Cablegate: Argentina: Planning Minister de Vido On Argentne Ties With

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RR RUEHWEB

DE RUEHBU #0568/01 1211722
ZNR UUUUU ZZH
R 301722Z APR 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 0910
INFO RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 000568

SIPDIS

SIPDIS
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PASS USTR FOR DUCKWORTH
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER

E.O. 12958: N/A
TAGS: ENRG EEPET ECON PREL PGOV AR VZ BR EC
SUBJECT: ARGENTINA: PLANNING MINISTER DE VIDO ON ARGENTNE TIES WITH

U.S., VENEZUELA, AND DOMESTIC STRATEGY TO LAUNCH NEW INFRASTRUCTURE

AND ""SOCIAL PACT"" INITIATIVES

REF: Buenos Aires 496, 407, 356, 288, 230, 07 BsAs 1892

This cable contains business-sensitive information - not for

internet distribution.

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Summary

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1. (SBU) Planning Minister De Vido called A/S Shannon's visit to

Buenos Aires a positive step in rebuilding bilateral relations

damaged by the earlier Antonini Wilson ""suitcase"" scandal. He hopes

the postponed visits to the United States by former President Nestor

Kirchner and Chief of Cabinet Alberto Fernandez can be rescheduled

soon and hoped he too might visit the United States. De Vido will

travel to Venezuela shortly to sign agreements on a national oil

company joint venture to construct an LNG receiving plant in Buenos

Aires province's Bahia Blanca. He expressed serious concern over

what he saw as a union-driven process of radicalization in Venezuela

that is pushing President Chavez further to the left and led to

Chavez' decision to nationalize the Argentine-owned Sidor steel

plant. De Vido said he was skeptical that Bolivia will meet its

contractual obligations to provide Argentina natural gas, even when

a second natural gas pipeline linking the two nations is completed

in 2010. He noted his recent trip with President Kirchner to

Ecuador to sign an accord between GoA state-owned energy company

ENARSA and its Ecuadorian counterpart to construct a $1.5 billion

hydro-electric project.

2. (SBU) On agricultural sector strife, De Vido called the GoA's

strategy of sector-specific dialogues on beef, wheat, and milk

""successful"" despite ongoing limits on beef and wheat exports that

have prompted accusations of bad faith by agrarian associations. He

admitted, however, that there had not been good GoA dialogue with

farmers earlier. On inflation, he revealed that an upcoming May 7

consumer price index conference here at which U.S., French, and

Spanish experts will participate will help the GoA launch a new,

more credible CPI index. De Vido also signaled plans on Argentina's

May 25 Independence Day for what local pro-government press has

called an effort to ""re-launch"" and give the government some new

momentum. The GoA will also release a Bicentennial strategic

infrastructure plan detailing development priorities in the

transport, telecom, energy and mining, water and sanitation, and

school sectors for each of Argentina's 24 provinces and the Buenos

Aires metropolitan area. Also on May 25, the GoA will formally

launch a ""Social Pact"" initiative to help reconcile and coordinate

interests of the GoA with organizations representing Argentina's

industrial, unions and financial service sectors. This is

apparently designed to be an ongoing round table which would stand

in contrast to the lack of dialogue which led to the rural sector

strike. (SEPTELs will examine further). De Vido also defended the

GoA's recent increase in mining sector export tariffs, noted new

generation investment plans by U.S. company AES, and supported

Exxon's decision not to sell its Argentine refining and gas station

assets.

End Summary.

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Praising Shannon's Understanding and Patience

---------------------------------------------

3. (SBU) In an April 25 meeting with Ambassador, Planning Minister

De Vido offered a tour d'horzon of current domestic political and

regional challenges facing the GoA, as well as background on the

GoA's broad infrastructure development strategic plans and comments

on individual U.S. energy company investments in Argentina. His

comments on the planned May 25 launch of a new ""Social Pact""

initiative by the government will be reported Septel.

4. (SBU) De Vido called A/S Shannon's March visit to Buenos Aires a

positive step in rebuilding bilateral relations damaged by the

earlier Antonini Wilson ""suitcase"" scandal. Shannon, he said,

understands the Latin mindset and appreciates the specific

characteristics and idiosyncrasies of individual nations. Above

all, he praised Shannon's patience, noting that the saying ""he who

loses patience loses all"" has particular relevance for those

countries who seek to maintain good working relationships with

Argentina.

5. (SBU) On the earlier planned but postponed March visits of former

president Nestor Kirchner and Chief of Cabinet Alberto Fernandez to

New York and Washington, De Vido blamed the extraordinary demands on

Fernandez as a result of the three-week agriculture strike in March.

He agreed that these visits are important steps to build mutual

confidence that should be rescheduled soon. Ambassador suggested

that De Vido himself consider visiting the United States, and DeVido

said he would like to do so later in this year.

