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Cablegate: Chavez Comes to Town

VZCZCXRO6188
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #1968/01 2491218
ZNR UUUUU ZZH
R 051218Z SEP 08 ZDK
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 5595
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0843
RUEHRL/AMEMBASSY BERLIN 0638
RUEHBY/AMEMBASSY CANBERRA 0719
RUEHCV/AMEMBASSY CARACAS 0268
RUEHLO/AMEMBASSY LONDON 1592
RUEHMO/AMEMBASSY MOSCOW 0848
RUEHOT/AMEMBASSY OTTAWA 0687
RUEHFR/AMEMBASSY PARIS 1428

UNCLAS SECTION 01 OF 02 PRETORIA 001968

SIPDIS
SENSITIVE

STATE PLEASE PASS USAID
STATE PLEASE PASS USGS
DEPT FOR AF/S, ISN, EEB/ESC AND CBA
DOE FOR T.SPERL, G.PERSON, A.BIENAWSKI, M.SCOTT, L.PARKER

E.O. 12958: N/A
TAGS: ENRG EPET EMIN SENV EWWT ELTN SF VE
SUBJECT: CHAVEZ COMES TO TOWN

Ref: A) Pretoria 386
B) Pretoria 351

1. (SBU) SUMMARY: The historic September 2 state visit of
Venezuelan President Hugo Chavez to South Africa resulted in an
excited announcement of energy cooperation agreements. It is not
clear that the vague and broad agreements will result in any actual
energy cooperation, because there may not be clear economic grounds
to support implementation. End Summary.

2. (SBU) In the wake of the first-time September 2 state visit of
Venezuela President Hugo Chavez to South Africa, the two governments
reportedly signed ambitious energy framework and cooperation
agreements aimed to strengthen economic and political bilateral
ties. (Note: A state visit for Chavez originally planned for a year
ago was postponed for unspecified reasons. Post heard from insiders
that Chavez demanded high-profile mass public affairs events that
President Mbeki was uncomfortable with. End Note.) According to
press reports, targeted cooperation would include:

-- South African state oil and gas company PetroSA would qualify as
an operator in Venezuela for offshore gas exploration. PetroSA has
been invited to participate in exploration and production in
Venezuela's Orinoco Oil Belt, where the company would conduct a
study to quantify and certify reserves in the Boyaca 4 Block.

-- Venezuelan state oil and gas company PDVSA has been invited to
participate as a joint venture partner with PetroSA in the proposed
crude oil refinery at Coega near Port Elizabeth. PDVSA has also
been invited to use South Africa's 45 million barrel crude oil
storage facilities at the port of Saldanha (Ref A) in the Western
Cape. In addition, PDVSA would evaluate the possibility of
acquiring an interest in PetroSA's exploration assets in Africa.

-- The two national oil companies would pursue a "strategic
integrated proposal" for a framework for cooperation in oil and gas.
PetroSA has offered to share its low-temperature gas-to-liquids
technology with PDVSA, which could use it to commercialize its
Venezuelan gas assets.

Comment: A PDVSA decision to participate in the Coega refinery would
require a refinery that was designed to burn Venezuelan heavy sour
crude. A local editorial pointed out that this dependence on a
single source would reduce South Africa's energy security. End
comment.

---------------------------------------
South/South Solidarity...and Its Limits
---------------------------------------

3. (SBU) In a joint September 2 press conference with the two
Presidents extolling the south-south moment, President Chavez
enthused, "It is justice...it will be a wonderful day when the first
Venezuelan tanker stops to leave oil for South Africa. Today our
north is the south. It is critically important that as we build
this partnership, we do so in the context of developing our
south-south relationship." He touted the agreement as "an example
of a strategic alliance that will see them begin to define their
destiny and discard their colonial past." President Mbeki commented
Qdestiny and discard their colonial past." President Mbeki commented
that the relationship would help reduce the cost of electricity to
South Africans, without providing any details. PetroSA CEO Sipho
Mkhize subsequently cautioned against reports that South Africa was
to buy oil from Venezuela that would be cheaper than market value,
saying there was no such contract. Mkhize said business between the
two state-owned companies would reduce costs at a later stage by
cutting out the middleman.

----------------------------
Comment - Substance or Show?
----------------------------

4. (SBU) The Hugo Chavez state visit was a political opportunity
for the two presidents to showcase south-south solidarity. The
ruling African National Congress has a deep tradition of radical
liberation ideology which has propelled South African leadership in

PRETORIA 00001968 002 OF 002


the Non-aligned Movement and the Group of 77 (and China). SAG
officials encounter Chavez in progressive political events in Cuba,
Bolivia and other western hemispheric conclaves. Chavez has
expressed his admiration for the ANC, Nelson Mandela and the success
of the anti-apartheid movement which plays well among local
audiences. Elements within the ANC coalition have expressed
admiration for Chavez's standing up to the U.S., his policy of
nationalization of oil and other industries and showing solidarity
with Latin American and African developing countries.

5.(SBU) Although details are not yet available, the energy
cooperation agreement is a commercial deliverable that appears vague
and lacking in clear commitments, other than intent to explore
opportunities. PetroSA faces its own skill challenges and is not
known for its exploration expertise (Ref B). It is not clear that
South African power plants or existing or potential refineries can
technically or economically make use of Venezuelan heavy oils. The
SAG desires to show active steps to add to South African energy
security given its dependence on oil imports, only mitigated to a
limited extent by its coal- and gas-to-liquid technology. Beyond a
photo opportunity to show solidarity, it is not clear that there
will be any practical results as the SAG and PetroSA pragmatically
deal with ample energy challenges. End Comment.

La Lime

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