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DE RUEHBR #1267/01 2662117
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RUEHSO/AMCONSUL SAO PAULO 2782

UNCLAS SECTION 01 OF 03 BRASILIA 001267 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/BSC 
 
E.O. 12958: N/A 
TAGS: PAO ETRD PREL ECON BR
SUBJECT: SENATOR HAGEL DISCUSSES ENERGY, REGIONAL POLITICS 
WITH BRAZILIAN MINISTERS 
 
REF: A. BRASILIA 001218 
     ¶B. BRASILIA 01265 
 
¶1. (SBU) Summary: Senator Chuck Hagel visited Brasilia from 
August 31 to September 1, during which time he met with key 
leaders in the Brazilian government, including Minister of 
Defense Jobim, Minister of Mines and Energy Lobao, and 
Minister for Strategic Affairs Unger, to discuss Brazil,s 
dynamic energy sector, the stability of the region, and the 
future of the bilateral relationship.  As in the meetings 
with President Lula and Minister Amorim, several of the 
Ministers keyed in on the need to exploit the growing but 
still largely untapped potential for an ever-closer bilateral 
relationship rooted in our common heritage and culture.  The 
meetings also highlighted Brazil,s growing potential as a 
supplier to global energy markets and the need for continue 
the progress that has been achieved over the past several 
years in improving relations between the two countries. End 
summary. 
 
¶2. (U) This cable is the third of five on Senator Hagel,s 
August 31-September 2 visit to Brasilia and Sao Paulo. See 
refs A and B for the first two cables in the series. 
 
---------------------------------- 
Tapping Brazil,s Energy Potential 
---------------------------------- 
 
¶3. (SBU) During dinner on Sunday Agusut 31, Minister of Mines 
and Energy Lobao provided Senator Hagel with an overview of 
Brazil,s energy picture, noting that, in addition to 
biofuels development, Brazil had ample hydropower, had built 
two nuclear reactors and was building a third, and was 
developing some solar technology.  He discussed Brazil,s new 
oil finds (which he described as &between 50 billion and 150 
billion barrels8), adding that Brazil is already 
self-sufficient in oil.  When Senator Hagel asked whether 
Brazil was considering a new structure for managing this oil 
wealth, Lobao responded that Brazil would respect all 
existing contracts, highlighted that Petrobras is ¬ a 
Brazilian company8 as the GOB only holds 40 percent of it, 
and said that the GOB, like those in other countries with 
new-found oil wealth, is reviewing the legislative and 
regulatory framework for petroleum production in order to 
manage it well.  The Ambassador mentioned to Senator Hagel 
that Minister Lobao is planning a trip to the United States, 
and the Senator offered to host a meeting and to help set up 
meetings with OPIC and the US Chamber of Commerce,s new 
energy committee. 
 
¶3. (SBU) In a separate meeting, Senator Hagel met with Marcio 
Zimmermann, number 2 in the Ministry of Mines and Energy 
(MME).  Zimmermann gave a wide-ranging overview of the energy 
situation in Brazil, with particular attention paid to the 
GOB,s plans to expand hydro electricity through more 
environmentally friendly dams with smaller footprints; 
Brazil,s plans to add 4 ) 8 thousand megawatts of nuclear 
energy to the country,s matrix through the addition of 4-6 
new power plants by 2030; plans for more refinery capacity to 
accommodate the vast new pre-salt (more than 4000 meters 
below the sea) oil reserves; as well as Brazil,s focus on 
further developing its coal plants, both with new plants 
using higher quality, cleaner, imported coal, and with 
environmental modifications to processing using its own 
high-sulfur content coal.  In response to a question by 
Senator Hagel, Zimmermann said that he foresaw nuclear power 
eventually making up about five per cent of the Brazilian 
power matrix. 
 
¶4. (SBU) Senator Hagel also inquired about the infrastructure 
for blending of ethanol and Under Secretary for Petroleum, 
Natural Gas, and Renewables Secretary for Petroleum, Natural 
Gas, and Renewables (equivalent to Assistant Secretary) Jose 
Lima Neto, explained that blending facilities are located 
close to the sugar cane fields both because of transport 
costs and the need to process the ethanol quickly so as to 
not lose its maximum capacity, which it does soon after 
production.  Ambassador Sobel mentioned the steady flow of 
 
BRASILIA 00001267  002 OF 003 
 
 
interest expressed by U.S. technology firms seeking to 
develop their next generation technology in Brazil due to the 
strength of the infrastructure.  Zimmermann commented that 
Brazil is busy identifying five enzymes which they believe 
are promising in the attempt to produce ethanol from 
cellulose and should be viable in fourteen to fifteen years 
barring any major developments from outside Brazil. 
Ambassador Sobel used the opportunity to note the creativity 
of the Brazilian government in expanding its energy matrix 
and expressed his hope that Hagel,s visit would signal the 
beginning of an active partnership with Brazil in this area. 
The Ambassador specifically cited the desirability of U.S. 
Congressional willingness to permit funding for joint 
research projects in Brazil, as well as encouraging OPIC to 
become active in this area.  Senator Hagel stated his 
interest in the developing relationship and in particular his 
willingness to serve as a resource is setting up a trip by 
Minister Lobao to Washington. 
 
¶5. (SBU) Comment: In a subsequent meeting with Embassy 
officers, Undersecretary Lima Neto remarked how much he had 
enjoyed the Hagel meeting at MME.  He said he thought it was 
good for the ministry as a whole and for our bilateral 
relations because Hagel was so well informed, interested, and 
engaged that it really helped the tenor of our energy 
relationship, especially with those at the ministry who doubt 
the value of outside energy engagement.  Notably, although 
Zimmerman is frequently somewhat frosty in manner, and began 
the meeting with a very cold, formal approach, Post 
participants saw him warm up considerably over the course of 
the meeting. 
 