--------------------------------------------- ----

Ag Sector Strike, Inflation and Curbing the Press

--------------------------------------------- ----

6. (SBU) On ongoing GoA negotiations with the agriculture sector on

polemical export tariff increases, De Vido was confident that some

equitable resolution would be achieved, though he declined to say

whether that could happen before the agrarian associations' May 2

strike deadline. He called the GoA's strategy of sector-specific

dialogues on beef, wheat, and milk ""successful"" despite coincident

limits on beef and wheat exports managed by Internal Commerce

Secretary Moreno that have prompted accusations of bad faith by

SIPDIS

agrarian associations. De Vido noted that Brazil has recently

followed Argentina's policy lead in announcing restrictions on rice

exports to ensure domestic supplies. But when discussing this idea

of a new ""Social Pact""/round table among business, unions and

government, De Vido said it would be designed to avoid the lack of

dialogue between government and the farm organizations which led to

the rural sector strike.

7. (SBU) Speaking of domestic inflation, De Vido offered his

""personal opinion"" that there is an urgent need to reach some

domestic consensus on how to develop a viable cost of living index

that bridges the gap between the GoA's (widely discredited) CPI

index and the interest of everyone in moderating inflationary

expectations. He noted the upcoming May 7 INDEC CPI conference at

which U.S., French and Spanish CPI experts will participate as a

step in that direction. On the GoA's high-profile campaign against

Clarin, De Vido insisted there were high levels of ""disinformation""

that justified the GoA's efforts to modify Argentina's radio

broadcast law. ""If you don't put limits (on the media), they'll say

anything,"" De Vido commented.

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Regional Ties - Energy Focus

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8. (SBU) De Vido said that he would return to Venezuela shortly to

sign agreements on a PDVSA/ENARSA joint-venture project (Ref BsAs

288) to construct an LNG receiving plant in Buenos Aires Province's

Bahia Blanca. He expressed concern at a union-driven process of

radicalization in Venezuela that is pushing President Chavez further

and further to the left. De Vido called the GoBRV's decision to

nationalize Techint steelmaker Sidor (Ref BsAs 496) a case in point,

where demands by seven separate steel factory unions provided the

impetus for Chavez' nationalization announcement.

9. (SBU) De Vido said he was skeptical that Bolivia would meet its

contractual obligations to provide Argentina natural gas, even when

a second natural gas pipeline linking the two nations is completed

in 2010. He called the President's unsuccessful request at the

February 2008 trilateral Argentina/Brazil/Bolivia summit in Buenos

Aires that Brazil cede a portion of its Bolivian gas to Argentina an

embarrassing ""bad call"" (Ref BsAs 230). The request should have

been posed to President Lula quietly in a bilateral meeting.

10. (SBU) De Vido noted his recent trip with CFK to Ecuador to sign

an accord between GoA state-owned energy company ENARSA and its

Ecuadorian counterpart to construct a $1.5 billion hydro-electric

project. He clarified that the GoA would not/not be contributing

capital in support of its 30% share of the project, but rather would

work with a number of Argentine private sector players to ""channel""

their participation in the project. He noted that Eduardo

Eurnekian's Americas Group would be in charge of financing, and

Enrique Pescarmona's IMPSA group would build turbines for the

project.

--------------------------------------------- -

Bicentennial Infrastructure Plan & Social Pact

--------------------------------------------- -

11. (SBU) On May 25 (one of Argentina's two independence days, the

day the first national government was established in 1810, as well

as the date former president Nestor Kirchner assumed office in

2003), the GoA will release its Bicentennial strategic

infrastructure development plan. De Vido gave Ambassador a bound

300-page text that outlines GoA plans for transport,

telecommunications, energy, mining, water, sanitation, and school

development for each of Argentina's 24 provinces and the Buenos

Aires metropolitan area. ""We have a plan, we have a vision,"" he

said. De Vido confirmed that the GoA will also announce on May 25 a

""Social Pact"" initiative to help reconcile and coordinate interests

of the GoA with organizations representing Argentina's industrial,

unions, and financial service sectors. Local pro-government press is

presenting this Independence Day effort as a means to ""relaunch"" the

government and regain momentum. (Septel will examine this in more

detail).

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Energy and Mining Sectors

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12. (SBU) De Vido noted that AES Energy would see him shortly after

his meeting with the Ambassador to discuss a new potential

generation investment in southern Patagonia. (AES had earlier

informed Embassy the company planned to convey to De Vido AES'

strong interest in investing roughly $200 million to build a

greenfield 180 MW combined cycle gas generation plant in southern

Patagonia. AES currently generates a total of 2,830 MW in nine

generation plants here, roughly 12% of total Argentine generation

capacity. AES called their new generation investment strategy a

""defensive"" measure given their large installed generation base here

and the GoA's insistence on new investment as a ""social obligation""

of current sector players.)

