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Cablegate: Exxonmobil to Sign Project Document

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 002570

SIPDIS


NSC FOR TSHANNON AND CBARTON
ENERGY FOR DPUMPHREY AND ALOCKWOOD

E.O. 12958: DECL: 08/08/2014
TAGS: ENRG PGOV VE
SUBJECT: EXXONMOBIL TO SIGN PROJECT DOCUMENT


Classified By: Economic Counselor Richard Sanders; for reasons 1.4 (b)
and (d)

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

1. (C) ExxonMobil de Venezuela President Mark Ward told the
Ambassador August 9 that the company is likely to sign the
Preliminary Development Agreement (PDA) for a multi-billion
dollar petrochemical project with the GOV on August 12. Ward
reported that the signing will take place in PDVSA President
Ali Rodriguez,s office. Although the company has firmly
refused to participate in a public signing ceremony at
Miraflores palace, they now have agreed to coverage of the
signing by state television. End Summary

-----------
THE PROJECT
-----------

2. (SBU) The project, a joint venture with PDVSA chemical
affiliate Pequiven, has been under discussion since 1996. It
would see the construction of an ethane-based, ethylene
cracker that would create feedstock for the plastics
industry. The integrated facility, to be located in the Jose
Industrial Complex in Anzoategui state, would convert 1.3
million metric tons of ethane (derived from natural gas) into
1 million tons of ethylene. The ethylene in turn would be
converted into high-and low-density polyethylene and ethylene
glycol, used respectively in grocery bags, garment bags, and
polyester clothing. According to Ward, the capital
investment for the project is now estimated at approximately
$3 billion. ExxonMobil expects that the plant once built
would be a major supplier to Latin America's plastics
industry. The GOV would obtain a big project consistent with
its economic/ideological goals of directing foreign
investment downstream.

3. (SBU) Ward said he wanted to explain to the Ambassador
what the PDA is and is not.

---------
THE EVENT
---------

4. (SBU) Ward said he would sign the PDA on behalf of
ExxonMobil while Pequiven President Saul Ameliach would sign
on behalf of the GOV. An ExxonMobil staffer informed econoff
separately that PDVSA President Ali Rodriguez would also sign
because the PDA includes commitments made by PDVSA. Although
Ward told the Ambassador August 9 that there would be no
public press coverage of the event and the two sides would
issue a joint press statement, ExxonMobil subsequently
informed us August 11 that it has now agreed to coverage of
the signing by state television.

--------------------------
WHY SIGN BEFORE AUGUST 15?
--------------------------

5. (C) When the Ambassador asked why the company had agreed
to sign the PDA the week before August 15, the scheduled date
of the referendum on Chavez's tenure in office and the event
that has convulsed Venezuela's political life, Ward responded
that ExxonMobil is satisfied with the content of the
agreement. He said bluntly that ExxonMobil could not think
of any other issues to raise with the GOV and that the GOV
has been pressuring the company to sign immediately,
including questioning its commitment to the project if it
refused to go ahead. Ward said the company has firmly
refused to participate in a public signing ceremony at
Miraflores palace.

5. (SBU) Despite the signature of the PDA, the final
investment decision will not be made for another 18-24
months, Ward said. In the meantime, ExxonMobil expects to
spend approximately $2 million to revalidate the economics of
the project (and particularly the availability of sufficient
natural gas feedstock), negotiate detailed agreements with
the GOV, do the preliminary engineering up to the point where
ExxonMobil could let the construction project for bids, and
secure financing. The actual investment would be spread out
over six years beginning with the signing of contracts with
the GOV.

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

6. (C) Ward was anxious to notify the Ambassador about
ExxonMobil's motives for signing the project agreement in
advance of August 15. He also noted that ExxonMobil Chairman
Lee Raymond would be notifying senior Washington officials as
well. However, this project has been under discussion for
nine years (through four changes in the presidency of
Pequiven since the December 2002-February 2003 strike) and it
is doubtless a relief for the company to take this step.
While ExxonMobil has apparently successfully avoided a high
profile ceremony ahead of the referendum, the GOV will carry
the signing on state television and use it as part of its
campaign against the recall referendum. See septel for other
politically generated "outreach" campaigns to the petroleum
sector it has been undertaking.
Shapiro

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