US embassy cable - 04CARACAS1241

C O N F I D E N T I A L  CARACAS 001241 
 
SIPDIS 
 
 
NSC FOR TSHANNON AND CBARTON 
ENERGY FOR DPUMPHREY AND ALOCKWOOD 
 
E.O. 12958: DECL: 04/05/2014 
TAGS: EPET, PREL, VE 
SUBJECT: PDVSA PRESIDENT RODRIGUEZ COUNSELS PRAGMATISM 
 
 
Classified By: DCM Stephen McFarland; for reasons 1.4 (b) and (d) 
 
------ 
SUMMARY 
------- 
 
1. (C) In an April 2 meeting with the Ambassador, Petroleos 
de Venezuela (PDVSA) President Ali Rodriguez counseled a 
"dose of pragmatism" for U.S. relations with Venezuela.  He 
defended the recent OPEC decision to reduce production but 
said Venezuela would be able to supply gasoline to the U.S. 
this summer.  He confirmed that Venezuela will swap gas oil 
and fuel oil for Argentine agricultural products, and 
disputed press reports that PDVSA may dismiss employees who 
signed the petitions for a presidential recall referendum. 
End Summary. 
 
2. (C) On April 2, the Ambassador met Ali Rodriguez, the 
President of Venezuela's state-owned oil concern PDVSA, to 
discuss issues relating to energy policy and U.S. bilateral 
relations with Venezuela.  The meeting was held at the DCM's 
residence as Rodriguez had said he did not want to receive 
the Ambassador at PDVSA or wish to be seen at the Embassy or 
the  Residence.  The DCM and Petroleum Attache also 
participated. 
 
-------------- 
OPEC QUOTA CUT 
-------------- 
 
3. (C) Rodriguez defended the recent OPEC output cut, saying 
OPEC Ministers had simply ratified the decision taken at the 
last OPEC meeting.  Rodriguez said global crude oil 
production and demand are balanced but, if anything, supply 
exceeds demand.  In fact, Rodriguez added, he expects that 
demand and prices will drop in the second quarter.  In 
response to a question about how Venezuela will take a cut in 
its quota, Rodriguez laughed and said that Venezuela is 
usually accused of quota busting.  In the current situation, 
with production, he said, exceeding the number quoted by more 
non-PDVSA sources (i.e., more than 2.5 million b/d), 
Venezuela will not face these accusations.  Rodriguez added 
that PDVSA itself will take the necessary production cuts 
although this will, of course, take time to implement.  He 
deflected a question about the possibility of foreign 
producers sharing in the burden of quota-related production 
cuts, by saying this would be difficult to implement because 
of the different contractual terms applying to the foreign 
operated fields.  (Note:  Rodriguez's comment that PDVSA 
itself will take the OPEC quota cut is notable.  If 
Venezuela's production exceeded the 2.7 million b/d OPEC 
quota level, PDVSA would be likely to request that the 
foreign operators take cuts.  Foreign operators operate 
fields acquired in three investment rounds in the 1990's. 
The so-called "Third Round" contracts have terms that 
obligate them to take OPEC quota cuts.  These terms were last 
applied in early 2002.  In August 2002, PDVSA requested 
companies to increase production to the maximum which, at 
that time, was believed to be an indication that PDVSA was 
having problems maintaining its own production.  End Note.) 
 
----------------------- 
REFINERIES AND GASOLINE 
----------------------- 
 
4. (C) The Ambassador then asked Rodriguez about gasoline 
exports to the U.S. this summer.  Rodriguez maintained that 
Venezuela's refineries will export finished gasoline ) not 
blending components ) to the United States.  He added that 
PDVSA's senior management will participate in two meetings in 
April to discuss the company's business plans.  An April 
14-16 meeting will include a detailed study of the U.S. 
refinery sector and the gasoline market and a discussion of 
the investments needed to improve PDVSA's refinery capacity 
at home and abroad.  Rodriguez repeated that PDVSA will 
invest $5 billion in 2004, although 80 percent of this will 
be targeted at exploration and production. 
 
-------------------------------- 
OIL FOR FOOD SWAP WITH ARGENTINA 
-------------------------------- 
 
5. (C) The DCM also questioned Rodriguez about his recent 
 
trip to the Southern Cone in which he signed an agreement to 
swap oil for food with Argentina.  Rodriguez confirmed that 
Venezuela plans to ship gas oil and fuel oil to Argentina for 
use in the power sector that has been badly hit by a lack of 
investment.  He added that an Argentine team would visit 
Venezuela on April 5 to confirm the details of the swap in 
which, starting as early as May, Venezuela would receive 
seeds and other agricultural products in addition to meat. 
 
