US embassy cable - 04CARACAS2570

C O N F I D E N T I A L  CARACAS 002570 
 
SIPDIS 
 
 
NSC FOR TSHANNON AND CBARTON 
ENERGY FOR DPUMPHREY AND ALOCKWOOD 
 
E.O. 12958: DECL: 08/08/2014 
TAGS: ENRG, PGOV, VE 
SUBJECT: EXXONMOBIL TO SIGN PROJECT DOCUMENT 
 
 
Classified By: Economic Counselor Richard Sanders; for reasons 1.4 (b) 
and (d) 
 
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SUMMARY 
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1. (C) ExxonMobil de Venezuela President Mark Ward told the 
Ambassador August 9 that the company is likely to sign the 
Preliminary Development Agreement (PDA) for a multi-billion 
dollar petrochemical project with the GOV on August 12.  Ward 
reported that the signing will take place in PDVSA President 
Ali Rodriguez,s office.  Although the company has firmly 
refused to participate in a public signing ceremony at 
Miraflores palace, they now have agreed to coverage of the 
signing by state television.  End Summary 
 
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THE PROJECT 
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2. (SBU) The project, a joint venture with PDVSA chemical 
affiliate Pequiven, has been under discussion since 1996.  It 
would see the construction of an ethane-based, ethylene 
cracker that would create feedstock for the plastics 
industry.  The integrated facility, to be located in the Jose 
Industrial Complex in Anzoategui state, would convert 1.3 
million metric tons of ethane (derived from natural gas) into 
1 million tons of ethylene.  The ethylene in turn would be 
converted into high-and low-density polyethylene and ethylene 
glycol, used respectively in grocery bags, garment bags, and 
polyester clothing.  According to Ward, the capital 
investment for the project is now estimated at approximately 
$3 billion.  ExxonMobil expects that the plant once built 
would be a major supplier to Latin America's plastics 
industry.  The GOV would obtain a big project consistent with 
its economic/ideological goals of directing foreign 
investment downstream. 
 
3. (SBU) Ward said he wanted to explain to the Ambassador 
what the PDA is and is not. 
 
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THE EVENT 
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4. (SBU) Ward said he would sign the PDA on behalf of 
ExxonMobil while Pequiven President Saul Ameliach would sign 
on behalf of the GOV.  An ExxonMobil staffer informed econoff 
separately that PDVSA President Ali Rodriguez would also sign 
because the PDA includes commitments made by PDVSA.  Although 
Ward told the Ambassador August 9 that there would be no 
public press coverage of the event and the two sides would 
issue a joint press statement, ExxonMobil subsequently 
informed us August 11 that it has now agreed to coverage of 
the signing by state television. 
 
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WHY SIGN BEFORE AUGUST 15? 
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5. (C) When the Ambassador asked why the company had agreed 
to sign the PDA the week before August 15, the scheduled date 
of the referendum on Chavez's tenure in office and the event 
that has convulsed Venezuela's political life, Ward responded 
that ExxonMobil is satisfied with the content of the 
agreement.  He said bluntly that ExxonMobil could not think 
of any other issues to raise with the GOV and that the GOV 
has been pressuring the company to sign immediately, 
including questioning its commitment to the project if it 
refused to go ahead.  Ward said the company has firmly 
refused to participate in a public signing ceremony at 
Miraflores palace. 
 
5. (SBU) Despite the signature of the PDA, the final 
investment decision will not be made for another 18-24 
months, Ward said.  In the meantime, ExxonMobil expects to 
spend approximately $2 million to revalidate the economics of 
the project (and particularly the availability of sufficient 
natural gas feedstock), negotiate detailed agreements with 
the GOV, do the preliminary engineering up to the point where 
ExxonMobil could let the construction project for bids, and 
 
secure financing.  The actual investment would be spread out 
over six years beginning with the signing of contracts with 
the GOV. 
 
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COMMENT 
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6. (C) Ward was anxious to notify the Ambassador about 
ExxonMobil's motives for signing the project agreement in 
advance of August 15.  He also noted that ExxonMobil Chairman 
Lee Raymond would be notifying senior Washington officials as 
well.  However, this project has been under discussion for 
nine years (through four changes in the presidency of 
Pequiven since the December 2002-February 2003 strike) and it 
is doubtless a relief for the company to take this step. 
While ExxonMobil has apparently successfully avoided a high 
profile ceremony ahead of the referendum, the GOV will carry 
the signing on state television and use it as part of its 
campaign against the recall referendum.  See septel for other 
politically generated "outreach" campaigns to the petroleum 
sector it has been undertaking. 
Shapiro 
 
 
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      2004CARACA02570 - CONFIDENTIAL