VZCZCXYZ0005
RR RUEHWEB

DE RUEHBU #0230/01 0570809
ZNR UUUUU ZZH
R 260809Z FEB 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 0309
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 000230 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
EB/IEC/EPC FOR MCMANUS, JIZZO 
WHA/EPSC FOR FCORNEILLE 
TREASURY FOR LTRAN AND MMALLOY 
E FOR THOMAS PIERCE 
PASS USTR FOR DUCKWORTH 
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 
US SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EPET PREL PGOV AR BR BL
SUBJECT: Argentina Hosts Brazil, Bolivia Presidents on Looming 
Regional Energy Shortages 
 
Ref: 07 Buenos Aires 1456 
 
This cable contains sensitive information - not for internet 
distribution. 
 
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Summary 
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¶1. (SBU) A bilateral Argentine/Brazil presidential summit in Buenos 
Aires February 22 and a follow-on February 23 trilateral 
Argentine/Brazil/Bolivia presidential summit focused largely on 
regional energy coordination.  Bolivia's President Morales 
acknowledged his country's near-term inability to meet contractual 
gas supplies to Argentina or to Brazil, and Brazilian officials 
publicly rejected a reported request by Cristina Fernandez de 
Kirchner 
that Brazil cede to Argentina a small share of the gas it receives 
from Bolivia to help Argentina meet anticipated high domestic demand 
this coming (austral) winter.  The GOA is likely to respond with 
pressure on Petrobras's many Argentine interests.  Local analysts 
interpret the high-level -- and highly publicized -- Brazilian 
rejection of Argentina's request as evidence that President Kirchner 
is being poorly staffed and advised on international diplomatic 
engagement.  Brazil and Argentina also signed 17 bilateral accords, 
including a Brazilian proposal to establish a regional defense 
cooperation working group (Septel), nuclear cooperation (including 
the structuring of "binational" entities to enrich uranium, 
construct small civilian nuclear reactors, and the eventual joint 
construction of a nuclear power submarine - septel), science 
cooperation, civil aviation, broad economic cooperation, and broad 
civilian rights accords.  End Summary. 
 
--------------------------------------------- 
Argentine-Brazil Bilateral Summit: Energy and 
Cooperation Agreements 
--------------------------------------------- 
 
¶2. (SBU) The Argentina/Brazil bilateral summit was President Lula's 
first visit to Argentina following Cristina Fernandez de Kirchner's 
(CFK's) December 10 inauguration.  The February 22 bilateral agenda 
included one-on-one meetings between the Presidents, expanded 
meetings with their foreign and energy ministers, an address by 
President Lula to a joint session of Parliament and a meeting 
between Lula and the head of the Argentine Supreme Court.  While the 
media focus was on energy coordination and CFK's request (see para. 
6) that Brazil cede a portion of its Bolivian gas supplies to 
Argentina, a total of 17 bilateral accords were signed, according to 
a GoA communique.  During CFK's last visit to Brazil, she and Lula 
had asked their ministers to provide them with concrete deliverables 
for this first summit meeting. 
 
¶3. (SBU) These accords included a Brazilian proposal to establish a 
regional defense cooperation working group (Septel); nuclear 
cooperation (including the structuring of "binational" entities to 
enrich uranium, construct small civilian nuclear reactors, and the 
eventual joint construction of a nuclear power submarine - septel); 
science cooperation (including the signing of a bilateral pact for 
the construction and launch of a joint ocean observation satellite 
and the formation of a binational bio-pharmacology company); civil 
aviation cooperation (including the possible manufacture and 
maintenance of Brazilian Embraer aircraft in Argentina and the sale 
of an Embraer jet for use by the Argentine Presidency); broad 
economic cooperation (including on macro-economic target 
coordination and regular WTO policy coordination, bilateral trade 
account settlement in local currency, and cooperation between 
Brazilian state-owned development bank BNDES and Argentina's 
state-owned National Bank, building bridges over the Uruguay river 
and binational railroad integration); and broad civil rights accords 
(including joint commitments to promote and protect human, civil and 
political rights and the creation of a high level coordination group 
to ensure free circulation between the countries). 
 
