AMBASSADOR RAISES BUSINESS ADVOCACY ISSUES WITH MINISTER OF PLANNING

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06BUENOSAIRES1091 12 May 2006 Confidencial / No para extranjeros Embassy Buenos Aires

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C O N F I D E N T I A L SECTION 01 OF 06 BUENOS AIRES 001091

SIPDIS

SENSITIVE
SIPDIS

WHA FOR AMBASSADOR TOM SHANNON, AMBASSADOR CHARLES SHAPIRO
AND PATRICK DUFFY, EB FOR ASSISTANT SECRETARY TONY WAYNE
NSC FOR DAN FISK
SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA
USDOC FOR 4322/MAC/OLAC/BASTIAN/PEACHER

E.O. 12958: DECL: 05/12/2016
TAGS: ECON, EINV, ENRG, EAGR, AR, BL
SUBJECT: AMBASSADOR RAISES BUSINESS ADVOCACY ISSUES WITH
MINISTER OF PLANNING

Classified By: Ambassador Lino Gutierrez for reasons 1.4 (B) and (D)


Summary


1. (SBU) The Ambassador called on Minister of Planning Julio
De Vido on May 9 to discuss business advocacy cases. The
Ambassador began the meeting by thanking De Vido for his help
in improving the relationship between the two governments,
especially during the January visit of Assistant Secretary
Tom Shannon. The Ambassador and De Vido then discussed ten
business advocacy cases involving AES, the ATSC Forum,
ChevronTexaco, CMS, SES, Cargill, Mirab, Campbell’s Soup,
Monsanto, and Lockheed-Martin. De Vido addressed each of the
cases in a forthright manner, saying that the issue was being
addressed, calling subordinates and asking them to meet with
Embassy officials, or inviting executives from the U.S.
companies to meet with him. Some of these meetings have
already taken place with positive results. The Ambassador
asked De Vido for his views on Bolivia and he described the
situation there as very complicated. As is his custom, De
Vido received the Ambassador by placing a full-size U.S. flag
alongside the Argentine flag that stands outside the entrance
to his office. End Summary.


A Note on the Bilateral Relationship


2. (SBU) The Ambassador called on Minister of Planning
Julio De Vido on May 9 to discuss business advocacy cases.
De Vido was alone and the Ambassador was accompanied by the
DCM and the Economic Counselor (notetaker). The Ambassador
began the meeting by thanking De Vido for his help in
improving the relationship between the two governments,
especially during the January visit of Assistant Secretary
Tom Shannon. De Vido responded that he "did not see
Assistant Secretary Shannon traveling very much." He later
said that Assistant Secretary "Shannon should come more
often. I see him as a very open man." He suggested that
Assistant Secretary Shannon could be particularly helpful in
discouraging radicalized groups in Bolivia.


A Full Plate of Business Advocacy Cases


3. (SBU) The Ambassador and De Vido then discussed ten
business advocacy cases involving AES, the ATSC Forum,
ChevronTexaco, CMS, SES, Cargill, Mirab, Campbell’s Soup,
Monsanto, and Lockheed-Martin. De Vido welcomed the
discussion and said that the two governments had been
cooperating well on the status of U.S. companies.

— AES. The Ambassador mentioned U.S. power generation and
distribution company AES and asked about the implementation
of the November 2004 agreement between AES subsidiary EDELAP
and the GOA that led to the suspension of EDELAP’s ICSID
claim against the GOA and a 28 percent tariff increase that
it has been collecting since February 2005. (Comment: Under
the terms of this agreement, AES agreed to withdraw its claim
once a long-term tariff schedule was put in place. The next
step was to have been a call for a public hearing to
implement a long-term tariff schedule. However, De Vido
stated in early 2006 that there would be no additional tariff
increases in 2006 because of the threat of inflation and AES
has not been able to see him since January 2006. End
Comment). De Vido replied that AES was "the company that was
the farthest advanced" in its negotiations with the GOA. "We

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have to begin the tariff process," he said, "but it is not an
opportune time to do this, at least not until June." "They
are friends," he continued, "They are good people. And they
are the only ones who were able to obtain an initial tariff
increase during a time of emergency. This was the result of
their own merit, not our own. But now is not the time for
additional tariff increases." The Ambassador then asked if
it would be possible to recognize the inflation that has
occurred since the November 2004 agreement on an interim
basis until such time as a long-term tariff schedule can be
established. De Vido responded that this was not possible,
since this would be accepting the "indexation of the
economy," which is precisely what the GOA is trying to avoid.
Consequently, AES will have to wait. The Economic Counselor
reported this information to an AES executive on May 9.

