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Cablegate: Pemex Pipeline Attack Causes Economic Damage

VZCZCXRO7967
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #4980/01 2571525
ZNR UUUUU ZZH
P 141525Z SEP 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 8870
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MEXICO 004980

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA
STATE FOR EB/ESC MCMANUS AND IZZO
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA (ALICE FAIBISHENKO)
DOE FOR INTL AFFAIRS KDEUTSCH, ALOCKWOOD, AND GWARD,
DOE FOR DAS PUMPHREY AND A/S HARBERT

E.O. 12958: N/A
TAGS: ENRG EPET ECON EIND PGOV MX
SUBJECT: PEMEX PIPELINE ATTACK CAUSES ECONOMIC DAMAGE


Summary
-------

1. (U) A series of attacks on Petroleos Mexicanos (Pemex) gas
lines in eastern Mexico have caused large disruptions to
production countrywide. The militant group Popular
Revolutionary Army (EPR) claimed responsibility and vows
continued attacks until their demands are met. Business
groups estimate losses of more than 100 million USD daily.
Pemex is now struggling with the task of resuming service
while finding ways to protect its assets in the future. The
concern among Mexicans is less about the immediate economic
damage of this attack, than about the long term damage to the
investment climate if such attacks continue.

Revolutionary Group Claims Responsibility
-----------------------------------------

2. (U) The Popular Revolutionary Army (EPR) claimed
responsibility for the natural gas line attacks of the
afternoon of September 10 in Veracruz and Tlaxcala states.
According to a statement released by the group, the attack
was part of a campaign to free colleagues detained, and
subsequently missing, in Oaxaca on May 25, 2007. Explosives
were placed at 12 different locations along the line and
resulted in 6 explosions. The EPR claims the attack was
executed so as not to cause loss of human life. They further
claim that the attack was in response to the actions of
President Felipe Calderon's government against activists,
political opponents, and revolutionary groups.

Large Losses for Pemex, Business
--------------------------------

3. (U) Pemex is still calculating the losses but, so far, has
millions of dollars per day in lost natural gas sales and
will have to spend millions to repair the damaged
infrastructure. Pemex CEO Jesus Reyes Heroles said that the
explosions will result in shortages equivalent to 25% of
natural gas production during peak hours. As the state run
energy monopoly, Pemex is importing additional gasoline and
some natural gas to counter shortages. Pemex officials aim to
repair the pipelines and resume production by September 17th.

4. (U) Business groups estimate daily private sector losses
of at least 90 million USD. The industries most affected
are: glass, textile, steel, auto parts, automobile, and
chemicals. The shortage also affected the Federal Electricity
Commission, PemexQ,s largest client and a consumer of one
fourth of Pemex's total natural gas production - 400 million
cubic feet per day. The National Steel Industry reported
that 29 plants owned by 10 companies and accounting for 60%
of the country's steel industry had to stop operations.
Production at the major Volkswagen plant in Puebla was halted
for the entire week. As many as 2,500 companies in 10 states
are reported to have been affected.

Future Security Is Main Concern
-------------------------------

5. (U) Secretary of Government, Fransisco Ramirez Acuna,
summoned his Security Cabinet to discuss future strategies in
light of the attacks. The current security strategy has
Pemex classify facilities according to their vulnerability
and strategic importance, to determine levels of protection.
Local authorities have offered to contribute to patrolling
and protecting pipelines in their states. Reyes Heroles
reported that Pemex has more than 19,000 land facilities and
it is therefore naQve to think all of them can be protected.


Local Officials: Pemex Doesn't Help Us Help Them
--------------------------------------------- ---

6. (U) Embassy ConOff met with Veracruz State Under Secretary
for Government, a Veracruz State Police official and a
representative from the Civil Protection Office on September
10. When asked about protection of these vital lines, the
officials explained that there is very poor communication
between Pemex and state government officials. In one example
of poor communication, officials said that during a major

MEXICO 00004980 002 OF 002


infrastructure project to build roads they "discovered" an
old functioning Pemex gas line. They said that Pemex does not
tell them where their lines are as a matter of "national
security", thus it is very difficult for them to cooperate
with them on the security of the gas lines.

7. (SBU) In a September 13 meeting with visiting U.S.
Department of Energy Assistant Secretary Karen Harbert,
Mexican Undersecretary of Energy Planning and Technological
Development, Jordy Herrera (strictly protect throughout),
said that "as a government we are very concerned, and don't
want such attacks to happen again." He noted that GOM
concerns included the nuclear power plant in Tampico. He
explained that the Secretariat of Energy is preparing a new
plan for the security of specific energy installations which
could be completed in about a month.

Comment
-------

8. (SBU) The EPR has announced that it will continue its
attacks against the Mexican government, and the vast network
of unprotected and poorly maintained pipelines provides an
easy target. However, worries that Mexico will degenerate
into a never ending fight to keep the oil flowing are overly
dire. The EPR does not enjoy public support and attacks on
Mexico's pipelines do nothing to improve its image. More
importantly, the government is taking seriously its
responsibility to step up protection of Pemex assets making
these a more difficult target for the EPR to exploit in the
future.

9. (SBU) A larger concern is the effect that these attacks
will have on Mexico's image. Since he first took office,
President Calderon has been on a constant drive to attract
international investment to Mexico. This and any future
attacks could negatively affect the investment climate.


Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA

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