--------------------------------------------- 
Trilateral Summit: No Additional Bolivian Gas 
for Argentina in Near Term 
--------------------------------------------- 
 
 
 
 
¶4. (SBU) The February 23 Argentina/Brazil/Bolivia trilateral agenda 
focused on Bolivian gas supplies.  Burgeoning Brazilian and 
Argentine demand for Bolivian gas remained the central theme of 
bilateral and trilateral meetings.  In Argentina, low utilities 
prices have deterred foreign investment needed to boost domestic gas 
production, and the GoA has relied on top-up imports from Bolivia. 
But Bolivia itself has failed to boost its production since 
nationalizing its gas industry in 2006.  Local media reports that 
President Morales and his Energy Minister Carlos Villegas made clear 
at the February 23 trilateral summit that Bolivia cannot meet 
ambitious export commitments to Argentina or to Brazil until 2009 at 
the earliest.  In an airport interview on his February 23 departure 
from Argentina, President Lula said: "After so long without 
significant investment in Bolivia, investment (in new Bolivian gas 
production capacity) by Petrobras and by the GoB itself has begun. 
In the medium term, Bolivia will be able to meet the demands of 
Argentina and Brazil, and we will not have problems."  Last week, 
Brazil's Petrobras announced that it would boost its investments in 
its Bolivian subsidiary by 33%, from US$ 750 million in 2007 to US$ 
1 billion in 2008. 
 
¶5. (SBU) Bolivia currently produces roughly 40-42 million cubic 
meters of natural gas per day (MCMD), of which roughly 6-7 MCMD is 
consumed domestically.  Bolivia has contracts to supply up to 30 
million MCMD to Brazil and 7.7 MCMD to Argentina.  But at present, 
Bolivia is supplying only about 27 MCMD to Brazil and 3-4 MCMD to 
Argentina. As the southern hemisphere winter approaches, demand from 
both is expected to surge.  Argentina currently produces roughly 51 
MCMD of gas domestically.  Shortfalls of Bolivian gas supplies 
during the last austral winter forced Argentina to import expensive 
diesel fuel to power generators and to purchase expensive 
electricity from Brazil (reftel).  Beyond Bolivia's currently unmet 
contractual commitment to export 7.7 MCMD to Argentina, a 2006 
Argentine/Bolivia bilateral agreement to construct a second gas 
pipeline between the nations was to allow an increase in gas imports 
to the 27 MCMD level by 2010.  This project has been significantly 
delayed on both the Argentine and Bolivian sides, and local energy 
analysts do not expect the pipeline to be completed until 2011. 
These same analysts question whether Bolivia will be able to expand 
production sufficiently in the next four years to fill this new 
pipeline. 
 
--------------------------------------------- ----- 
CFK Asks Lula to Cede Gas, Lula Offers Electricity 
--------------------------------------------- ----- 
 
¶6. (SBU) According to statements made to the media by Brazilian 
Energy Minister Lobao, Argentine President Cristina Fernandez de 
Kirchner (CFK) asked during their bilateral summit that Brazil cede 
to Argentina one MCMD of the 30 MCMD Brazil has contracted to 
receive from Bolivian order to help Argentina meet anticipated high 
domestic demand this coming (austral) winter.  Lobos said that 
Brazil could not meet this request, but instead offered to export 
some 200 megawatts (MW) per day of electricity to Argentina, 
supposedly the electrical equivalent of this amount of gas.  (During 
the last austral winter, Argentina imported up to 1,100 MW per day 
of premium-priced electricity from Brazil to meet peak demand 
loads.)  Brazilian Foreign Minister Celso Amorim told the media that 
Brazil was happy to help Argentina, but within limits.  "We'll do 
everything we can to help Argentina, as long as we don't create a 
crisis in Brazil in the process.  What Brazil can't do is create a 
rationing problem in one country to help avoid a rationing problem 
in another."  Petrobras President Sergio Gabrielli was less 
diplomatic, saying to Argentine media February 23 that Brazil will 
"note cede even one molecule" of gas to Argentina.  And speaking to 
press on his February 23 departure from Buenos Aires, President Lula 
said: "Energy is not produced by gas alone.  What is important is to 
have a quantity of MWs available from Brazil to those countries that 
need it, like Argentina and Uruguay.  And, at times, we will need 
(energy) from Argentina.  So, a policy of solidarity is extremely 
important." 
 
