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Cablegate: Venezuelan Diesel Sales - Not Much Beef

VZCZCXYZ0002
RR RUEHWEB

DE RUEHMU #2453/01 3072026
ZNR UUUUU ZZH
R 032026Z NOV 06
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 8126
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 1472
RUEHCV/AMEMBASSY CARACAS 0803
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

UNCLAS MANAGUA 002453

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/CEN, WHA/AND, WHA/EPSC, AND EB/ESC/IEC

E.O. 12958: N/A
TAGS: EPET ECON PGOV EINV NU
SUBJECT: VENEZUELAN DIESEL SALES - NOT MUCH BEEF

REF: CARACAS 3257

1. (SBU) Summary: As of October 24, Venezuela delivered two
shipments of diesel fuel to Nicaragua. The first delivery of
84,000 gallons eventually went to mayors for local
distribution and sale. Five Managua bus cooperatives agreed
to buy the second phantom shipment of 800,000 gallons in
exchange for promises of fleet and depot modernization.
Neither sale affected local gas prices or brought any
immediate benefit to Nicaraguans. Alternativa Bolivariana
Petroleos de Nicaragua (Albanic) VP and Managua Mayor
Dionisio Marenco spearheaded the operation. Marenco
announced many grandiose plans for Albanic's share of the
sale proceeds, including extensive social programs, a liquid
natural gas plant and a development bank. So far, revenue
from the diesel sales has not matched these plans; the effort
has come off as a botched attempt to pump up the FSLN before
the elections. End Summary.

------------------------------
What has and has not been sent
------------------------------
2. (SBU) On October 7, after almost a year of hype, Venezuela
delivered its first shipment of 84,000 gallons of diesel to
Nicaragua's Rama port on the Atlantic coast. It arrived with
much fanfare and celebration, but was significantly less than
the 250,000 gallons promised. A lack of storage facilities
resulted in the diesel being loaded onto 11 tanker trucks and
driven to Managua where it sat for a week. A second shipment
of 800,000 gallons of diesel reportedly arrived on October 24
and was stored in tanks near Puerto Sandino on the Pacific
coast. However, National Ports Director Alejandro Fiallos
repeatedly denied that this quantity of fuel had arrived via
any Nicaraguan port. October 26 press reports claimed the
fuel came directly into Petroleos de Nicaragua's (Petronic )
the national oil company) port and storage tanks, but sources
inside the company deny this. To date, no one has seen or
claimed to have received this diesel shipment. A promised
shipment of 350,000 barrels of bunker fuel for electricity
generators was "cancelled" on October 10 because of the lack
of storage and transportation facilitates. There is no set
date or announcement of a third shipment of diesel.
(Comment: This lack of consistency in the shipments makes the
Venezuelan fuel an unreliable alternative for consumers. End
Comment.)

-----------------------------
Who is running the operation?
-----------------------------
3. (U) An entity known as Alternativa Bolivariana Petroleos
de Nicaragua (Albanic) handles all fuel deliveries and sales.
Albanic was created by an agreement between the Association
of Municipalities of Nicaragua (Amunic ) made up mostly of
FSLN mayors) and Petroleos de Venezuela's (PDVSA) affiliate
PetroCaribe. Managua's FSLN mayor and VP of Albanic Dionisio
Marenco spearheaded the delivery and sales efforts. So far,
Albanic has no operating capital or offices, intending to use
revenues from the sale of the fuel to set up formal
operations. Albanic will pay PetroCaribe 60% of the sales
revenue at the time of the sale and the other 40% in 25
years. During these 25 years, the 40% residual will be used
for social programs run by Albanic.

-----------------
So who bought it?
-----------------
4. (U) The first shipment of 84,000 gallons of diesel was
originally intended for the bus transportation union, on the
condition that it lower bus fares from 3 cordobas to 2.50
(the current exchange rate is 17.90 cordobas to one USD).
The union turned down the offer, saying it would only cover 3
days of fuel needs and therefore did not justify lowering the
fares. (Note: The bus transportation union reports
consumption at 600,000 gallons a month. End note.) Marenco
then tried to sell the diesel to ENEL (the state-owned
electricity generating company). But ENEL President Frank
Kelly said a quick purchase could not take place as the fuel
had to be tested for quality and ENEL had to honor existing
longer-term contracts with Esso restricting outside fuel
purchases. Kelly added that the small quantity of diesel
would only produce 40 hours of electricity, about 10 days
worth of peak-hour operations.
5. (SBU) Finally, late on October 11, Marenco sold the 84,000
gallons of diesel to several local municipalities, including
Matagalpa, Masaya, and Jinotega. Although the fuel was
originally offered for USD 200,000, Albanic earned USD
225,000 from the sale. Thus, the mayors paid 12.93 cordobas
per liter for fuel that it resold to local gasoline stations
in the municipalities. The average price of diesel on
October 15 in Nicaragua was 12.95 cordobas per liter.
(Comment: After taxes, transportation costs and the mark-up
are added, the final sale price of the diesel was not any
different from market price. Falling international oil
prices also limited Albanic's ability to offer a competitive
price. End comment.) The whole drama was covered
extensively by the Nicaraguan press.

