Venezuela's Chavez calls for energy alliance

By Pav Jordan

SANTIAGO (Reuters) - Venezuelan President Hugo Chavez challenged Latin American leaders at a summit on Friday to lower regional oil prices, telling big producers to sell oil cheaply to their neighbors.

Addressing leaders by name, Chavez, a stalwart opponent of the United States, proposed the creation of a region-wide oil alliance that would help sustain booming economic growth by sharing energy resources. Venezuela is Latin America's second-biggest oil producer after Mexico.

"I propose to you that we unite, that we join together in mechanisms of cooperation with countries that don't have oil and who cannot afford to pay $100 per barrel," said Chavez, who has used Venezuela's oil wealth to spread his influence in the region. Oil prices reached record highs of more than $98 per barrel this week.

Leaders -- most of them leftist -- from Latin America, Portugal, Spain and Andorra are in Santiago for a three-day Ibero-American summit where energy has been high on the unofficial agenda.

Many Latin American economies have expanded rapidly in recent years and energy supplies have been stretched by booming consumer demand and factory output in countries such as Chile and Argentina.

Chavez and leftist allies in Bolivia and Ecuador have tightened state control over their energy industries and Bolivia, one of the poorest countries in the Western Hemisphere, recently forced Argentina and Brazil to pay more for its natural gas.

PARAGUAY PROJECT

The presidents of Brazil and Paraguay, Luiz Inacio Lula da Silva and Nicanor Duarte Frutos, met on Friday and agreed to build a $400 million power transmission line from the giant Itaipu power plant at the two countries' border to the Paraguayan capital, Asuncion.

After a meeting between Ecuadorean President Rafael Correa and Spanish Prime Minister Jose Luis Rodriguez Zapatero, a source from Spain's Foreign Ministry said both governments were looking for ways to ease concerns about Ecuador's new windfall royalty tax on revenues for foreign oil companies.

The tax hike is the latest policy shift by Correa to worry Wall Street. It would cut energy companies' revenue by about $700 million a year and Spain's Repsol YPF is the biggest foreign oil producer in Ecuador.

Lula de Silva also was expected to meet Bolivian President Evo Morales to discuss potential new investments in Bolivia's natural gas industry.

The 19 Latin leaders at the summit are almost all leftists and the gathering was friendly, despite diplomatic friction between Argentina and Uruguay over a controversial pulp mill along a shared river.

Uruguay granted a long-awaited start-up permit to a Finnish group for the pulp mill on Thursday, drawing swift criticism from Argentina and likely extending a years-long diplomatic dispute.

Chavez drew rebukes from Spanish authorities after he alluded in his speech to the summit forum to a former Spanish president and a Spanish businessmen as fascists.

Earlier in the day, Chavez set the stage for his customary controversial comments by singing the defiant lyrics of a Mexican ballad after he arrived in Chile.