US embassy cable - 05CARACAS3594

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 003594 
 
SIPDIS 
 
E.O. 12958: DECL: 08/11/2015 
TAGS: EPET, EINV, VE 
SUBJECT: OVERVIEW OF PETROAMERICA 
 
REF: A. CARACAS 03560 
     B. CARACAS 03563 
     C. CARACAS 02934 
     D. CARACAS 02596 
 
Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D) 
 
1.  (U) SUMMARY: The Chavez administration's Petroamerica 
initiative envisions a Latin American energy integration 
model with Venezuela acting as the hub.  The initiative is 
composed of three components: Petrocaribe (the Caribbean), 
Petroandina (Colombia, Bolivia, Ecuador, and Peru), and 
Petrosur (Brazil, Argentina and Uruguay).  Petrocaribe is the 
only prong of the plan that is governed by an agreement that 
spells out key terms such as financing, pricing, and the 
installation of infrastructure.  Petroandina and Petrosur to 
date have been characterized by a series of bilateral 
agreements that promote integration.  Reftel A deals with the 
implementation of Petrocaribe to date. This cable will focus 
on Petroandina and Petrosur.  END SUMMARY 
 
 
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OVERVIEW OF PETROAMERICA 
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2.  (U)  The Chavez administration's Petroamerica energy 
initiative is a proposal for continental energy integration. 
It is envisions Venezuela as the hub for Petroamerica's three 
sub-regional components : Petrocaribe (14 countries in the 
Caribbean), Petroandina (Colombia, Bolivia, Ecuador, and 
Peru), and Petrosur (Brazil, Argentina, and Uruguay). 
 
3.  (U) As noted in Reftel A, Petrocaribe is governed by the 
Petrocaribe Energy Cooperation Agreement that clearly spells 
out financing terms and payment methods.  In addition, the 
GOV has clearly spelled out its plans for upgrading existing 
infrastructure and building new infrastructure in the 
Caribbean.  Neither Petroandina nor Petrosur are governed by 
a similar document.  As a result, they have been 
characterized to date by a series of bilateral agreements 
that have been billed by the GOV as efforts to promote 
regional integration. 
 
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PETROANDINA 
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4.  (U) The GOV has made little progress in implementing 
Petroandina to date.  Of the four "member" countries in 
Petroandina, Venezuela has only concluded bilateral 
agreements with one: Colombia.  On November 24 Colombia and 
Venezuela agree to construct a pipeline to transport gas from 
Colombia to Venezuela for the Paraguana Refining Complex. 
(NOTE: The western portion of Venezuela, which includes Lake 
Maracaibo, has suffered gas shortages for years.  END NOTE) 
Construction is scheduled to begin in the first part of 2006 
and  to be completed in 24 months at an estimated cost of 230 
million USD.  In addition, PDVSA is seeking to purchase a 51 
percent stake in a refinery in Cartagena for approximately 
800 million USD.  It also appears that the Government of 
Colombia will sell its share in the joint venture fertilizer 
and chemical company Monomeros Colombo-Venezolanos to a 
Venezuelan state-owned entity. 
 
5.  (C) (COMMENT: Although Petroamerica and its component 
parts appear to be clearly defined on paper, in reality the 
lines can be quite blurry.  For example, President Chavez 
during his recent meeting with Colombian President Uribe 
stated Venezuela was ready to extend the "mechanisms of 
Petrocaribe to Colombia as part of the Bolivarian Alternative 
for the Americas" (ALBA is the GOV's somewhat nebulous and 
largely ignored alternative to the Free Trade Agreement for 
the Americas with energy integration through Venezuela as one 
of its cornerstones.)  Venezuela has also expressed interest 
in upgrading the Villa Elisa refinery in Paraguay, but 
Paraguay is not a member of either Petroandina or Petrosur. 
END COMMENT) 
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PETROSUR 
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6.  (U) Although the GOV has signed a series of bilateral 
agreements with Petrosur member states, Petrosur still falls 
far behind Petrocaribe in terms of implementation.  Argentina 
and Venezuela signed a Memorandum of Understanding this month 
for the construction of a USD 4 billion, 6,000 kilometer gas 
pipeline between the two countries during President 
Kirchner's November 21 visit to Venezuela (Reftel B).  Energy 
Minister Rafael Ramirez stated at the signing ceremony that 
the MOU was a significant step in the development of Petrosur 
and said both countries agreed to carry out studies to see if 
the gas pipeline project could eventually include Uruguay, 
Paraguay, and Brazil, as well as Argentina and Venezuela. 
PDVSA and the Argentine oil company Energia Argentina 
(Enarsa) also signed a contract for the establishment of a 
joint venture that will supply five million barrels of gasoil 
per year to the Argentine market.  The contract is a renewal 
of a previous contract.  Enarsa and PDVSA are also supposed 
to open a string of service stations in Argentina.  PDVSA has 
also signed a letter of intent to begin negotiations with the 
Argentine firm Rhasa for its purchase.  Among Rhasa's assets 
are a refinery, a terminal in the port of Aguas Profundas, 63 
service stations in Argentina, and a transport fleet. 
 
