Cablegate: Secretary Kessel Discusses Bilateral Energy Cooperaton;

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PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3222/01 3162221
ZNR UUUUU ZZH
P 122221Z NOV 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 9003
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 03 MEXICO 003222

SENSITIVE, SIPDIS

STATE FOR WHA/MEX, WHA/EPSC
STATE FOR EEB/ESC, OES/OPA, L/OES
STATE ALSO FOR S/CIEA DAVID GOLDWYN
DOE FOR A/S SANDALOW, G.WARD, A.LOCKWOOD AND R.DAVIS
NSC FOR RACHEL WALSH

E.O. 12958: N/A
TAGS: ECON ENRG EINV PGOV SENV MX
SUBJECT: SECRETARY KESSEL DISCUSSES BILATERAL ENERGY COOPERATON;
WELCOMES PROGRESS ON TRANS-BOUNDARY DISCUSSION

A. Mexico 2440
B. Mexico 2445
C. Mexico 3098
D. Mexico 3107

1. (SBU) Summary: Energy Secretary Georgina Kessel told Ambassador
Pascual November 5 that she was pleased with progress made at the
October 19 trans-boundary energy reservoir meeting in Villahermosa
and welcomed news that the USG seeks to extend the moratorium in the
Western Gap. Kessel welcomed the opportunity to collaborate more
closely with the USG on smart electrical grids, emissions
inventories and other areas under the Clean Energy and Climate
Change Framework, and looked forward to learning more about the
proposed Bilateral Working Group meeting in Washington in January.
Kessel was enthusiastic about the level of attention the USG is
giving to the energy relationship and told her staff after the
meeting to make following up on the bilateral agenda their highest
priority. End Summary.

2. (SBU) The Ambassador's November 5 meeting with Secretary Kessel
allowed both to discuss recent developments on the bilateral energy
agenda and to consider next steps on possible trans-boundary
reservoirs, electricity cooperation and renewable energy. Under
Secretary for Electricity Benjamin Contreras, Under Secretary for
Hydrocarbons Mario Gabriel Budebo, Chief of Staff Carlos Petersen,
Director General for International Affairs Aldo Flores, and Econoff
also participated in the meeting.

3. (SBU) Both the Ambassador and Secretary Kessel were pleased with
the results of the October 19 meeting on trans-boundary reservoirs
(ref c) in Villahermosa. The Ambassador said that jointly reviewing
the seismic data in the boundary area was particularly useful for
the U.S. delegation. He noted that the U.S. is working to extend
the moratorium in the western gap and that consultations with
Congress are underway. The Ambassador added that the State
Department has developed a mechanism to work with Mexico on
Presidential Permits to facilitate cross-border infrastructure.

4. (SBU) Secretary Kessel was pleased with this news and said it
would help to relieve some of the political pressure the Calderon
Administration is facing from the Mexican Congress to show progress
on discussions with the US on trans-boundary reservoirs. She
emphasized that energy security is in both countries interests and
that a trans-boundary agreement would be a move in the right
direction by giving legal certainty to companies on both sides of
the boundary. Kessel welcomed an upcoming visit of State
Coordinator for International Energy Affairs David Goldwyn to
further these discussions.

5. (SBU) The Ambassador noted that the National Hydrocarbons
Commission (CNH) has expressed interest in learning more about USG
procedures and regulations for oil and gas metering, flaring and
other procedures. He noted that the Embassy would be happy to
facilitate a Voluntary Visitors Program for CNH to the US to share
this information with them. Kessel was enthusiastic about the USG
offer and said that the GOM would work with the Embassy on names of
participants and dates for the visit.

FUEL SUBSIDIES:
---------------

6. (SBU) Referring to the commitment G-20 countries made in
Pittsburgh to phase out fuel subsidies, the Ambassador inquired
about what measures Mexico had planned and whether the USG could
provide assistance. Secretary Kessel confirmed that Mexico had
taken steps in 2008 to gradually eliminate the gasoline subsidy.
Due to the economic crisis, however, this policy was frozen. She
confirmed that Mexico would resume the policy of phasing out fuel
subsidies in 2010.

7. (SBU) Kessel added that, in the meantime, the Secretariat of
Energy (SENER) is working with other Mexican government agencies to
develop a program to provide targeted support for lower income
Mexicans. Kessel noted that existing programs like Opportunidades
target the rural poor, whereas fuel subsidy support will be more
important for the urban poor and require a different approach. She
added that the proposal should be completed by early 2010, and
implemented 4-6 months after that. Secretary Kessel welcomed the
Ambassador's suggestion that SENER consider whether the methodology
for the fuel subsidy support program could be used for other urban
poverty relief initiatives.

