US embassy cable - 04CARACAS1550

C O N F I D E N T I A L CARACAS 001550 
 
SIPDIS 
 
 
NSC FOR BARTON 
SOUTHCOM ALSO FOR POLAD 
ENERGY FOR PUMPHREY AND LOCKWOOD 
 
E.O. 12958: DECL: 05/11/2014 
TAGS: ENRG, ECON, PREL, VE, AR 
SUBJECT: VENEZUELA'S FUEL DEAL WITH ARGENTINA 
 
 
Classified By: Economic Counselor Richard M. Sanders.  Reason 1.4(b). 
 
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Summary 
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1.  (SBU)  Venezuela and Argentina are moving forward with a 
USD 200 million deal under which state oil corporation PDVSA 
sells fuel oil and diesel fuel to Argentine firms to ease its 
energy crisis, and Argentine companies sell a range of food 
products and manufactures to the GOV.  In addition to simply 
making a sale, the GOV may hope to gain political points in 
Buenos Aires, while making at least a gesture towards 
diversifying oil sales away from the U.S.  End Summary. 
 
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We Send You Fuel 
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2.  (SBU)  On May 10, Caracas newspapers announced that the 
first load of fuel oil had arrived in Argentina which had 
been purchased under an agreement signed on April 6 between 
Venezuelan Minister of Mining and Energy Rafael Ramirez_ and 
Argentine Minister of Planning Julio de Vido.  That same day 
econcouns met with Alberto Alvarez, the Argentine Embassy's 
Economic-Commercial Counselor, who outlined the scope of the 
deal.  Noting that Argentina faced a severe power shortage, 
as a result of its post-default growth surge, together with a 
failure to provide adequate incentives for natural gas 
production, he said that the short-term solution was to 
re-open closed power plants which could run on fuel oil and 
diesel fuel. 
 
3.  (SBU)  The deal, he said, entailed the purchase of USD 
200 million in fuel oil and diesel fuel, which would be sold 
by PDVSA to a private Argentine entity called CAMMESA 
(Wholesale Electricity Market Management Company), which 
would in turn sell it to the various companies with 
mothballed power plants.  The amount sold would be 8 million 
barrels of fuel oil and 1 million barrels of diesel over the 
next six months (the Southern Hemisphere winter).  PDVSA 
would charge the market price for these products.  However, 
it would agree to payment within 45 days instead of the seven 
or ten days which is normal in such purchases. 
 
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You Send Us Other Products 
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4.  (SBU)  Alvarez said that CAMMESA would take the money 
earned from the sale of the fuel oil and diesel fuel and put 
it into a trust fund to be jointly administered by PDVSA, the 
Economic and Social Development Bank (BANDES), which is owned 
by the GOV, and the Foreign Trade and Investment Bank (BICE) 
owned by the GOA.  The money would be used for the purchase 
of Argentine products by Venezuelan ministries and state 
corporations.  PDVSA would purchase a range of metal products 
such as steel tubes and valves.  The Agricultural Supply 
Corporation (CASA), an arm of the GOV's Ministry of 
Agriculture, would buy products such as powdered milk, 
sunflower and soybean oil, yellow corn and beef.  (CASA is 
the vehicle for supplying the GOV's MERCAL program of 
state-run food markets in low income neighborhoods.)  The 
Office of the Minister of State for Special Economic Zones (a 
rural development agency) will buy live cattle.  The Ministry 
of Health would buy medical supplies for state hospitals. 
Alvarez said that the price of the various products to be 
sold would be set by a bidding process. 
 
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Comment:  Buying Friends? 
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5.  (C)  This kind of creaky, state-to-state counter-trade 
arrangement seems like a throwback to the 1960's or earlier. 
Still, as outlined by Argentine diplomat Alvarez, this deal 
seems fairly neutral from an economic point of view. 
Argentina gets needed fuel with a longer repayment period 
than it would otherwise have, and some new access for its 
food and other products to the Venezuelan state sector. 
Venezuela finds a new market for petroleum products. 
 
However, we also see some political angles here.  PDVSA is 
largely dependent on the U.S. market, a situation which has 
never sat well with Chavez.  This sale to Argentina, while 
hardly affecting the overall structure of PDVSA's marketing, 
is at least a down payment on further diversification.  The 
purchase in turn of other products from Argentina fits in 
nicely with the GOV's ideological predilection for 
south-south trade, and in particular with the MERCOSUR 
countries (again as opposed to the U.S.). 
 
6.  (C) And by coming to Argentina's rescue at its hour of 
need, the GOV may be hoping to purchase some good will in 
Buenos Aires.  When Kirchner took office, there was 
considerable speculation here that he would have a close 
rapport with Chavez as a fellow leftist.  This has proven not 
to be the case.  Argentina has kept a low profile here, and 
while hardly anti-Chavez, it has shown its support for the 
democratic process,  most notably by Kirchner's meeting with 
representatives of Venezuela's opposition during his last 
visit here.  Petro-diplomacy has a long tradition in 
Venezuela, although it has usually been used with the 
Caribbean and Central American countries, who receive 
preferential prices for Venezuelan oil.  It remains to be 
seen whether Venezuelan fuel oil can be used to warm 
relations with Argentina as well as Argentine homes.  We note 
that according to Alvarez, if Argentina's energy crisis is 
not resolved by next year, it may want to renew the current 
deal. 
SHAPIRO 
 
 
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      2004CARACA01550 - CONFIDENTIAL