7.  (U) The GOV and the Uruguayan government have signed a 
letter of intent to evaluate PDVSA's participation in the 
Uruguayan energy sector.  Under the agreement, a feasibility 
study will be carried out on the expansion and upgrading of 
the La Teja refinery.  The refinery currently has a daily 
capacity of 50,000 barrels of light crude.  The study will 
examine whether the capacity of the refinery can be doubled. 
The additional capacity would be devoted to the refining of 
heavy and extra-heavy Venezuelan crude.  Energy Minister 
Ramirez has publicly said that the amplification of PDVSA's 
operations in Uruguay and Argentina are "the key to 
consolidating the energy integration of the South". 
 
8.  (U) PDVSA and Petrobras have also agreed to begin studies 
on the construction of a refinery in Pernambuco, Brazil with 
a capacity of 200,000 barrels per day.  The refinery is 
expected to cost 2.5 billion dollars with costs being split 
equally between PDVSA and Petrobras.  It is expected to be on 
line by 2011. Venezuela and Brazil are also studying the 
construction of a gas pipeline that would run from Ciudad 
Bolivar in Venezuela to the city of Manaos in Brazil. 
 
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COMMENT 
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9.  (C) On paper it would appear that the GOV is making 
progress on making its Bolivarian dream of regional energy 
integration a reality.  However, closer examination reveals 
that actual implementation of the GOV's grand design for 
continent-wide energy integration with Venezuela as the hub 
is at this point little more than a pipe dream.  As laid out 
in Reftel C, the GOV and PDVSA still face a myriad of 
operational problems that threaten production levels.  These 
operational difficulties are compounded by the GOV's practice 
of squeezing PDVSA for funds for President Chavez's social 
development agenda in anticipation of the presidential 
elections in December 2006.  In addition, as noted in Reftel 
A, there are also questions about PDVSA's ability to adhere 
to shipping schedules.  Finally, as was the case in PDVSA's 
latest strategic plan (Reftel D), the numbers that the GOV 
and PDVSA bandy about for Petroamerica frequently conflict. 
For example, PDVSA claims that it has budgeted approximately 
2.2 billion USD for Petroamerica related refinery projects. 
However, the sum of the individual projects differs markedly 
from this amount.  PDVSA's figures for individual projects 
can often range widely.  For instance, the price tag for the 
Pernambuco refinery is listed as 2.5 billion USD in some 
PDVSA documents and 3 billion USD in others. 
 
10. (C) As noted in Reftel A, we fully expect the GOV to 
continue talking about the various components of Petroamerica 
for propaganda purposes as well as to advance its 
politically-driven trade and regional integration agendas. 
It remains to be seen how many of the projects actually get 
off the ground.  As critics have noted here in Venezuela, the 
gas pipeline to Argentina does not make sense commercially 
due to the sheer distance involved as well as the fact that 
there are potential suppliers far closer to Argentina.  It is 
not clear how economically viable the pipeline to Brazil is 
but critics have noted it raises significant environmental 
issues.  In order to build a pipeline to Brazil, the builders 
would have to construct a pipeline and roads over a 
significant distance through virgin jungle.  In addition to 
the environmental destruction produced by the pipeline and 
roads, the development that would inevitably result would 
also cause environmental destruction.  We believe that the 
majority of the projects under Petroamerica that do see the 
light of day will do so because the GOV's partners in the 
project have a sound, economic reason for pursuing the 
project rather than a political motivation for increased 
energy integration in Latin America, which is what is 
motivating Chavez.  Post welcomes comments and reporting from 
posts in Petroamerica member states. 
Whitaker