— ATSC Forum. The Ambassador asked De Vido when he planned
to make a decision regarding the consortium of U.S.
companies, the ATSC Forum’s, bid to supply U.S. technology
for Argentina’s selection of a new HDTV standard. (Comment:
Former Secretary of Communications and current Secretary of
Internal Commerce Guillermo Moreno had told the Commercial
Counselor and the Economic Counselor that this decision memo
for this issue was on De Vido’s desk and that he expected the
decision to be taken in favor of the ATSC Forum. End
Comment). De Vido answered that the decision would not be
made that week, but would be made during the following week
(during the week of May 15). "Be assured that it will go
well," he said, "I want your system." Regarding the Japanese
competition, De Vido said that Brazil was moving toward the
Japanese system and noted Brazil had an immense Japanese
community. He added that the local Japanese Ambassador was
very nice, but that the Japanese Embassy did not have the
relationship that existed with the U.S. Embassy. The
Japanese Embassy wants Japanese power generation equipment
manufacturer Marubeni to participate in the two USD 800
million combined-cyle power generation plants that the GOA
wants to build near Rosario (which would compete directly
against U.S. power generation equipment manufacturer GE).
Regarding the European competition, De Vido made light of "an
EU Commissioner from Luxembourg" that had come to promote EU
technology. Finally, De Vido stated that he had been polling
local broadcasting and telecommunications companies to
determine their preferences, because he wanted to establish a
consensus rather than impose a decision on the sector. He
noted that media magnate Daniel Haddad, who owns the Channel
9 television station, is interested in the U.S. standard.
However, Telefonica of Spain, which owns Channel 11 and the
Telefonica telephone company, supports the EU standard, and
local businessman Julio Wertheim, who owns the Telcom
telephone company along with Telcom of Italy, does not have a
large stake in this issue. (Comment: Channel 7, which is
owned by the GOA, will go whichever way the GOA wants to go
on this issue, even though its technicians have been heavily
influenced by supporters of the EU standard. End Comment).
De Vido concluded that the U.S. standard represented a good
technology, a strong demonstration of political will, and an
excellent opportunity to improve the bilateral relationship.
The Economic Counselor added that a GOA decision in favor of
the U.S. standard would also permit the U.S. and Argentina to
promote the use of the same standard throughout the
Spanish-speaking countries in the western hemisphere. The
Economic Counselor and the Commercial Counselor were
scheduled to meet with Moreno to discuss this project on May
12.

— ChevronTexaco. The Ambassador mentioned that
ChevronTexaco would be coming to see him the following day
and would be coming to brief him about their future

BUENOS AIR 00001091 003 OF 006

investment plans. De Vido described ChevronTexaco as a
"conservative company" and that he was willing to meet with
the company. He then noted that Apache of the U.S. "had
better technology than the other companies" and that they
were eager to invest in the country. In fact, he told Apache
that "if they know of anyone who was underinvesting, they
should let us know and we will make them an offer." He added
that, "I have nothing against Repsol (of Spain), but
sometimes you have to scold them to get them to produce the
petroleum. If they increase the production (to meet domestic
requirements at fixed prices), then they can export (the
surplus at international prices)." The Ambassador reported
this information to ChevronTexaco’s local executives during
an office call on the Ambassador on May 10. (Comment: Apache
recently announced the USD 675 million purchase of Vintage
Oil of the U.S. and its plans to invest another USD 100
million to expand Vintage’s operations in Argentina.
Visiting Apache executives told the Ambassador and De Vido in
separate meetings that they had been able to triple
production in property that they had acquired from Repsol in
Egypt. Occidental Petroleum of the U.S. had similar plans to
purchase and expand the Argentine operations of Pioneer of
the U.S. Pan American Energy of the U.S. is also involved in
a major expansion of its Argentine operations. These
aggressive investments have caused De Vido to publicly praise
Pan American, Total of France and other small companies for
their adequate investment and growing production and reserves
and to criticize Repsol, Petrobras of Brazil and
ChevronTexaco for their insufficient investment and declining
production and reserves at an April 11 event with the newly
formed Chamber of Argentine Energy Companies (CEADE). End
Comment).

