US embassy cable - 05RECIFE130

UNCLAS RECIFE 000130 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET, ECON, BR 
SUBJECT: PERNAMBUCO CROWS AFTER WINNING PETROBRAS-PDVSA OIL 
REFINERY 
 
REF: RECIFE 37 
 
1.  Summary: The announcement by President Luiz Inacio Lula da 
Silva and visiting Venezuelan President Hugo Chavez Sept. 29th 
that their 50-50 venture oil refinery would be located at the 
port of Suape, some 30 miles south of the Pernambuco state 
capital of Recife, was celebrated by northeasterners as turning 
the key to ignite their economic engine. Politicians fought to 
claim credit for the project, which Pernambucanos attribute more 
to the historical whim of President Chavez than sound economics. 
 Two more giant development projects are waiting in the wings, 
the Trans-Northeast railway and a huge diversion of San 
Francisco river water via canal to three drought-prone states, 
the latter project being fought by a Gandhi-like priest on a 
hunger strike.  End summary. 
 
2. From glancing at Pernambuco newspapers last week, one could 
assume that getting the joint Brazilian-Venezuelan oil refinery 
was the single most significant event in years; "Confirmation, 
Commemoration," "It's Ours," "It will change to face of the 
State," huge headlines announced.  State politicians from all 
parties vied to take credit for getting the Venezuelan President 
to favor their state over five others. All agreed that despite 
good infrastructure, a booming port and other economic factors, 
the key was the sentiment Chavez attached to locating the 
refinery in the home state of Gen. Josi Ignacio de Abreu e Lima, 
the Brazilian who fought along side Simon Bolivar. (No doubt the 
fact that President Lula is from Pernambuco contributed to the 
decision as well.)  Pernambuco politicians planning to compete 
in next year's elections all recounted how they had talked to 
Chavez at some point about the connection between Abreu e Lima 
and Bolivar. The refinery is to be named Abreu e Lima. 
 
3.  Pernambuco commentators predict that the US 2.5 billion 
dollar joint venture between Petrobras and the Venezuelan oil 
company PDVSA will give their state the critical boost that the 
Camacari petro-chemical complex gave to the state of Bahia in 
the 1970s, launching the economic boom there. The number of 
direct jobs created by the refinery is being estimated around 
20,000, but indirect jobs and ripple effect led to claims that 
230,000 jobs will be added in the future. The total tax revenues 
to be generated are estimated at US 970 million dollars with 
state and local governments eagerly anticipating whatever their 
share will be. The refinery is not expected to come on line 
until 2011, when it will refine 200 thousand barrels a day, 
according to Petrobras figures given to the press. 
 
4. The press also speculated that the next mega-project -- a 4.5 
billion real investment in the railroad lines needed to link the 
interior of the Northeast to the ports of Suape and Fortaleza -- 
is to be announced this month.  The Brazilian government, 
through the National Economic and Social Development Bank 
(BNDES) and a Northeastern Development Fund (FDNE) is expected 
to provide 3.5 billion reales for the railroad construction, 
with private partners supplying the rest. 
 
5. The final mega-project in the Lula government's plan to 
change the face of the Northeast, canals to transport water 
known as the "Transposition" of the San Francisco River, is 
waiting for date to be announced. Another 4.5 billion reales 
from the federal government is budgeted to build two major 
canals -- the North axis and the Eastern axis -- to carry an 
estimated 26 cubic water feet per second to irrigate the driest 
parts of Ceara, Rio Grande do Norte and Pernambuco states. But a 
Catholic bishop from the Bahian town of Barra, Father Luiz 
Cappio, began a hunger strike Sept. 26 in a chapel on the 
Pernambuco side of the river in order to convince President Lula 
to cancel the project.  The Franciscan friar has gained national 
press coverage, with pilgrims and Bahian politicians, including 
the state governor, flocking to his chapel. The National 
Conference of Catholic Bishops sent a letter to the President, 
asking him to postpone starting the canal project until there is 
more public debate.  The priest, who says he will give his life 
to stop the water transfer, questions the basis of the 
mega-project, which ignores the water needs of poor communities 
along the river while investing billions in the construction of 
canals benefiting large companies. The Gandhi-style protest 
indicates that the water transfer project is not likely to set 
off a celebration like the one given the oil refinery news if it 
were announced. 
 
6. This cable was coordinated with Embassy Brasilia. 
 
 
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