VZCZCXRO6529
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3222/01 3162221
ZNR UUUUU ZZH
P 122221Z NOV 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 9003
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 03 MEXICO 003222 
 
SENSITIVE, SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC 
STATE FOR EEB/ESC, OES/OPA, L/OES 
STATE ALSO FOR S/CIEA DAVID GOLDWYN 
DOE FOR A/S SANDALOW, G.WARD, A.LOCKWOOD AND R.DAVIS 
NSC FOR RACHEL WALSH 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV PGOV SENV MX
SUBJECT: SECRETARY KESSEL DISCUSSES BILATERAL ENERGY COOPERATON; 
WELCOMES PROGRESS ON TRANS-BOUNDARY DISCUSSION 
 
¶A.  Mexico 2440 
¶B.  Mexico 2445 
¶C.  Mexico 3098 
¶D.  Mexico 3107 
 
¶1.  (SBU) Summary:  Energy Secretary Georgina Kessel told Ambassador 
Pascual November 5 that she was pleased with progress made at the 
October 19 trans-boundary energy reservoir meeting in Villahermosa 
and welcomed news that the USG seeks to extend the moratorium in the 
Western Gap.  Kessel welcomed the opportunity to collaborate more 
closely with the USG on smart electrical grids, emissions 
inventories and other areas under the Clean Energy and Climate 
Change Framework, and looked forward to learning more about the 
proposed Bilateral Working Group meeting in Washington in January. 
Kessel was enthusiastic about the level of attention the USG is 
giving to the energy relationship and told her staff after the 
meeting to make following up on the bilateral agenda their highest 
priority.  End Summary. 
 
¶2.  (SBU) The Ambassador's November 5 meeting with Secretary Kessel 
allowed both to discuss recent developments on the bilateral energy 
agenda and to consider next steps on possible trans-boundary 
reservoirs, electricity cooperation and renewable energy.  Under 
Secretary for Electricity Benjamin Contreras, Under Secretary for 
Hydrocarbons Mario Gabriel Budebo, Chief of Staff Carlos Petersen, 
Director General for International Affairs Aldo Flores, and Econoff 
also participated in the meeting. 
 
¶3.  (SBU) Both the Ambassador and Secretary Kessel were pleased with 
the results of the October 19 meeting on trans-boundary reservoirs 
(ref c) in Villahermosa.  The Ambassador said that jointly reviewing 
the seismic data in the boundary area was particularly useful for 
the U.S. delegation.  He noted that the U.S. is working to extend 
the moratorium in the western gap and that consultations with 
Congress are underway.  The Ambassador added that the State 
Department has developed a mechanism to work with Mexico on 
Presidential Permits to facilitate cross-border infrastructure. 
 
¶4.  (SBU) Secretary Kessel was pleased with this news and said it 
would help to relieve some of the political pressure the Calderon 
Administration is facing from the Mexican Congress to show progress 
on discussions with the US on trans-boundary reservoirs.  She 
emphasized that energy security is in both countries interests and 
that a trans-boundary agreement would be a move in the right 
direction by giving legal certainty to companies on both sides of 
the boundary.  Kessel welcomed an upcoming visit of State 
Coordinator for International Energy Affairs David Goldwyn to 
further these discussions. 
 
¶5.  (SBU) The Ambassador noted that the National Hydrocarbons 
Commission (CNH) has expressed interest in learning more about USG 
procedures and regulations for oil and gas metering, flaring and 
other procedures.  He noted that the Embassy would be happy to 
facilitate a Voluntary Visitors Program for CNH to the US to share 
this information with them.  Kessel was enthusiastic about the USG 
offer and said that the GOM would work with the Embassy on names of 
participants and dates for the visit. 
 
FUEL SUBSIDIES: 
--------------- 
 
¶6.  (SBU) Referring to the commitment G-20 countries made in 
Pittsburgh to phase out fuel subsidies, the Ambassador inquired 
about what measures Mexico had planned and whether the USG could 
provide assistance.  Secretary Kessel confirmed that Mexico had 
taken steps in 2008 to gradually eliminate the gasoline subsidy. 
Due to the economic crisis, however, this policy was frozen.  She 
confirmed that Mexico would resume the policy of phasing out fuel 
subsidies in 2010. 
 
¶7.  (SBU) Kessel added that, in the meantime, the Secretariat of 
Energy (SENER) is working with other Mexican government agencies to 
develop a program to provide targeted support for lower income 
Mexicans.  Kessel noted that existing programs like Opportunidades 
target the rural poor, whereas fuel subsidy support will be more 
important for the urban poor and require a different approach.  She 
added that the proposal should be completed by early 2010, and 
implemented 4-6 months after that.  Secretary Kessel welcomed the 
Ambassador's suggestion that SENER consider whether the methodology 
for the fuel subsidy support program could be used for other urban 
poverty relief initiatives. 
 
THE ELECTRICAL UTILITY LUZ Y FUERZA: 
 
MEXICO 00003222  002 OF 003 
 
 
----------------------------------- 
 
¶8.  (SBU) The Ambassador congratulated Secretary Kessel for the 
GOM's successful action to tackle the problematic state owned 
electrical utility Luz y Fuerza (LFC)(ref d and previous). 
Secretary Kessel noted that the GOM basically developed a strategy 
to take on LFC in the mid 1980s, but that no previous administration 
had the courage or the long term vision to implement it.  She noted 
that it was a complex decision, and that President Calderon was well 
aware of the potential implications when he decided to act.  Kessel 
added that the worst case scenario - massive demonstrations, power 
outages and sabotage - has not occurred.  The LFC union has called 
for a national strike, but has delayed the date twice.  With each 
passing day, Kessel added, more LFC workers are accepting the 
generous government buyout, and it is becoming less likely that the 
LFC union can muster support for a national strike. 
 
