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Cablegate: Pernambuco Crows After Winning Petrobras-Pdvsa Oil

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

UNCLAS RECIFE 000130

SIPDIS

E.O. 12958: N/A
TAGS: EPET ECON BR
SUBJECT: PERNAMBUCO CROWS AFTER WINNING PETROBRAS-PDVSA OIL
REFINERY

REF: RECIFE 37

1. Summary: The announcement by President Luiz Inacio Lula da
Silva and visiting Venezuelan President Hugo Chavez Sept. 29th
that their 50-50 venture oil refinery would be located at the
port of Suape, some 30 miles south of the Pernambuco state
capital of Recife, was celebrated by northeasterners as turning
the key to ignite their economic engine. Politicians fought to
claim credit for the project, which Pernambucanos attribute more
to the historical whim of President Chavez than sound economics.
Two more giant development projects are waiting in the wings,
the Trans-Northeast railway and a huge diversion of San
Francisco river water via canal to three drought-prone states,
the latter project being fought by a Gandhi-like priest on a
hunger strike. End summary.

2. From glancing at Pernambuco newspapers last week, one could
assume that getting the joint Brazilian-Venezuelan oil refinery
was the single most significant event in years; "Confirmation,
Commemoration," "It's Ours," "It will change to face of the
State," huge headlines announced. State politicians from all
parties vied to take credit for getting the Venezuelan President
to favor their state over five others. All agreed that despite
good infrastructure, a booming port and other economic factors,
the key was the sentiment Chavez attached to locating the
refinery in the home state of Gen. Josi Ignacio de Abreu e Lima,
the Brazilian who fought along side Simon Bolivar. (No doubt the
fact that President Lula is from Pernambuco contributed to the
decision as well.) Pernambuco politicians planning to compete
in next year's elections all recounted how they had talked to
Chavez at some point about the connection between Abreu e Lima
and Bolivar. The refinery is to be named Abreu e Lima.

3. Pernambuco commentators predict that the US 2.5 billion
dollar joint venture between Petrobras and the Venezuelan oil
company PDVSA will give their state the critical boost that the
Camacari petro-chemical complex gave to the state of Bahia in
the 1970s, launching the economic boom there. The number of
direct jobs created by the refinery is being estimated around
20,000, but indirect jobs and ripple effect led to claims that
230,000 jobs will be added in the future. The total tax revenues
to be generated are estimated at US 970 million dollars with
state and local governments eagerly anticipating whatever their
share will be. The refinery is not expected to come on line
until 2011, when it will refine 200 thousand barrels a day,
according to Petrobras figures given to the press.

4. The press also speculated that the next mega-project -- a 4.5
billion real investment in the railroad lines needed to link the
interior of the Northeast to the ports of Suape and Fortaleza --
is to be announced this month. The Brazilian government,
through the National Economic and Social Development Bank
(BNDES) and a Northeastern Development Fund (FDNE) is expected
to provide 3.5 billion reales for the railroad construction,
with private partners supplying the rest.

5. The final mega-project in the Lula government's plan to
change the face of the Northeast, canals to transport water
known as the "Transposition" of the San Francisco River, is
waiting for date to be announced. Another 4.5 billion reales
from the federal government is budgeted to build two major
canals -- the North axis and the Eastern axis -- to carry an
estimated 26 cubic water feet per second to irrigate the driest
parts of Ceara, Rio Grande do Norte and Pernambuco states. But a
Catholic bishop from the Bahian town of Barra, Father Luiz
Cappio, began a hunger strike Sept. 26 in a chapel on the
Pernambuco side of the river in order to convince President Lula
to cancel the project. The Franciscan friar has gained national
press coverage, with pilgrims and Bahian politicians, including
the state governor, flocking to his chapel. The National
Conference of Catholic Bishops sent a letter to the President,
asking him to postpone starting the canal project until there is
more public debate. The priest, who says he will give his life
to stop the water transfer, questions the basis of the
mega-project, which ignores the water needs of poor communities
along the river while investing billions in the construction of
canals benefiting large companies. The Gandhi-style protest
indicates that the water transfer project is not likely to set
off a celebration like the one given the oil refinery news if it
were announced.

6. This cable was coordinated with Embassy Brasilia.


PAGE

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