VZCZCXRO6431
RR RUEHDE RUEHDH
DE RUEHCV #0545/01 1201917
ZNY CCCCC ZZH
R 301917Z APR 09 ZDK
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 2982
INFO RUEHHH/OPEC COLLECTIVE
RUEHAC/AMEMBASSY ASUNCION 0993
RUEHBO/AMEMBASSY BOGOTA 7986
RUEHBR/AMEMBASSY BRASILIA 6134
RUEHLP/AMEMBASSY LA PAZ 2884
RUEHPE/AMEMBASSY LIMA 1167
RUEHSP/AMEMBASSY PORT OF SPAIN 3699
RUEHQT/AMEMBASSY QUITO 2981
RUEHSG/AMEMBASSY SANTIAGO 4111
RUEHDG/AMEMBASSY SANTO DOMINGO 0639
RHEHNSC/NSC WASHDC
RHEHAAA/WHITEHOUSE WASHDC
RHEBAAA/DEPT OF ENERGY
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RUMIAAA/HQ USSOUTHCOM MIAMI FL

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000545 
 
SIPDIS 
 
ENERGY FOR CDAY AND ALOCKWOOD, DOE/EIA FOR MCLINE 
HQ SOUTHCOM ALSO FOR POLAD 
TREASURY FOR RJARPE 
COMMERCE FOR 4332/MAC/WH/JLAO 
NSC FOR RKING 
 
E.O. 12958: DECL: 04/30/2019 
TAGS: EPET EINV ENRG ECON VE
SUBJECT: PDVSA TO PURCHASE WILLIAMS' PLANTS 
 
REF: A. CARACAS 428 
     ¶B. CARACAS 362 
     ¶C. CARACAS 288 
     ¶D. CARACAS 136 
 
CARACAS 00000545  001.2 OF 002 
 
 
Classified By: Economic Counselor Darnall Steuart, for reasons 1.4 (b) 
and (d). 
 
¶1. (C) SUMMARY: PDVSA intends to nationalize William's El 
Furrial and PIGAP II high-pressure gas injection plants but 
does not have the resources to pay Williams.  As both of the 
projects involve OPIC financing, there is significant USG 
interest in the transaction estimated to be worth $500 
million.  If PDVSA goes into default on May 7 with the El 
Furrial project, it will likely lose financing from the 
Italian-owned SACE Group for its proposed PIGAP III project. 
Williams expects PDVSA's outstanding $100 million in arrears 
will be included in any future settlement.  PDVSA's default 
on the separate SIMCO project operated by Wood Group has not 
progressed to either a nationalization or expropriation.  END 
SUMMARY. 
 
¶2. (C)  PDVSA Vice President Eulogio del Pino told Williams 
Country Manager, Teresa Palacios (strictly protect 
throughout) on April 27 that PDVSA intends to purchase the 
Williams-operated El Furrial and PIGAP II high-pressure gas 
injection plants in Eastern Venezuela (See Ref B for 
background on the projects and default timeline).  Palacios 
met with PDVSA officials in Maturin on April 28 to discuss a 
timeline and the details of the purchase.  She characterized 
the discussions as demonstrating a "mis-alignment."  PDVSA 
wants to take over the plants, but has neither the cash to 
pay for them nor $100 million to clear outstanding arrears to 
Williams.  (NOTE: On April 29, Williams announced a $241 
million charge for its operations in Venezuela, saying it 
does not expect the GBRV to pay moneys it owes and that it 
now classifies the long-lived assets in the country as 
impaired.)  PDVSA officials told Palacios that they have 
"some interesting proposals for payment" but did not share 
any details. 
 
¶3. (C) PDVSA negotiators told Palacios that they would like 
to conclude the transfer by May 7, the end of Williams' 
30-day default notice period on the El Furrial project (NOTE: 
Williams delivered a 30-day default letter on El Furrial to 
PDVSA on April 7.  It sent a default letter on PIGAP II to 
PDVSA on April 22, which will expire on May 22.  PDVSA made 
some minimal payments to Williams' Accroven project allowing 
it to continue on life support a bit longer.) 
 
¶4. (C) Both the El Furrial and PIGAP II projects involve OPIC 
financing.  Palacios shared that the SACE Group (the Italian 
insurer on PIGAP II) is in negotiations with PDVSA to finance 
PIGAP III, a 100% Venezuelan project.  The SACE Group 
representatives apparently told PDVSA that if PIGAP II went 
into default, there would be no deal on PIGAP III. 
 
¶5. (C) Williams' situation closely mirrors that of Wood Group 
which operates the SIMCO project in Western Venezuela 
(reftels).  PDVSA has been in default with SIMCO since the 
beginning of March but has neither reached agreement with 
Wood Group for the transition of operational control of SIMCO 
assets, nor for compensation for the assets to Wood Group or 
payment of outstanding arrears.  According to SIMCO's General 
Manager, Dave Beacham (strictly protect throughout), a Wood 
Group expatriate, as of April 30, there had been no changes 
to the situation since early March.  Wood Group continues 
operating SIMCO while PDVSA is in default. 
 
¶6. (C) COMMENT: The difference between a nationalization and 
 
CARACAS 00000545  002.2 OF 002 
 
 
expropriation of Williams' assets lies in whether PDVSA pays 
Williams.  As the GBRV has failed to conclude other 
nationalizations, and PDVSA is estimated to have upwards of 
$8 billion in pending arrears with service companies and has 
not paid 2008 dividends to its oil company partners, it is 
highly likely that they will not pay Williams for these 
plants.  By losing Williams' expertise in operating and 
maintaining these high technology facilities, PDVSA stands to 
see a significant hit on production in the short-medium term. 
 Also, it is likely that this episode will negatively affect 
PDVSA's potential new bond issuance.  On the other hand, the 
example of PDVSA's default on the SIMCO operations 
demonstrates that this issue could drag on for some time with 
no resolution forthcoming, leaving the private companies 
hanging in the balance. 
 
CAULFIELD