— CMS. The Ambassador then asked if there was a chance of
negotiating a settlement of CMS’ ICSID international
arbitration case. De Vido said, "Yes, if they are willing to
negotiate." He added that he had met with CMS during his
2005 visit to New York and that CMS’ former local manager had
taken a harder line (duro) than CMS’ U.S.-based U.S.
executives. He then asked the Ambassador to tell CMS’
current local manager to come see him. "Tell him to come see
me," he said, "and we will meet with (Ministry of Planning
Under Secretary of Coordination and Management Control
Eduardo) Barata." De Vido then observed that the country’s
economic emergency was over and expressed his intention of
reaching agreements with all of the public service companies
that had claims against the GOA. "Aguas Argentinas (the
water distribution and treatment company controlled by Suez
of France, which recently announced its intention to leave
the country) is the only one that we could not do," he said.
The Economic Counselor reported this information to CMS’
local manager on May 12. (Comment: The Ambassador has raised
CMS’ interest is negotiating its ICSID case on several
occasions during the past two-and-a-half years. De Vido met
with CMS current local manager at the Ambassador’s request
and encouraged him to meet with former Chairman of the joint
Ministry of Planning and Ministry of Economy public service
contract negotiating unit (UNIREN) and current Secretary of
Communications Carlos Salas. Unfortunately, the CMS local
manager’s numerous meetings with Salas and other GOA
officials have not produced any positive results. Salas and
Barata have said that the GOA would only negotiate with TGN,
where CMS has a minority interest, and that the only way CMS
would be able to recover its losses was through TGN’s
renegotiation of its contract with a possible tariff
increase. Furthermore, such a tariff increase could only
come after CMS had suspended its ICSID case against the GOA.
The GOA is currently offering TGN an 8-12 percent tariff
increase. CMS responded that it now had an ICSID award and
that it is only willing to talk about suspension of the case

BUENOS AIR 00001091 004 OF 006

in return for compensation, not the possibility of future
compensation. Salas and Barata said they would think about
possible alternatives and get back to CMS, but this did not
happen. Meanwhile, a new ICSID panel has been formed to hear
the GOA’s appeal of the first arbitral panel’s award.
According to CMS’ local manager, CMS will ask that the GOA
post a bond before they begin the appeal. The arbitral panel
has not decided whether it will require a bond or not.
Refusal to post a bond would likely result in the arbitral
panel’s refusal to consider the appeal. CMS is certain that
the GOA will not post a bond. End Comment).

— SES. The Ambassador asked about the status of the GOA’s
negotiations with SES of the U.S. to launch a satellite to
occupy the 81-position orbital slot. De Vido said that the
GOA would "use U.S. (not Chinese) technology," that former
Secretary of Communications and current Secretary of Internal

SIPDIS
Trade Moreno was still responsible for the project, and that
a former official from Mendoza Province, Rodolfo Galonetti,
had been chosen to be the head of ARSAT, the recently
established state satellite company, that would hold the
license to the 81-position orbital slot. De Vido then called
Moreno on the phone and asked him to meet with the Economic
Counselor to provide the Embassy with an update on the status
of the project. The Economic Counselor and the Commercial
Counselor were scheduled to meet with Moreno to discuss this
project on May 12. (Comment: Argentina has asked the
International Telecommuncations Union for an extension to
keep the 81-position orbital slot. The Radio Frequency
Commission will be meeting in September 2007 to review the
case. If Argentina loses the slot, it will go to the U.K.
Moreno is concerned that Argentina could lose the slot and
appears willing to negotiate with SES to occupy the slot.
Moreno has emphasized that ARSAT would hold the license to
the slot, but SES could have ownership of the satellite,
which is what SES proposed two years ago. The slot is very
coveted and has an extensive footprint that ranges from
Canada to the southern tip of South America. GOA and SES
officials are currently negotiating the terms of this
arrangement. End Comment).

— Cargill, Mirab and Campbell’s Soup. Acknowledging that he
was raising an issue outside De Vido’s direct area of
responsibility, the Ambassador mentioned the GOA’s March 11
ban on beef exports and explained that the ban had had a
negative impact on several U.S. companies. Cargill had
invested in the purchase of beef exporter FINEXPOR last year
and the ban had affected its cooked and fresh beef exports
and export levels. Mirab employs 350 workers in a plant in
Pilar that exports beef jerky to the U.S. and would have to
lay off workers if it was unable to export. Campbell’s Soup
also imports 95 percent of the cooked beef that its uses in
its production process from Argentina. The company’s
purchases of Argentine cooked beef will increase in September
when its ramps up production for the North American winter.
Campbell’s will soon need to find another supplier if the ban
is not lifted. Most of the beef that is used by these
companies comes from older animals that are desired by
Argentine consumers, so the lifting of the ban on cooked beef
and beef jerky should not have a significant impact on
domestic prices. De Vido replied that the GOA had lifted the
ban on the export of some 350 containers of beef in the ports
of Buenos Aires and Rosario that day. The GOA was also
announcing a plan to promote beef production that day and the
lifting of the ban on the export of cooked beef and beef
jerky — "which was not consumed in Argentina" — was the
first issue that would be addressed. "You will see," he
said. De Vido then called Under Secretary for Agriculture
and Livestock Policy Javier de Urquiza on the telephone and
asked him to meet with the DCM to discuss the "precise

BUENOS AIR 00001091 005 OF 006

schedule" whereby the ban on beef exports would be eased.
The DCM and the Agricultural Counselor met with de Urquiza on
May 10. The DCM and the Agricultural Counselor discussed the
ban on cooked beef and De Urquiza understood why the ban did
not make sense. De Urquiza confirmed that approximately 15
containers of cooked beef had been approved for export. De
Urquiza also said there should be no problem in lifting the
ban on cooked beef, since these were not products normally
consumed by Argentines.