--------------------------------------------- ------- 
Argentina, Brazil, Bolivia Form Energy Working Group 
--------------------------------------------- ------- 
 
 
E 
 
¶7. (SBU) Following Argentina's unsuccessful attempt to gain a 
commitment for additional gas supplies, the summit communique noted 
an agreement that Energy Ministers of Argentina, Brazil, and Bolivia 
would meet shortly to establish a coordination group to "explore the 
best short- and long-term alternatives" to guarantee adequate 
supplies of Bolivian gas to Argentina and Brazil.  A statement 
issued later by the GoA Foreign Ministry said that GoA Planning 
Minister de Vido, Brazilian Minister of Energy and Mines Edson 
Lobao, and Bolivian Minister of Hydrocarbons Carlos Villegas are to 
meet within 10 days in La Paz to "analyze the evolution and 
respective demands for energy and to coordinate appropriate 
measures" and "to evaluate the growth in production and (energy) 
infrastructure so that the development of (all three nations') 
energy sectors can accompany economic growth." 
 
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Comment 
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¶8. (SBU) Regional energy politics are heating up.  Beyond the 
summit's talk of regional energy "solidarity" and the announcement 
of (yet another) regional energy coordination meeting of energy 
ministers, the bottom line is that Bolivia won't be producing 
adequate levels of gas to meet growing Argentine and Brazilian 
demand any time soon.  Brazil's offer to provide Argentina up to 200 
MW of expensive electricity this coming austral winter -- less than 
20% of the electricity Brazil supplied to Argentina at the height of 
last winter's shortages -- was certainly disappointing to GoA 
officials.  And the potential recurrence of domestic energy 
shortages of the same magnitude as Argentina experienced last 
austral winter raises a question mark on the performance of 
Argentina's industrial sector in 2008.  Even though the GoA denies 
that last year's energy shortages caused a slowdown of economic 
growth, GoA statistical data does show a sharp decline in the 
industrial production index in mid-2007, when the industrial sector 
faced severe gas and electricity constraints.  The GoA argues that 
subsequent production made up for the temporary shortages. 
 
¶9. (SBU) Local analysts interpret the high level -- and highly 
publicized -- Brazilian rejection of Argentina's request as evidence 
that President Kirchner is being poorly staffed and advised on 
regional diplomatic engagement.  Kirchner's advisors encouraged her 
to proceed with a public plea for gas despite clear signs from the 
Brazilians that the answer would be no.  But Embassy energy sector 
contacts indicate that the GoA has cards to play to influence Brazil 
to be more forthcoming, including the threat of cutting natural gas 
supplies to Brazilian state oil company Petrobras's Argentine 
petrochemical plants.  (It appears that the GOA is wasting no time 
in exerting pressure; a headline in the February 25 edition of a 
daily linked to the GOA's Planning Minister announces a GOA probe 
into Petrobras investment operations in Argentina.)  Petrobras' 
strong interest in acquiring a portion of Exxon's refinery and 
service station assets in Argentina also offers the GoA additional 
leverage in regional energy diplomacy.  The GoA continues to 
publicly state that new domestic gas discoveries and new domestic 
generating capacity coming on line will see Argentina comfortably 
through the coming austral winter's heating season.  Behind the 
scenes, however, the GoA is certain to spare no efforts to secure 
additional Brazilian and Bolivian energy resources.  A cold winter 
in Argentina will undoubtedly raise political temperatures here. 
 
WAYNE