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Cablegate: Shell Sale Increases U.S. Investment in Bolivian

VZCZCXRO1449
PP RUEHLMC
DE RUEHLP #1492/01 1511355
ZNR UUUUU ZZH
P 311355Z MAY 07
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 3759
INFO RUEHAC/AMEMBASSY ASUNCION 6819
RUEHBO/AMEMBASSY BOGOTA 4159
RUEHBR/AMEMBASSY BRASILIA 8046
RUEHBU/AMEMBASSY BUENOS AIRES 5292
RUEHCV/AMEMBASSY CARACAS 2530
RUEHPE/AMEMBASSY LIMA 2668
RUEHLO/AMEMBASSY LONDON 0111
RUEHMD/AMEMBASSY MADRID 3493
RUEHMN/AMEMBASSY MONTEVIDEO 4647
RUEHQT/AMEMBASSY QUITO 5160
RUEHSG/AMEMBASSY SANTIAGO 9757
RUEHTC/AMEMBASSY THE HAGUE 0751
RUEHLMC/MILLENNIUM CHALLENGE CORP
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUMIAAA/USCINCSO MIAMI FL
RUEHUB/USINT HAVANA 0343
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 LA PAZ 001492

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND
TREASURY FOR SGOOCH
MCC FOR AKIRSCHENBAUM

E.O. 12958: N/A
TAGS: ECON EINV ENRG EPET BL
SUBJECT: SHELL SALE INCREASES U.S. INVESTMENT IN BOLIVIAN
HYDROCARBONS

REF: A. 2006 LA PAZ 1936
B. LA PAZ 1086

-------
Summary
-------

1. (SBU) Royal Dutch Shell plans to sell its shares in two
Bolivian natural gas pipeline operators, Transredes and GTB,
to the British firm Ashmore Energy, which is 40 percent
U.S.-owned. The sale will increase total U.S. investment in
Bolivia's tumultuous hydrocarbons sector from approximately
USD 400 million to around USD 540 million. The GOB pledged
in its May 2006 nationalization decree that it would gain
majority ownership of Transredes, but negotiations have thus
far not progressed. Transredes is concerned about the safety
of its workers following recent attacks on its facilities in
southern Bolivia that cost the company USD 1.2 million (ref
B). End summary.

-----------------------------
Shell to Sell Bolivian Assets
-----------------------------

2. (SBU) Transredes (Bolivian natural gas pipeline operator)
Vice President Oscar Serrate told the DCM on May 30 that
Royal Dutch Shell plans to sell its shares in Transredes and
pipeline operator GTB, as well as some Brazilian assets, to
its partner, the British company Ashmore Energy (which is 40
percent U.S.-owned). The sales are pending approval by the
Bolivian and Brazilian regulatory agencies. Serrate said
that President Morales, the minister of the presidency, and
Transredes' workers are enthusiastic about the sale, as it
demonstrates Ashmore's intentions of investing in Bolivia
despite great political uncertainty. Serrate added that the
Transredes board recently approved USD 40 million of
investments in pipeline construction and expansion. Serrate
explained that Shell wants to decrease its investments
throughout Latin America, and focus on upstream business
rather than services, while Ashmore is aggressively seeking
to expand its Latin American presence.

--------------------------------------------- ---
Sale Will Increase U.S. Investment in Gas Sector
--------------------------------------------- ---

3. (SBU) The sale will increase total U.S. investment in
Bolivia's tumultuous hydrocarbons industry from approximately
USD 400 million to around USD 540 million. Ashmore Energy
will hold 50 percent of Transredes' shares (with 34 percent
held by Bolivia's state oil company YPFB and 16 percent held
by small shareholders) and 57.5 percent of GTB.

----------------------------
No Progress on GOB Take-Over
----------------------------

4. (SBU) The GOB pledged in its May 2006 gas nationalization
decree that it would gain majority ownership of Transredes,
but negotiations have thus far not progressed. Following the
May 2006 decree, the GOB seized 34 percent of Transredes'
shares formerly held in trust by the Bolivian Pension Fund
Administrators and named two YPFB members to the Transredes
board. Serrate explained that the YPFB members are afraid to
vote without the backing of law or regulation for fear of
being politically prosecuted later. Serrate said that the

LA PAZ 00001492 002 OF 002


company is open to negotiating ownership, but would never
agree to cede operating control to YPFB, in which even the
GOB lacks confidence. He said that the GOB plans to hire an
independent consultant to value the Transredes shares that it
wishes to acquire, which Serrate took as a positive signal
that the GOB does not intend to expropriate Transredes'
shares. Serrate said he hoped that the sale would help
Transredes work out the financing problems that it has faced
since the GOB issued its nationalization decree. (After the
GOB announced its intentions to take over the company, the
Inter-American Development Bank and the Andean Development
Corporation froze loans to Transredes (ref A).)

------------------------------------------
Transredes Concerned about Worker's Safety
------------------------------------------

5. (SBU) Serrate expressed Transredes' concern about the
safety of its workers following recent attacks on its
facilities in southern Bolivia that cost the company USD 1.2
million (ref B). He said that after the attacks, workers
found bullets in one of the fuel tanks, which could have
caused a deadly explosion if fuel had been in the tank.
Transredes has told its workers that, in the future, if their
lives are threatened, they should turn off the valves and
leave rather than risk their lives.

-------
Comment
-------

6. (SBU) Ashmore Energy's willingness to increase its
exposure in Bolivia given the GOB's intentions of taking over
Transredes is somewhat surprising. We suspect Shell must
have offered a cheap price to entice Ashmore into buying
despite the risks. Transredes' safety concern reflects the
general lack of law and order in Bolivia. The police and
military are afraid to use force to maintain order due to
fear of being subsequently persecuted for their actions. The
weakness of law enforcement has been reflected during many
crises of the past year, including the mining conflict in
Huanuni, the invasion of Madidi National Park by settlers,
and the internal border dispute in the Chaco. End comment.
GOLDBERG

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