13. (SBU) On Exxon's recent decision not to sell its Argentine

refinery and service station assets, De Vido admitted that the GoA

had rejected a possible Esso sale to Brazil's Petrobras to avoid

""excessive"" Brazilian participation in the downstream refining and

retailing sector. But, he said, the GoA had never really wanted

Exxon to leave Argentina. De Vido quoted an old Argentine saying:

""He that goes without being thrown out, returns without being

called."" (Exxon's September 2007 decision to shop its Argentine

assets reflected a headquarters-mandated strategic retrenchment in

South America -- Exxon subsequently announced it would be selling

off its Venezuelan and Brazilian holdings -- as well as growing

frustration by Exxon's Argentine execs at a complex and distortive

range of GoA market interventions that have made Exxon's Argentine

operation only nominally profitable -- Ref 07 BsAs 1892.)

14. (SBU) De Vido referred to Apache Energy's longstanding complaint

that the GoA's decision to cut gas exports to Chile from Tierra del

Fuego has ""stranded"" large volumes of natural gas in this island

province pending a planned expansion of the gas pipeline network

connecting Tierra del Fuego with the Argentine mainland. This has

had a significant impact on Apache's profitability since

over-injection into the existing Tierra del Fuego gas pipeline by

Petrobras and Total has forced Apache to re-inject a substantial

volume of gas back into the ground. De Vido noted that the cut-off

of Tierra del Fuego gas exports to the Canadian-owned Methenex plant

in Chile would be ""regularized"" in the coming months and provide

Apache a source of export revenue. The GOA, he added, would soon

bid out the construction of the new gas pipeline from Tierra del

Fuego to the Argentine mainland. Once this pipeline is completed in

2 years' time, he said, oil and gas producers in Tierra del Fuego

should be able to expand production for domestic consumption

significantly.

15. (SBU) On GoA efforts to build-up domestic energy infrastructure,

De Vido noted the President's recent inauguration of the first of

two gas turbines at a Campagna, Buenos Aires province generation

facility. The turbines were funded by existing electricity

generators in Argentina via agreed withholdings of capacity and

variable cost payments due them by GA electricity wholesaler

CAMMESA. The second turbine, he said, would be up and running in

May, for a total addition to domestic generation capacity of 1,100

MW. Looking to the future, De Vido said that the 700 MW Atucha II

atomic energy facility is scheduled for completion in October 2010

with 5,000 workers currently employed in its construction.

16. (SBU) Ambassador noted Energy Secretary Daniel Cameron's

participation in the February 2008 WIREC renewable energy (RE)

conference in Washington. He encouraged Argentina to move forward

on Cameron's earlier idea (Ref BsAs 407) of joining the more than

100 nations who have made voluntary WIREC pledges, taking credit for

Argentina's current RE efforts, including legislation on the books

requiring that 5% of diesel fuel be sourced from bio-diesel by

2010.

17. (SBU) On the polemical November 2007 increase in mining sector

export tariffs, De Vido acknowledged that this could be interpreted

as contradicting 1990s-era mining legislation that ensured 30 years

of contractual stability. But the increase in global commodity

prices, he said, had boosted mining sector profit margins from the

15-18% range to the 28% range, and the GoA was committed to

recycling a portion of additional revenues collected via increased

export tariffs to mining province-specific infrastructure

development to maintain a ""virtuous investment cycle."" He noted the

example of UK/Swiss mining company Xstrata which controls the

world-class Bajo de Alumbrera gold mine in Catamarca province.

Additional taxes collected from this company will be used to fund a

$200 million/year fiduciary fund to develop provincial

infrastructure, including roads and electricity public works that

will benefit the mining operation itself.

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Comment

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18. (SBU) In his role as Planning Minister, De Vido is directly

responsible for Argentina's public infrastructure, energy, telecom,

transportation, and mining sectors. He also oversees a large -- and

rapidly growing -- volume of government transfers and subsidies to

these sectors that mark the GoA's interventionist economic policy

model. As a senior advisor, presidential confidant and ""penguin,""

one of a loyal inner circle who served with Nestor Kirchner while he

was governor of Santa Cruz province, De Vido has taken on a broader

""super minister"" profile, and is considered by many to be

Argentina's de facto Foreign Minister to Venezuela, Bolivia, and

Ecuador.

De Vido is also widely reported to be the leading figure of the

government faction battling with cabinet chief Alberto Fernandez and

his allies. De Vido's group is portrayed in the press as more

""interventionist"" than Alberto Fernandez's group.

19. (SBU) De Vido has proven himself an important GoA interlocutor

to address U.S. investor concerns. Post will continue to advocate

aggressively on behalf of U.S. companies in Argentina many of whom,

while profitable, remain concerned by infrastructure bottlenecks and

unpredictable shifts in the GoA's regulatory and tax regimes.

WAYNE

=======================CABLE ENDS============================

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