162. Memorandum From Acting Secretary of State Cooper to President Carter1
SUBJECT
- Mexican Gas Negotiations—One More Reversal
Contrary to assurances from President Lopez-Portillo to Ambassador Lucey that he wanted to conclude a natural gas understanding this week and saw no problem with an initial price of $3.40 mm/BTU, Mexican officials were not in fact prepared to reach agreement with our representatives.2 The Mexicans insisted that the price should be negotiated between the companies and PEMEX within a price range agreed between the two governments. The Mexicans proposed that the price range be $3.50–$4.00. In response to our delegation’s protest that this was contrary to Lopez-Portillo’s assurances, the Mexicans claimed that there had been a “misunderstanding.” Privately, we were told that Lopez-Portillo had reversed himself following pressures from his advisors.
Since we were unable to get agreement on a $3.40 price, or to an acceptable range within which company negotiations might take place, the two sides agreed to consult with their governments about the possibility of authorizing company negotiations without specifying the range within which the negotiations would take place. The risk of such a procedure is a possible repeat of the 1977 experience and the associated political embarrassment.3 With close monitoring of the negotiations we believe that these risks can be minimized. The advantage of direct company negotiation is that it might be easier for the Mexicans to accept a reasonable price that was “commercially determined” than it could through government-to-government negotiations. We will assess with Department of Energy more thoroughly the risks and benefits of [Page 381] such a procedure and make a recommendation to you within the next ten days.4
On the brighter side, the Mexicans have agreed to abandon full reliance on #2 fuel oil and on New York Harbor as a basing point. Thus, we have narrowed the price gap, even though we have not yet been able to close it.
I spoke with Ambassador Lucey about a demarche on President Lopez-Portillo indicating our surprise and disappointment at the recent turn of events. We agreed that for the moment it would be preferable to use Baja California Governor de la Madrid, who is a close confidant of President Lopez-Portillo and who would like to see the gas negotiations successfully concluded, as an intermediary. This is in keeping with the Mexican practice of reliance on intermediaries and runs less risk of a counterproductive confrontation over Lopez-Portillo’s apparent reversal of position. De la Madrid has been helpful in the past. Lucey has sent a message to him on pursuit of the negotiations.5 Lucey (who is now in Wisconsin) is prepared to return to Mexico on short notice if that would be helpful.
- Source: National Archives, RG 59, Central Foreign Policy File, P790128–0511. Confidential. Drafted by Katz on August 10.↩
- See Document 161. The negotiators met again in Mexico City on August 10. (Telegram 13518 from Mexico City, August 10; National Archives, RG 59, Central Foreign Policy File, P840175–2453)↩
- See Document 137.↩
- On August 13, Pastor prepared a draft memorandum from Brzezinski to Carter. In the first paragraph, he wrote that the Department of State had suggested that Carter should “rely, for now, on Lucey and a well-placed Mexican intermediary to convey to Lopez Portillo your displeasure over his reneging on his gas price offer,” referencing Cooper’s memorandum, which he attached at a tab. In the second paragraph, Pastor wrote that “we will bring to you soon coordinated views on whether to (a) suspend government-to-government negotiations until we are assured that Mexico is ready to sign off on a price acceptable to us, or (b) accept the suggestion to turn negotiations over to PEMEX and the US companies, subject to independent price guidance by the two governments to the negotiating parties.” Pastor attached a cover sheet, which indicated that he and Department of Energy officials concurred with Cooper’s suggestions. On the cover sheet, Gregg wrote, “ZB—Para #2 seemingly contradict Para #1.” Brzezinski did not initial the memorandum and there is no evidence it was sent. (Carter Library, National Security Affairs, Staff Material, North/South, Pastor, Country Files, Box 30, Mexico, 6–8/79)↩
- Lucey sent a letter to Governor de la Madrid on August 11, thanking him for expressing to Lopez Portillo the Ambassador’s concerns regarding the gas negotiations. (Telegram 209852 to Tijuana, August 11; National Archives, RG 59, Central Foreign Policy File, D790369–0569)↩