------------------------------------- 
Laying Fears to Rest on Fourth Fleet 
------------------------------------- 
 
¶6. (SBU) Southcom Deputy Commander General Spears, who was 
accompanying Senator Hagel on his visit, took the opportunity 
to pass along to Zimmerman a message from Southcom Commander 
Admiral Stavridis addressing Brazilian speculations that the 
reactivation of the Fourth Fleet may have been motivated by 
U.S. offensive interests in Brazilian off-shore reserves. 
General Spears said, &We want to partner with you, only as 
much as you want to partner with us.  Your sovereign 
resources are yours to protect, which we respect.8 He went 
on to say &we will always respect your sovereign territory 
and sovereign resources.8  Zimmermann and his team said 
nothing but their understanding of the message and 
appreciation for its intent were evident. 
 
--------------------------------------------- -- 
Stability in the Region, Brazil,s Primary Goal 
--------------------------------------------- -- 
 
¶7. (SBU) During dinner with Defense Minister Nelson Jobim 
said that technology transfer is a priority for Brazil as it 
makes plans for new arms purchases.  He said that maintaining 
stability in South America is Brazil,s primary security 
challenge, and described poverty as the greatest threat to 
stability.  Minister Lobao, added that Brazil goes to great 
lengths to maintain stability by extending various 
&kindnesses8 to neighbors*whether by paying a premium to 
Paraguay for its Itaipu power, ensuring continued energy 
investment in Bolivia, or helping Argentina out of its energy 
woes.  He added that President Lula is well aware of the need 
to seek balance in Brazil,s regional relationships, citing 
his concern that Brazil currently enjoys too large a trade 
surplus with Venezuela and must seek ways to lower it. 
 
--------------------------------------------- ------ 
Defense Reform to Increase Spending, Enhance National Service 
--------------------------------------------- ------ 
 
¶8. (SBU) Over lunch, Strategic Planning Minister Roberto 
Mangabeira Unger described his work with Jobim to draft the 
new national defense strategy.  Among the ideas he said would 
be included was one he felt would be controversial in Brazil, 
a universal selective service program for men and women that 
 
BRASILIA 00001267  003 OF 003 
 
 
would involve either military service or social service in a 
state other than the selectee,s home state.  Unger confirmed 
that Jobim will seek an increase in the military budget from 
1.5 percent of GDP to 2.5 percent of GDP to ensure adequate 
funding. 
 
--------------------------------------------- ----- 
Potential for Cooperation Great, Remains Unexploited 
--------------------------------------------- ----- 
 
¶9. (SBU) Both Lobao and Jobim talked at length about the 
change in the tone of the relationship between the United 
States and Brazil over the last few years.  Jobim said that 
an attitude of seeking true partnership has replaced the 
twentieth century &language of empire.8  Lobao recalled a 
Reagan-era snub made by a U.S. member of Congress that almost 
derailed relations between the two countries and required an 
apology from the Secretary of State, stressing that it was 
important for Congress to understand the changing dynamic in 
the relationship.  Senator Hagel agreed that there was an 
important and still not widely understood change both in 
Brazil,s global presence and in the dynamic of our bilateral 
relationship.  He added that he believed the next president 
would further deepen this relationship. 
 
¶10. (SBU) Unger, a Harvard Law School professor since 1973, 
commented on the enormous similarities between the two 
countries*among them, their multicultural nature, geographic 
size, and wide income gaps, combined with an enduring belief 
that prosperity is achievable by anyone.  He believes that 
the potential for the US-Brazil cooperation remains 
under-exploited, with citizens of each country largely 
unaware of the similarities.  He cited as an example of 
issues that could benefit from cooperation (one provided to 
us on several occasions before) the difficulty both national 
governments have, as a result of their federal systems, in 
helping failing local schools in a cooperative manner, 
instead of through court-ordered intervention.  Ambassador 
Sobel, Senator Hagel and Minister Unger discussed the 
possibilities for a trip by the minister to Washington, and 
agreed that the end of September would be the best timing. 
Ambassador Sobel asked Unger about his idea of three-way 
cooperation between the United States, Mexico, and Brazil. 
Unger acknowledged that he had considered the possibility, 
but said that he felt the prospects were not as good as those 
for U.S.-Brazil cooperation because Mexico was not so similar 
as our two countries. 
 
---------------------------------------- 
Brazil,s Bright Future: No Going Back 
---------------------------------------- 
 
¶11. (SBU) During a meeting with Minister of Communications 
Helio Costa, Costa gave an overview of the changes Brazil has 
undergone over the past two decades, including the remarkable 
strides Brazil has made in consolidating its democracy and 
reducing poverty.  &There has been a complete change in the 
mindset of Brazilians8, Costa said, alluding to the problems 
in several countries in the region, &it is unthinkable that 
Brazilian democracy or its economy will suffer from 
revolutionary upheavals, as other countries in the region 
suffer regularly.8 Costa also noted that there is a growing 
but still largely untapped potential in the areas of 
biofuels, and that only 1% of Brazilian territory is 
dedicated to sugar crops. 
 
¶12. (SBU) Asked for his thoughts on Brazilian relations with 
its neighbors, Costa noted that Venezuelan President Chavez 
was a wildcard and that nobody in Brazil trusted him.  On 
Bolivia, Costa noted that Petrobras investment there 
represented such a small and insignificant part of that it 
would have been petty of Brazil to have made a fuss, and that 
besides, Brazil has an interest in maintaining stability in 
the region and has a responsibility to stand in solidarity 
with its poorer neighbors. 
 
KUBISKE