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Cablegate: Senator Hagel Discusses Energy, Regional Politics

DE RUEHBR #1267/01 2662117
R 222117Z SEP 08




E.O. 12958: N/A


1. (SBU) Summary: Senator Chuck Hagel visited Brasilia from
August 31 to September 1, during which time he met with key
leaders in the Brazilian government, including Minister of
Defense Jobim, Minister of Mines and Energy Lobao, and
Minister for Strategic Affairs Unger, to discuss Brazil,s
dynamic energy sector, the stability of the region, and the
future of the bilateral relationship. As in the meetings
with President Lula and Minister Amorim, several of the
Ministers keyed in on the need to exploit the growing but
still largely untapped potential for an ever-closer bilateral
relationship rooted in our common heritage and culture. The
meetings also highlighted Brazil,s growing potential as a
supplier to global energy markets and the need for continue
the progress that has been achieved over the past several
years in improving relations between the two countries. End

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2. (U) This cable is the third of five on Senator Hagel,s
August 31-September 2 visit to Brasilia and Sao Paulo. See
refs A and B for the first two cables in the series.

Tapping Brazil,s Energy Potential

3. (SBU) During dinner on Sunday Agusut 31, Minister of Mines
and Energy Lobao provided Senator Hagel with an overview of
Brazil,s energy picture, noting that, in addition to
biofuels development, Brazil had ample hydropower, had built
two nuclear reactors and was building a third, and was
developing some solar technology. He discussed Brazil,s new
oil finds (which he described as &between 50 billion and 150
billion barrels8), adding that Brazil is already
self-sufficient in oil. When Senator Hagel asked whether
Brazil was considering a new structure for managing this oil
wealth, Lobao responded that Brazil would respect all
existing contracts, highlighted that Petrobras is ¬ a
Brazilian company8 as the GOB only holds 40 percent of it,
and said that the GOB, like those in other countries with
new-found oil wealth, is reviewing the legislative and
regulatory framework for petroleum production in order to
manage it well. The Ambassador mentioned to Senator Hagel
that Minister Lobao is planning a trip to the United States,
and the Senator offered to host a meeting and to help set up
meetings with OPIC and the US Chamber of Commerce,s new
energy committee.

3. (SBU) In a separate meeting, Senator Hagel met with Marcio
Zimmermann, number 2 in the Ministry of Mines and Energy
(MME). Zimmermann gave a wide-ranging overview of the energy
situation in Brazil, with particular attention paid to the
GOB,s plans to expand hydro electricity through more
environmentally friendly dams with smaller footprints;
Brazil,s plans to add 4 ) 8 thousand megawatts of nuclear
energy to the country,s matrix through the addition of 4-6
new power plants by 2030; plans for more refinery capacity to
accommodate the vast new pre-salt (more than 4000 meters
below the sea) oil reserves; as well as Brazil,s focus on
further developing its coal plants, both with new plants
using higher quality, cleaner, imported coal, and with
environmental modifications to processing using its own
high-sulfur content coal. In response to a question by
Senator Hagel, Zimmermann said that he foresaw nuclear power
eventually making up about five per cent of the Brazilian
power matrix.

4. (SBU) Senator Hagel also inquired about the infrastructure
for blending of ethanol and Under Secretary for Petroleum,
Natural Gas, and Renewables Secretary for Petroleum, Natural
Gas, and Renewables (equivalent to Assistant Secretary) Jose
Lima Neto, explained that blending facilities are located
close to the sugar cane fields both because of transport
costs and the need to process the ethanol quickly so as to
not lose its maximum capacity, which it does soon after
production. Ambassador Sobel mentioned the steady flow of

BRASILIA 00001267 002 OF 003

interest expressed by U.S. technology firms seeking to
develop their next generation technology in Brazil due to the
strength of the infrastructure. Zimmermann commented that
Brazil is busy identifying five enzymes which they believe
are promising in the attempt to produce ethanol from
cellulose and should be viable in fourteen to fifteen years
barring any major developments from outside Brazil.
Ambassador Sobel used the opportunity to note the creativity
of the Brazilian government in expanding its energy matrix
and expressed his hope that Hagel,s visit would signal the
beginning of an active partnership with Brazil in this area.
The Ambassador specifically cited the desirability of U.S.
Congressional willingness to permit funding for joint
research projects in Brazil, as well as encouraging OPIC to
become active in this area. Senator Hagel stated his
interest in the developing relationship and in particular his
willingness to serve as a resource is setting up a trip by
Minister Lobao to Washington.

5. (SBU) Comment: In a subsequent meeting with Embassy
officers, Undersecretary Lima Neto remarked how much he had
enjoyed the Hagel meeting at MME. He said he thought it was
good for the ministry as a whole and for our bilateral
relations because Hagel was so well informed, interested, and
engaged that it really helped the tenor of our energy
relationship, especially with those at the ministry who doubt
the value of outside energy engagement. Notably, although
Zimmerman is frequently somewhat frosty in manner, and began
the meeting with a very cold, formal approach, Post
participants saw him warm up considerably over the course of
the meeting.

