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Cablegate: Pdvsa President Rodriguez Counsels Pragmatism

This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L CARACAS 001241

SIPDIS


NSC FOR TSHANNON AND CBARTON
ENERGY FOR DPUMPHREY AND ALOCKWOOD

E.O. 12958: DECL: 04/05/2014
TAGS: EPET PREL VE
SUBJECT: PDVSA PRESIDENT RODRIGUEZ COUNSELS PRAGMATISM


Classified By: DCM Stephen McFarland; for reasons 1.4 (b) and (d)

------
SUMMARY
-------

1. (C) In an April 2 meeting with the Ambassador, Petroleos
de Venezuela (PDVSA) President Ali Rodriguez counseled a
"dose of pragmatism" for U.S. relations with Venezuela. He
defended the recent OPEC decision to reduce production but
said Venezuela would be able to supply gasoline to the U.S.
this summer. He confirmed that Venezuela will swap gas oil
and fuel oil for Argentine agricultural products, and
disputed press reports that PDVSA may dismiss employees who
signed the petitions for a presidential recall referendum.
End Summary.

2. (C) On April 2, the Ambassador met Ali Rodriguez, the
President of Venezuela's state-owned oil concern PDVSA, to
discuss issues relating to energy policy and U.S. bilateral
relations with Venezuela. The meeting was held at the DCM's
residence as Rodriguez had said he did not want to receive
the Ambassador at PDVSA or wish to be seen at the Embassy or
the Residence. The DCM and Petroleum Attache also
participated.

--------------
OPEC QUOTA CUT
--------------

3. (C) Rodriguez defended the recent OPEC output cut, saying
OPEC Ministers had simply ratified the decision taken at the
last OPEC meeting. Rodriguez said global crude oil
production and demand are balanced but, if anything, supply
exceeds demand. In fact, Rodriguez added, he expects that
demand and prices will drop in the second quarter. In
response to a question about how Venezuela will take a cut in
its quota, Rodriguez laughed and said that Venezuela is
usually accused of quota busting. In the current situation,
with production, he said, exceeding the number quoted by more
non-PDVSA sources (i.e., more than 2.5 million b/d),
Venezuela will not face these accusations. Rodriguez added
that PDVSA itself will take the necessary production cuts
although this will, of course, take time to implement. He
deflected a question about the possibility of foreign
producers sharing in the burden of quota-related production
cuts, by saying this would be difficult to implement because
of the different contractual terms applying to the foreign
operated fields. (Note: Rodriguez's comment that PDVSA
itself will take the OPEC quota cut is notable. If
Venezuela's production exceeded the 2.7 million b/d OPEC
quota level, PDVSA would be likely to request that the
foreign operators take cuts. Foreign operators operate
fields acquired in three investment rounds in the 1990's.
The so-called "Third Round" contracts have terms that
obligate them to take OPEC quota cuts. These terms were last
applied in early 2002. In August 2002, PDVSA requested
companies to increase production to the maximum which, at
that time, was believed to be an indication that PDVSA was
having problems maintaining its own production. End Note.)

-----------------------
REFINERIES AND GASOLINE
-----------------------

4. (C) The Ambassador then asked Rodriguez about gasoline
exports to the U.S. this summer. Rodriguez maintained that
Venezuela's refineries will export finished gasoline ) not
blending components ) to the United States. He added that
PDVSA's senior management will participate in two meetings in
April to discuss the company's business plans. An April
14-16 meeting will include a detailed study of the U.S.
refinery sector and the gasoline market and a discussion of
the investments needed to improve PDVSA's refinery capacity
at home and abroad. Rodriguez repeated that PDVSA will
invest $5 billion in 2004, although 80 percent of this will
be targeted at exploration and production.

--------------------------------
OIL FOR FOOD SWAP WITH ARGENTINA
--------------------------------

5. (C) The DCM also questioned Rodriguez about his recent

trip to the Southern Cone in which he signed an agreement to
swap oil for food with Argentina. Rodriguez confirmed that
Venezuela plans to ship gas oil and fuel oil to Argentina for
use in the power sector that has been badly hit by a lack of
investment. He added that an Argentine team would visit
Venezuela on April 5 to confirm the details of the swap in
which, starting as early as May, Venezuela would receive
seeds and other agricultural products in addition to meat.