6. (SBU) In contrast, the second alleged shipment arrived
with almost no press coverage and shrouded in mystery.
Marenco claims to have negotiated with Petronic for the
purchase, storage, and resale of diesel from
PetroCaribe/PDVSA. A source inside Petronic, however, stated
that while there were talks between the two companies,
Petronic has no deal with Albanic and is not storing any fuel
for them. The only headline the second shipment received was
on October 27 when five major Managua bus transportation
cooperatives signed an agreement to buy the diesel and reduce
bus fares by 50 cents. The deal did not receive support from
the bus transportation union and no one disclosed the sale
price. According to the Managua Transportation Regulator
Francisco Alvarado, an FSLN member, the price was high enough
to allow Albanic to replace the fleet of buses in Managua,
improve service and modernize the terminals. Since this
announcement, there has been no mention of Albanic or the
diesel anywhere in the press. (Comment: Albanic's
consistency issues limits its ability to establish the
permanent contracts necessary to "get business going." End
comment.)

---------------
Albanic,s Plans
---------------
7. (U) Long a trumpeter of the "positive" role Venezuelan oil
could play in Nicaragua, Daniel Ortega did not try to hide
his role in Albanic's efforts when the first shipment arrived
on October 7. Defying security regulations, Ortega, Marenco,
and 200 supporters entered Puerto Rama to "receive the fuel."
As the sale of the diesel stalled, Ortega disappeared from
this story, leaving Marenco as the front man. Mayors who are
members of Albanic, and purchased the first shipment of
diesel, initially participated in the PR effort by explaining
how the diesel would make a difference in their
municipalities. After the October 11 sale, however, there
was little talk of who benefited from the "cheaper" fuel and
how.

8. (U) In the interim between the two shipments, Marenco
announced several grandiose plans for the use of Albanic's
40% share of the income. Social improvement plans included
fixing Managua roads and parks, building houses and artisinal
wells, subsidizing the "Clean Neighborhood" campaign,
offering free clinics and distributing free medicine, and
creating a scholarship fund for young people from
disadvantaged neighborhoods.

9. (U) Marenco also announced ambitious "development"
projects such as building a liquid natural gas plant as part
of a larger project to include receiving terminals on the
Atlantic and Pacific coasts. Marenco claimed Albanic would
open its own gas stations, since a station was forced to
close because it stored Albanic diesel without permission
from its franchise owner. Albanic's shares of the oil sales
were also supposed to provide the USD 600 million in capital
needed to create a development bank (Bandes) that would
service all of Central America. Bandes would replace the
Japanese Government in financing the new bus fleet Albanic
promised the transportation cooperatives.

-------
Comment
-------
10 (SBU) At this stage, Albanic has only earned USD 90,000
from the first shipment and, if it exists and was sold at the
same price, USD 857,000 from the second shipment. These
revenues are far from the USD 600 million needed to
capitalize the development bank, let alone engage in all of
the other business projects. Marenco's promises require
large and consistent shipments of fuel to establish a
customer base and cash flow, something not happening now.
The shipments have not affected fuel prices in Nicaragua. As
stated in para 5, the first shipment was small and sold at a
price that was no lower than regular shipments. The secrecy
surrounding the arrival, location, and sale price of the
alleged second shipment suggests that it would result in no
real savings either. The reduced bus fares and the promised
fleet modernization were merely publicity ploys by Marenco to
support an image that Albanic and the Venezuelan fuel are
really going to help average Nicaraguans. It is clear at
this stage that Albanic and its activities are designed more
to promote the FSLN in the final days before the election,
than to help Nicaraguans or engage in any productive social
activities. The silence from Marenco and Albanic since the
second shipment was "sold," strongly indicates that it has
been a failed one at that. End Comment.
TRIVELLI

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