers 
enthusiastically welcomed the Ambassador, and were equally 
eager for U.S. investment and for U.S. bids on major 
infrastructure projects in the province.  Santa Cruz is 
completely dependent on mining and oil.  The Governor is 
focused on diversifying the economy, mainly through 
attracting investment in tourism and on improving 
infrastructure through sizable government-funded projects, 
including major new roads, pipelines, and ports.  In tourism, 
Sancho named similar restraints to growth in the sector that 
Chubut is experiencing (i.e., inadequate hotels and 
transportation linkages).  The tourism industry is focused on 
Santa Cruz's many glaciers, and particularly the Glaciers 
National Park and the Perito Moreno (and other) Glaciers near 
El Calafate, a small town at the foot of the Cordillera whose 
population has increased from 4,000 to 20,000 in recent 
years.  (Note:  Kirchner was Governor of Santa Cruz for 
eleven years prior to becoming President of Argentina in 
¶2003.  End Note) 
 
¶10. (SBU) The Ambassador delivered the same message to 
Governor Sancho on petroleum sector concession extensions 
that he had delivered in Chubut, noting that the bulk of 
Occidental's investment and job creation are in Santa Cruz. 
The Governor and his Economy Minister agreed that it was 
important to begin such discussions soon.  (Note:  Santa Cruz 
produces 18% of total Argentine oil and 10% of total natural 
gas.  End Note)  Ambassador also agreed that Post's 
Commercial Section would work with the Governor and his staff 
to attract U.S. participation in the public bidding for 
infrastructure projects in the province. 
 
Tierra del Fuego -- natural beauty beyond belief, train to 
the end of the world ... and oil 
--------------------------------------------- ----------- 
¶11. (SBU) Tierra del Fuego's (TdF) capital, Ushuaia, is a 
tourist paradise, at the foot of towering mountains and on 
the edge of the Beagle Channel, named after the boat Darwin 
used when exploring the region in the 1830s.  As a result, 
the tourism industry is booming.  Governor Hugo Omar Coccaro 
commented that the city receives over 250 cruise ships per 
year, and is a launching pad for Antarctica tours.  TdF 
National Park receives over 150,000 visitors annually, the 
majority of whom are Amcits, and offers "the train to the end 
of the world." 
 
¶12. (SBU) Ushuaia's hotels are first rate, but the Governor 
said that much more investment in the sector was needed.  He 
also complained that Ushuaia does not receive enough flights, 
 
and air travel is prohibitively expensive.  The Ambassador 
commented that lack of competition in Argentina's domestic 
aviation industry is a significant constraint.  He noted that 
the U.S. and Argentina are renegotiating our bilateral 
aviation agreement to increase flight frequencies, which 
should result in more visitors traveling at lower cost to 
Argentina.  Inevitably, this would lead to more tourists 
traveling to Patagonia.  Nevertheless, the Ambassador 
criticized Argentina's practice of charging foreigners as 
much as two to three times the price residents pay for hotels 
and air service.  This makes Argentina's provinces a less 
attractive destination, particularly for U.S. tourists. 
 
¶13. (SBU) Cocarro stated that TdF's economy also has strong 
fishing, timber, and petroleum industries.  TdF produces 6% 
of total Argentine oil and 14% of total natural gas, but the 
Governor stated that the Province has 35% of Argentina's gas 
reserves and also significant proven and probable crude 
reserves.  The Province is also exploring alternative energy 
options, and the Governor claimed to be in contact with 
several U.S. companies interested in investments in wind 
power and fuel cells.  Also, since the entire province 
retains free zone tax status, a light manufacturing industry 
(mostly assembly) has developed, including a subsidiary of 
Motorola. 
 
¶14. (SBU) The Ambassador advocated on behalf of Apache 
Corporation, which invested over $1 billion in 2006 in 
Argentina, including over $800 million in TdF.  The 
Ambassador noted that the GoA's decision in October 2006 to 
revoke export hydrocarbon tax exemptions for TdF Province had 
devalued Apache's investment by 30%.  He said Apache was 
still committed to investing aggressively in exploration and 
production.  However, the viability of Apache's operations -- 
and their willingness to continue to invest aggressively in 
exploration -- depended on renewing their concession 
contracts soon.  (Note: The Ambassador introduced Apache's 
Country Director to the Governor and Production and Economy 
Ministers, and facilitated subsequent discussions.  Apache 
reports that the Governor seems willing to talk about 
concession contracts, but is also pushing Apache to invest in 
areas -- such as an oil refinery and methane plant -- outside 
Apache's core hydrocarbon exploration and development 
competency.  End Note) 
 
Comment 
------- 
¶15. (SBU) All three Provincial governments are desperately 
seeking investment, particularly in tourism, to diversify 
their oil-dependent economies.  There also seems to be good 
opportunities for U.S. companies to participate in public 
tenders for infrastructure development.  Although each offers 
extraordinary opportunities for tourists -- whales and sea 
lions in Chubut, glaciers in Santa Cruz, and incredible 
natural beauty and history in Tierra del Fuego -- they are 
also well off the beaten path.  While more inclined to 
intervene in the economy than is common in the U.S., the 
three province Governors all said they were committed to 
creating open, transparent, and level playing fields for 
investors.  The Chubut and Santa Cruz Governors seemed to 
appreciate that this was even more important for their 
provinces, given higher risks due to their remoteness, 
volatile weather, and high travel costs.  The Embassy 
Commercial Section has offered assistance in attracting U.S. 
bidders on contracts in the three provinces.  Post will also 
continue advocacy efforts on behalf of the large U.S. oil 
investors, particularly Occidental and Apache, which need to 
complete concession extensions within the next few years to 
maintain the viability of their operations.  End Comment. 
WAYNE