 
------------------- 
NO FIRINGS IN PDVSA 
------------------- 
 
6. (C) The Ambassador raised local press reports that have 
held that as  many as 7,000 PDVSA employees who signed the 
petitions for a presidential recall referendum might lose 
their jobs.  Rodriguez dismissed these reports and said that 
only about 900 PDVSA employees had signed.  He refuted claims 
that employees would be terminated due to their signatures 
and said, "people are leaving for normal reasons."  He added, 
however, that he believes there are still instances of 
"sabotage" within the company.  He related a story about a 
worker in Zulia who had changed welding materials without 
telling anyone.  The result, he said, could have been a grave 
accident.  "For me," Rodriguez said, "this is sabotage."  In 
other comments about PDVSA staffing, Rodriguez said the 
appointment of the latest PDVSA Board had given him a bigger 
team and taken some of the pressure off him.  Asked about the 
possible move of CITGO's corporate offices to Houston, he 
responded that that would depend on whatever enticements are 
offered by the state of Texas.  He noted the logic of CITGO's 
being located in the capital of the U.S. petroleum industry. 
 
 
-------------------------------------- 
DYNAMICS OF THE BILATERAL RELATIONSHIP 
-------------------------------------- 
 
7. (C) Turning to a discussion of the bilateral political 
relationship, the Ambassador noted recent verbal attacks 
against president Bush, the Secretary and the National 
Security Advisor by President Chavez as well as threats to 
suspend oil shipments to the U.S.  Rodriguez responded that 
Chavez's comments had been intended for a domestic audience. 
The Ambassador questioned this, stating that Chavez had 
repeated his allegations against the U.S. to the Caracas 
diplomatic corps, whom he had summoned for that purpose. 
Rodriguez then pointed to a meeting between A/S Noriega and 
Diosdado Cabello in which they had agreed to avoid public 
comments.  After that agreement, said Rodriguez, the GOV had 
been surprised by comments made by the USG.  The Ambassador 
responded that the USG had also been surprised when National 
Assembly member Nicolas Maduro had made groundless 
allegations against the U.S. within days of that agreement. 
 
8. (C) Noting that Venezuela supplies about 15 percent of 
U.S. oil import, Rodriguez counseled a &dose of pragmatism8 
in U.S. relations with Venezuela.  The Ambassador responded 
that Washington avoided responding to Venezuelan provocations 
and has tried to lower tensions.  Rodriguez then pointed to 
the events of April and December 2002, saying that these 
events and the reaction to them in Washington, had had a 
profound effect on this government.  In recent meetings in 
Washington, he said, he had felt that he had had a positive 
dialogue with the Department of Energy while in meetings with 
the Department of State the tone of that dialogue had 
changed. 
 
9. (C) The Ambassador said Washington is concerned about 
events in Venezuela.  In a democracy, he said, elections can 
serve as an escape valve.  Rodriguez responded that the 
Venezuelan opposition doesn,t have a policy but an 
obsession, i.e., getting rid of Chavez.  Other than this 
obsession, it has nothing - no oil policy, no poverty 
program, etc. - and thus there is no dialogue.  Venezuela has 
many problems and the two sides should be attacking them 
together.  Rodriguez said Venezuela needed to develop new 
models for its economic, political and social life and get 
rid of institutions that are worth nothing.  Efforts such as 
diversifying the economy would, however, take time. 
Rodriguez added that he saw the need to develop a "culture of 
work" in Venezuela to replace a culture that expects handouts 
 
of oil wealth from the state.  The Ambassador noted his 
concern that the GOV has become more authoritarian. 
Government functions, such as the granting of contracts and 
documents such as passports, are no longer transparent. 
Rodriguez responded that only selected people had previously 
had access to the state.  He acknowledged the need for a new 
ethic but said, "even in the U.S. you can have an Enron."  He 
also acknowledged, however, that the government has made some 
mistakes and is in too much of a hurry; he observed that the 
GOV was making some of the same mistakes the guerrillas (of 
which he was a member) had made in the 1960's and 1970's. 
------- 
COMMENT 
------- 
 
10. (C)  This meeting may have been an attempt to convince 
the USG that it should take a more pragmatic approach to the 
Chavez government despite the aggressive and insulting tone 
of the dialogue -- at least on the energy front.  Despite 
Rodriguez's claims to the contrary, we are skeptical that 
Venezuela will have to cut production in order to maintain 
its 2.7 million b/d quota.  We are also doubtful about 
Venezuela's ability to export finished gasoline products to 
the United States. 
SHAPIRO 
 
 
NNNN 
 
      2004CARACA01241 - CONFIDENTIAL