THE ELECTRICAL UTILITY LUZ Y FUERZA:

MEXICO 00003222 002 OF 003

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

8. (SBU) The Ambassador congratulated Secretary Kessel for the
GOM's successful action to tackle the problematic state owned
electrical utility Luz y Fuerza (LFC)(ref d and previous).
Secretary Kessel noted that the GOM basically developed a strategy
to take on LFC in the mid 1980s, but that no previous administration
had the courage or the long term vision to implement it. She noted
that it was a complex decision, and that President Calderon was well
aware of the potential implications when he decided to act. Kessel
added that the worst case scenario - massive demonstrations, power
outages and sabotage - has not occurred. The LFC union has called
for a national strike, but has delayed the date twice. With each
passing day, Kessel added, more LFC workers are accepting the
generous government buyout, and it is becoming less likely that the
LFC union can muster support for a national strike.

9. (SBU) According to Kessel, the way the dissolution of LFC has
evolved is close to the GOM's best case scenario. She mentioned
three factors that contributed to this: internal division within
the union; LFC only operates in a handful of Mexican states; and the
LFC union is affiliated with the smaller opposition party,
Democratic Revolutionary Party (PRD), and has not received support
from the larger Institutional Revolutionary Party (PRI) affiliated
unions.

SMART GRIDS:
------------

10. (SBU) The Ambassador mentioned that during a recent trip to
Tijuana, he discussed energy issues in general and smart grid
technology in particular with various state government, university
and private sector participants. He noted that there is a concern
in that region that as the U.S. moves forward with smart grid
technology, it could create problems for Baja California which is
connected to the California grid and not to the rest of Mexico. He
suggested that smart grid technology and the interconnections
between the US and Mexico should be an important point on the agenda
for the US-Mexico Clean Energy and Climate Change working group.
The Ambassador added that US Trade Development Agency (USTDA) is
interested in working on clean energy technology in the border
region and will send a project identification team to Mexico soon to
identify projects. USTDA could be helpful in identifying specific
smart grid projects in the border region.

11. (SBU) Secretary Kessel responded enthusiastically to the
Ambassador's suggestion that the US and Mexico cooperate more
closely on smart grid technologies. She noted that the countries
work closely together to study potential problems in the border
region and share information on research and development. She
acknowledged that this is a complicated issue, but said that Mexico
needs to "get on the train" with smart grid technology or risk being
left behind. Secretary Kessel welcomed the Ambassador's suggestion
that the Embassy organize a second Voluntary Visitor Program focused
on smart grids.

Emission Inventories:
---------------------

12. (SBU) The Ambassador mentioned that in order to create a carbon
offset program in the border region, the US and Mexico will need to
do more work to create an emissions inventory. EPA is already
undertaking a number of pilot projects in Mexico. As part of this
process, the US and Mexico should work more closely on monitoring,
reporting and verifying emissions. He suggested that creating an
emissions inventory be an agenda item for the Bilateral Clean Energy
and Climate Change working group. Secretary Kessel noted that the
Secretariat of Environment (SEMARNAT) has the lead on emissions, but
that SENER would collaborate with them on this. She welcomed the
opportunity to exchange information on the topic.

Bilateral Working Group and ECPA:
---------------------------------

13. (SBU) The Ambassador told Secretary Kessel that the USG will be
inviting Mexico to a meeting of the Clean Energy and Climate Change
Working Group in Washington DC in January. Secretary Kessel
welcomed the news and looked forward to more details.

14. (SBU) The Ambassador extended Secretary Chu's invitation to
Secretary Kessel for the Environment and Climate Partnership of the
Americas(ECPA)meeting April 15-16, 2010 in Washington. Secretary

MEXICO 00003222 003 OF 003

Kessel welcomed the invite and noted that ministerials of this type
were extremely important to moving the agenda forward. She
regretted that she had to cancel her participation at a recent
meeting in London. Secretary Kessel confirmed that Mexico is
interested in leading a group on energy efficiency under ECPA, and
suggested that ECPA build on the work that Mexico and other
countries in Latin America are already doing under the auspices of
OLADE (Latin American Energy Association). NOTE: SENER officials
made a similar suggestion to visiting WHA/EPSC Director Matt Rooney
in August 2009. OLADE, the umbrella association of the LAC Energy
Ministers is heavily influenced by Venezuela and counts Cuba,
Ecuador, Nicaragua, Venezuela and Bolivia among its members. Rooney
responded at that time that the USG is already looking at the OAS
and other regional organizations to provide technical support. END
NOTE.

Comment: GOM pleased with USG attention
---------------------------------------

15. (SBU) SENER contacts told ECONOFF that Secretary Kessel and her
staff were pleased with the level of attention the USG is paying to
the bilateral energy agenda. By including two Under Secretaries in
the meeting, Kessel clearly signaled the importance she places on
the topics discussed. After the Ambassador left, contacts told us
Secretary Kessel instructed her staff to make following up on her
conversation with the Ambassador their top priority. This is a
welcome change in attitudes. After years, if not decades, of
Mexican reticence to discuss the energy agenda - especially oil and
gas issues - the Calderon Administration recently has opened its
doors to information exchanges and collaboration on a range of
issues. Embassy Mexico welcomes a potential visit by State
Coordinator for International Energy Affairs Goldwyn and the
upcoming Bilateral Energy and Climate Change working group meetings
as an opportunity to move our energy relationship forward.

PASCUAL

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