US embassy cable - 05GUATEMALA1464

C O N F I D E N T I A L GUATEMALA 001464 
 
SIPDIS 
 
E.O. 12958: DECL: 06/08/2010 
TAGS: ENRG, EINV, EFIN, KCOR, EPET, VE, GT 
SUBJECT: NO CHEAP PETROLEUM FROM VENEZUELA; FREE TRADE ZONE 
FUEL COMES TO AN END 
 
REF: GUATEMALA 1411 
 
Classified By: EconCouns Steven S. Olson for reason 1.5 (d) 
 
Back from Caracas, Nothing of Interest 
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1.  (SBU)  EconCouns met with Minister of Energy and Mines 
Luis Ortiz and congressional Energy and Mines Committee chair 
Mynor Lopez the evening of June 7 for a readout on their 
recent trip to Venezuela (reftel).  The two reported that 
there had been no surprises:  Venezuela offered no special 
deals for commercial sales of petroleum products, and 
Guatemala had no interest in the Caracas accords or other 
government-to-government arrangements.  Venezuela also 
confirmed that it would not be selling orimulsion to 
Guatemalan consumers (i.e., Duke Energy) in 2006., though 
Ortiz said he did his best to get the Venezuelans to change 
their minds.  The Guatmalans met with Venezuela's Vice 
Minister of Energy and Petroleum, not directly with PDVSA.  A 
Venezuelan delegation will reportedly visit Guatemala in the 
near future to consider building a refinery or investing in 
petroleum exploration areas that have been opened for public 
tender. 
 
Shutting Down the Gasoline Free Trade Zone 
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2.  (U)  On another front, the June 3 press reported surprise 
among some congressmen that new legislation they had approved 
to reestablish a distribution tax for petroleum products also 
eliminated provisions permitting fuel storage facilities to 
operate under free trade zone rules.  Representatives of Puma 
Oil (formerly COPENSA), which operates tank farms within free 
trade zones, protested the measure on grounds that the 
government was changing the rules for investors and favoring 
the big multinational companies.  Puma is threatening to sue. 
 
3.  (C)  Puma, reportedly with mixed Guatemalan and European 
equity, is under scrutiny by the tax authorities (SAT), who 
believe the company to be the principal practitioner of fuel 
tax evasion.  Puma supplies many of the unbranded "white 
flag" stations that have sprouted up throughout Guatemala 
over the past couple of years.  The international oil 
companies and the SAT believe that Puma pretends to re-export 
significant amounts of fuel with falsified documentation but 
actually sells most of its supposed exports domestically. 
With COPENSA/Puma's entry into the market, official 
statistics for fuel imports have declined as the number of 
vehicles in circulation has risen rapidly.  The international 
companies volunteered to forego any free trade zone 
privileges they enjoyed in return for Puma's losing its 
privileges, and they encouraged the SAT to change the law.  A 
recent assessment mission from Treasury's Office of Technical 
Assistance also unofficially supported the measure as a good 
first step toward eliminating rampant contraband. 
 
Comment: 
-------- 
4.  (C)  The unfruitful trip to Caracas should let the 
government respond effectively to charges that it ignored 
supposed cheap fuel on offer from Venezuela, and that is the 
goal Lopez and Ortiz had set for themselves.  It may not, 
however, get them off the hook for "doing something" about 
high diesel and gasoline prices.  Ortiz now feels compelled 
to "study" whether collusion among the big importers (Shell, 
ExxonMobil, ChevronTexaco) is responsible for product prices 
not falling in tandem with crude prices.   We suspect that 
Puma's hand is behind allegations of price rigging, as it 
plays nicely into the spin that the elimination of duty-free 
depots is a plot by the majors to snuff out the little guy. 
This issue may be with us for a little while, but the SAT 
should soon get to the bottom of the matter as it matches 
Puma's supposed exports with the import records of 
cooperating neighbors.  We would hope to see criminal charges 
at that point if the suspicions of tax evasion are proven. 
HAMILTON