— Monsanto. The Ambassador then asked what the GOA planned
to do about Monsanto, which had tried to negotiate an
arrangement for the collection of royalty payments on the use
of Round-Up Ready (RR) soybean technology in Argentina and
which had recently taken legal action in the EU aimed at
collecting these payments. The Ambassador expressed the view
that there were too many GOA interlocutors on this issue and
that that had prevented a solution. He then suggested that
there were two possible solutions, one that was based on the
collection of the royalty by the grain exporters, which would
be easier to administer given the relatively small number of
exporters, and one that was based on the collection of the
royalty by the seed producers. De Vido responded by asking
the DCM to raise this with Under Secretary de Urquiza when
they met to discuss the ban on beef exports. The DCM and the
Agricultural Counselor raised the Monsanto issue with De
Urquiza on May 10 and De Urquiza underlined that it was a
very difficult issue to resolve and that there were several
parties already involved, which complicated a resolution. De
Urquiza committed to sit down with the stakeholders with the
objective of resuming negotiations. He emphasized that this
and subsequent meetings must be kept very low profile if they
were to succeed. He then asked the DCM to arrange the
initial meeting, which the Embassy will try to arrange in the
next two weeks.

— Lockheed-Martin. Noting that former Minister of Economy
Roberto Lavagna and other GOA officials had often wanted
Lockheed-Martin and the U.S. to help sell the Argentine Air
Force’s Pampa AT-63 Jet Trainer from the Lockheed-Martin
foreign markets, the Ambassador explained that the GOA had
refused to authorize the export of the Pampa to Israel. The
result was that Lockheed-Martin had not been able to present
a proposal responding to the Israeli Air Force’s Request for
Information for the production of 20-30 jet trainer aircraft
in Tel Aviv on April 23. Brazil, Israel, South Korea, Spain,
Italy, the Czech Republic and the U.S. were the seven
countries that presented proposal. The Ambassador noted that
Brazil did not have any difficulty authorizing the export of
its Tucano jet aircraft. De Vido thanked the Ambassador for
the report.


Views on the Situation in Bolivia


4. (C) The Ambassador concluded the meeting by asking De
Vido for his views on recent developments in Bolivia. De
Vido described the situation in Bolivia as very
"complicated." He said that there was "an anti-Chavez front"
in Bolivia that came from within the left. He observed that
President Morales was a strong leader, "like President
Kirchner," but that unlike Kirchner, he was "not a good
administrator." For example, if you asked President Kirchner
about a particular economic issue, you usually got a detailed
answer, which revealed that he was intimately involved in the
technical details of its implementation. This was not the
case with Morales. De Vido also saw various different fronts
in Bolivia, including sectors that were "very radicalized."
Brazil and Chile had serious problems with the need to import

BUENOS AIR 00001091 006 OF 006

natural gas, which was not the case with Argentina, which
only imports five percent of its needs and exports much more
than that to Chile. Brazil will lose it competitiveness if
it has to pay USD 5.50 per million cubic meters of gas.
Chile has a "serious structural energy problem, "even though
it has the best economy in Latin America."

5. (C) Turning to Argentina, De Vido "we have to fix the
price of gas (with Bolivia)." "I will not contaminate the
domestic price of gas," he said, "by importing gas that costs
USD 5.50 per million cubic meters. "However, I will purchase
gas at this price from Bolivia," he continued, "if I can find
a way to pass it through and sell it at the same price to
Chile." (Comment: One well-informed local energy consultant
believes that the GOA will use the newly established state
oil company, ENARSA, to purchase the gas from Bolivia and
swap with Argentine gas to export to Chile at the same price.
That way, the GOA could claim that none of the gas imported
from Bolivia was exported to Chile. End Comment). De Vido
continued that if Bolivia cut its gas exports to Argentina,
he would have no choice but to cut Argentina’s gas exports to
Chile. He also stated that Chile and Brazil and successful
economic models that dated back to President Pinochet in
Chile and President Figueiredo in Brazil. These countries
have been successful, since they have been doing the same
thing since the 1930s. This is unlike Argentina, which has
been changing its economic model on a regular basis.

6. (U) To see more Buenos Aires reporting, visit our
classified
website at: http://www.state.sgov.gov/p/wha/buenosaires.< /a>

GUTIERREZ