¶9.  (SBU) According to Kessel, the way the dissolution of LFC has 
evolved is close to the GOM's best case scenario.  She mentioned 
three factors that contributed to this:  internal division within 
the union; LFC only operates in a handful of Mexican states; and the 
LFC union is affiliated with the smaller opposition party, 
Democratic Revolutionary Party (PRD), and has not received support 
from the larger Institutional Revolutionary Party (PRI) affiliated 
unions. 
 
SMART GRIDS: 
------------ 
 
¶10.  (SBU) The Ambassador mentioned that during a recent trip to 
Tijuana, he discussed energy issues in general and smart grid 
technology in particular with various state government, university 
and private sector participants.  He noted that there is a concern 
in that region that as the U.S. moves forward with smart grid 
technology, it could create problems for Baja California which is 
connected to the California grid and not to the rest of Mexico.  He 
suggested that smart grid technology and the interconnections 
between the US and Mexico should be an important point on the agenda 
for the US-Mexico Clean Energy and Climate Change working group. 
The Ambassador added that US Trade Development Agency (USTDA) is 
interested in working on clean energy technology in the border 
region and will send a project identification team to Mexico soon to 
identify projects.  USTDA could be helpful in identifying specific 
smart grid projects in the border region. 
 
¶11.  (SBU) Secretary Kessel responded enthusiastically to the 
Ambassador's suggestion that the US and Mexico cooperate more 
closely on smart grid technologies.  She noted that the countries 
work closely together to study potential problems in the border 
region and share information on research and development.  She 
acknowledged that this is a complicated issue, but said that Mexico 
needs to "get on the train" with smart grid technology or risk being 
left behind.  Secretary Kessel welcomed the Ambassador's suggestion 
that the Embassy organize a second Voluntary Visitor Program focused 
on smart grids. 
 
Emission Inventories: 
--------------------- 
 
¶12.  (SBU) The Ambassador mentioned that in order to create a carbon 
offset program in the border region, the US and Mexico will need to 
do more work to create an emissions inventory.  EPA is already 
undertaking a number of pilot projects in Mexico.  As part of this 
process, the US and Mexico should work more closely on monitoring, 
reporting and verifying emissions.   He suggested that creating an 
emissions inventory be an agenda item for the Bilateral Clean Energy 
and Climate Change working group.  Secretary Kessel noted that the 
Secretariat of Environment (SEMARNAT) has the lead on emissions, but 
that SENER would collaborate with them on this.  She welcomed the 
opportunity to exchange information on the topic. 
 
 
Bilateral Working Group and ECPA: 
--------------------------------- 
 
¶13.  (SBU) The Ambassador told Secretary Kessel that the USG will be 
inviting Mexico to a meeting of the Clean Energy and Climate Change 
Working Group in Washington DC in January.  Secretary Kessel 
welcomed the news and looked forward to more details. 
 
¶14.  (SBU) The Ambassador extended Secretary Chu's invitation to 
Secretary Kessel for the Environment and Climate Partnership of the 
Americas(ECPA)meeting April 15-16, 2010 in Washington.  Secretary 
 
MEXICO 00003222  003 OF 003 
 
 
Kessel welcomed the invite and noted that ministerials of this type 
were extremely important to moving the agenda forward.  She 
regretted that she had to cancel her participation at a recent 
meeting in London.  Secretary Kessel confirmed that Mexico is 
interested in leading a group on energy efficiency under ECPA, and 
suggested that ECPA build on the work that Mexico and other 
countries in Latin America are already doing under the auspices of 
OLADE (Latin American Energy Association).  NOTE: SENER officials 
made a similar suggestion to visiting WHA/EPSC Director Matt Rooney 
in August 2009.  OLADE, the umbrella association of the LAC Energy 
Ministers is heavily influenced by Venezuela and counts Cuba, 
Ecuador, Nicaragua, Venezuela and Bolivia among its members.  Rooney 
responded at that time that the USG is already looking at the OAS 
and other regional organizations to provide technical support.  END 
NOTE. 
 
Comment: GOM pleased with USG attention 
--------------------------------------- 
 
¶15.  (SBU) SENER contacts told ECONOFF that Secretary Kessel and her 
staff were pleased with the level of attention the USG is paying to 
the bilateral energy agenda.  By including two Under Secretaries in 
the meeting, Kessel clearly signaled the importance she places on 
the topics discussed.  After the Ambassador left, contacts told us 
Secretary Kessel instructed her staff to make following up on her 
conversation with the Ambassador their top priority.  This is a 
welcome change in attitudes.  After years, if not decades, of 
Mexican reticence to discuss the energy agenda - especially oil and 
gas issues - the Calderon Administration recently has opened its 
doors to information exchanges and collaboration on a range of 
issues.  Embassy Mexico welcomes a potential visit by State 
Coordinator for International Energy Affairs Goldwyn and the 
upcoming Bilateral Energy and Climate Change working group meetings 
as an opportunity to move our energy relationship forward. 
 
 
PASCUAL