-------------------
NO FIRINGS IN PDVSA
-------------------

6. (C) The Ambassador raised local press reports that have
held that as many as 7,000 PDVSA employees who signed the
petitions for a presidential recall referendum might lose
their jobs. Rodriguez dismissed these reports and said that
only about 900 PDVSA employees had signed. He refuted claims
that employees would be terminated due to their signatures
and said, "people are leaving for normal reasons." He added,
however, that he believes there are still instances of
"sabotage" within the company. He related a story about a
worker in Zulia who had changed welding materials without
telling anyone. The result, he said, could have been a grave
accident. "For me," Rodriguez said, "this is sabotage." In
other comments about PDVSA staffing, Rodriguez said the
appointment of the latest PDVSA Board had given him a bigger
team and taken some of the pressure off him. Asked about the
possible move of CITGO's corporate offices to Houston, he
responded that that would depend on whatever enticements are
offered by the state of Texas. He noted the logic of CITGO's
being located in the capital of the U.S. petroleum industry.


--------------------------------------
DYNAMICS OF THE BILATERAL RELATIONSHIP
--------------------------------------

7. (C) Turning to a discussion of the bilateral political
relationship, the Ambassador noted recent verbal attacks
against president Bush, the Secretary and the National
Security Advisor by President Chavez as well as threats to
suspend oil shipments to the U.S. Rodriguez responded that
Chavez's comments had been intended for a domestic audience.
The Ambassador questioned this, stating that Chavez had
repeated his allegations against the U.S. to the Caracas
diplomatic corps, whom he had summoned for that purpose.
Rodriguez then pointed to a meeting between A/S Noriega and
Diosdado Cabello in which they had agreed to avoid public
comments. After that agreement, said Rodriguez, the GOV had
been surprised by comments made by the USG. The Ambassador
responded that the USG had also been surprised when National
Assembly member Nicolas Maduro had made groundless
allegations against the U.S. within days of that agreement.

8. (C) Noting that Venezuela supplies about 15 percent of
U.S. oil import, Rodriguez counseled a &dose of pragmatism8
in U.S. relations with Venezuela. The Ambassador responded
that Washington avoided responding to Venezuelan provocations
and has tried to lower tensions. Rodriguez then pointed to
the events of April and December 2002, saying that these
events and the reaction to them in Washington, had had a
profound effect on this government. In recent meetings in
Washington, he said, he had felt that he had had a positive
dialogue with the Department of Energy while in meetings with
the Department of State the tone of that dialogue had
changed.

9. (C) The Ambassador said Washington is concerned about
events in Venezuela. In a democracy, he said, elections can
serve as an escape valve. Rodriguez responded that the
Venezuelan opposition doesn,t have a policy but an
obsession, i.e., getting rid of Chavez. Other than this
obsession, it has nothing - no oil policy, no poverty
program, etc. - and thus there is no dialogue. Venezuela has
many problems and the two sides should be attacking them
together. Rodriguez said Venezuela needed to develop new
models for its economic, political and social life and get
rid of institutions that are worth nothing. Efforts such as
diversifying the economy would, however, take time.
Rodriguez added that he saw the need to develop a "culture of
work" in Venezuela to replace a culture that expects handouts

of oil wealth from the state. The Ambassador noted his
concern that the GOV has become more authoritarian.
Government functions, such as the granting of contracts and
documents such as passports, are no longer transparent.
Rodriguez responded that only selected people had previously
had access to the state. He acknowledged the need for a new
ethic but said, "even in the U.S. you can have an Enron." He
also acknowledged, however, that the government has made some
mistakes and is in too much of a hurry; he observed that the
GOV was making some of the same mistakes the guerrillas (of
which he was a member) had made in the 1960's and 1970's.

-------
COMMENT
-------

10. (C) This meeting may have been an attempt to convince
the USG that it should take a more pragmatic approach to the
Chavez government despite the aggressive and insulting tone
of the dialogue -- at least on the energy front. Despite
Rodriguez's claims to the contrary, we are skeptical that
Venezuela will have to cut production in order to maintain
its 2.7 million b/d quota. We are also doubtful about
Venezuela's ability to export finished gasoline products to
the United States.
SHAPIRO

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