Laying Fears to Rest on Fourth Fleet

6. (SBU) Southcom Deputy Commander General Spears, who was
accompanying Senator Hagel on his visit, took the opportunity
to pass along to Zimmerman a message from Southcom Commander
Admiral Stavridis addressing Brazilian speculations that the
reactivation of the Fourth Fleet may have been motivated by
U.S. offensive interests in Brazilian off-shore reserves.
General Spears said, &We want to partner with you, only as
much as you want to partner with us. Your sovereign
resources are yours to protect, which we respect.8 He went
on to say &we will always respect your sovereign territory
and sovereign resources.8 Zimmermann and his team said
nothing but their understanding of the message and
appreciation for its intent were evident.

--------------------------------------------- --
Stability in the Region, Brazil,s Primary Goal
--------------------------------------------- --

7. (SBU) During dinner with Defense Minister Nelson Jobim
said that technology transfer is a priority for Brazil as it
makes plans for new arms purchases. He said that maintaining
stability in South America is Brazil,s primary security
challenge, and described poverty as the greatest threat to
stability. Minister Lobao, added that Brazil goes to great
lengths to maintain stability by extending various
&kindnesses8 to neighbors*whether by paying a premium to
Paraguay for its Itaipu power, ensuring continued energy
investment in Bolivia, or helping Argentina out of its energy
woes. He added that President Lula is well aware of the need
to seek balance in Brazil,s regional relationships, citing
his concern that Brazil currently enjoys too large a trade
surplus with Venezuela and must seek ways to lower it.

--------------------------------------------- ------
Defense Reform to Increase Spending, Enhance National Service
--------------------------------------------- ------

8. (SBU) Over lunch, Strategic Planning Minister Roberto
Mangabeira Unger described his work with Jobim to draft the
new national defense strategy. Among the ideas he said would
be included was one he felt would be controversial in Brazil,
a universal selective service program for men and women that

BRASILIA 00001267 003 OF 003

would involve either military service or social service in a
state other than the selectee,s home state. Unger confirmed
that Jobim will seek an increase in the military budget from
1.5 percent of GDP to 2.5 percent of GDP to ensure adequate

--------------------------------------------- -----
Potential for Cooperation Great, Remains Unexploited
--------------------------------------------- -----

9. (SBU) Both Lobao and Jobim talked at length about the
change in the tone of the relationship between the United
States and Brazil over the last few years. Jobim said that
an attitude of seeking true partnership has replaced the
twentieth century &language of empire.8 Lobao recalled a
Reagan-era snub made by a U.S. member of Congress that almost
derailed relations between the two countries and required an
apology from the Secretary of State, stressing that it was
important for Congress to understand the changing dynamic in
the relationship. Senator Hagel agreed that there was an
important and still not widely understood change both in
Brazil,s global presence and in the dynamic of our bilateral
relationship. He added that he believed the next president
would further deepen this relationship.

10. (SBU) Unger, a Harvard Law School professor since 1973,
commented on the enormous similarities between the two
countries*among them, their multicultural nature, geographic
size, and wide income gaps, combined with an enduring belief
that prosperity is achievable by anyone. He believes that
the potential for the US-Brazil cooperation remains
under-exploited, with citizens of each country largely
unaware of the similarities. He cited as an example of
issues that could benefit from cooperation (one provided to
us on several occasions before) the difficulty both national
governments have, as a result of their federal systems, in
helping failing local schools in a cooperative manner,
instead of through court-ordered intervention. Ambassador
Sobel, Senator Hagel and Minister Unger discussed the
possibilities for a trip by the minister to Washington, and
agreed that the end of September would be the best timing.
Ambassador Sobel asked Unger about his idea of three-way
cooperation between the United States, Mexico, and Brazil.
Unger acknowledged that he had considered the possibility,
but said that he felt the prospects were not as good as those
for U.S.-Brazil cooperation because Mexico was not so similar
as our two countries.

Brazil,s Bright Future: No Going Back

11. (SBU) During a meeting with Minister of Communications
Helio Costa, Costa gave an overview of the changes Brazil has
undergone over the past two decades, including the remarkable
strides Brazil has made in consolidating its democracy and
reducing poverty. &There has been a complete change in the
mindset of Brazilians8, Costa said, alluding to the problems
in several countries in the region, &it is unthinkable that
Brazilian democracy or its economy will suffer from
revolutionary upheavals, as other countries in the region
suffer regularly.8 Costa also noted that there is a growing
but still largely untapped potential in the areas of
biofuels, and that only 1% of Brazilian territory is
dedicated to sugar crops.

12. (SBU) Asked for his thoughts on Brazilian relations with
its neighbors, Costa noted that Venezuelan President Chavez
was a wildcard and that nobody in Brazil trusted him. On
Bolivia, Costa noted that Petrobras investment there
represented such a small and insignificant part of that it
would have been petty of Brazil to have made a fuss, and that
besides, Brazil has an interest in maintaining stability in
the region and has a responsibility to stand in solidarity
with its poorer neighbors.


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