BRAZIL: AMBASSADOR'S MEETING WITH CIVIL HOUSEHOLD

UNCLAS SECTION 01 OF 03 BRASILIA 001784

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STATE PASS TO USTR, STATE PASS TO ICITAP

E.O. 12958: N/A
TAGS: PREL ENRG KSCA KCRM EINN BR
SUBJECT: BRAZIL: AMBASSADOR'S MEETING WITH CIVIL HOUSEHOLD
MINISTER DILMA ROUSSEFF, 23 AUGUST 2006



1. (SBU) Summary. Ambassador Sobel, accompanied by DCM and
PolCouns, met 23 August with Civil Household Minister Dilma
Rousseff, for an incisive discussion focused heavily on
planning for strategic U.S.-Brazil cooperation in bio-fuels.
Rousseff, whose position equates to Presidential Chief of
Staff for policy, is also a former minister of mines and
energy, chairperson of Petrobras' board, and has overall
responsibility in the GOB for interagency coordination on
bio-fuels. Rousseff provided an overview of the status of
Brazilian R and D in ethanol and bio-diesel, opined that
Brazil will have increased capacity for ethanol exports as
demand expands, and focused on Brazil's interest in working
with the U.S. to use the new technologies for development and
poverty-alleviation in third countries. On this point, she
noted that President Lula had raised with a receptive
Bolivian President Evo Morales the possibility of coca crop
substitution with bio-fuel projects, and that the GOB remains
interested in discussing USG-GOB collaboration on a specific
proposal for Bolivia. Ambassador and Rousseff also discussed
high-level cooperation in law enforcement and new initiatives
to stimulate investment in Brazil. End summary.

BIO-FUELS
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2. (SBU) Ambassador Sobel explained that formulation of a
U.S. national strategy on bio-fuels is at a relatively early
stage, and decisions are now being made on interagency
organization and leadership on the issue. He said the USG
recognizes already, however, that the bio-fuel technology is
transformational, and has strategic implications, especially
in development programs in energy-poor third countries. The
U.S. will be seeking cooperation in multi-lateral fora, but
is now keenly focused on bilateral partnerships, and
cooperation with Brazil is seen as a top U.S. priority, he
said. The Ambassador said the USG is eager to engage with the
GOB on both strategic planning and technical cooperation, and
offered future meetings of U.S. officials with Brazilian
counterparts. He said he would be taking Rousseff's comments
with him for policy discussions in Washington in coming days,
and Rousseff and Ambassador agreed that he would brief her
upon his return to Brazil.


3. (SBU) Rousseff confirmed the GOB is extremely interested
in cooperation with the U.S., and noted she was present at
the St. Petersburg G-8 bilateral between Presidents Lula and
Bush where Lula provided President Bush an information
package on bio-fuels. Rousseff said that she warmly welcomes
high-level engagement with USG counterparts, noting that she
has overall interagency management responsibility for the
issue. Rousseff said she coordinates work of several GOB
ministries, including Industry, Agriculture, Mines and
Energy, Science and Technology. and External Relations; She
also chairs the board of Petrobras, the country's petroleum
sector parastatal.


4. (SBU) Rousseff said Brazil's strategic vision centers on
the premise that bio-fuels are, indeed, transformational,
that "we are only in the first generation of a technology
that will eventually form a new sector of the economy." She
said Brazilian research, development and policy planning
proceeds at present mainly on two axes: one for bio-ethanol,
the other for bio-diesel, including Brazil's evolving "H-bio"
fuel (though Brazil is also investing heavily in R/D in
cellulosic materials, she noted).


5. (SBU) In ethanol, Brazil uses its well-developed
industrial base, its wide distribution of ethanol at gas
stations, and its rapidly expanding fleet of cars with
flex-fuel engines to create a model where market
circumstances work to the country's benefit. When ethanol
prices rise, Brazil increases exports and domestic consumers
opt for gas. When global gas prices go up, Brazilian
consumers fall back on ethanol or blends. The GOB maintains

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ethanol stocks and regulates a small percentage of
production, but mostly relies on natural market dynamics, she
added. Ambassador asked whether Brazil can increase its
ethanol production to meet expanding export potential.
Rousseff said ample capacity for new agriculture and
successful development by Brazilian researchers of new sugar
cane hybrids that can grow in vast areas of Brazil previously
unsuitable for the crop (e.g., plantations in southern
Brazil) make the GOB optimistic about increasing its ethanol
production dramatically in coming years.


6. (SBU) In the area of bio-diesel fuels, Rousseff says
Brazil's program is only three years old, but already
bio-diesel is being offered at 4,000 gas stations nationwide.
She also sees high potential for use of the technology for
social development, both within Brazil and abroad. In
Brazil's case, small family farms are already important
contributors in the process, with Petrobras and others
obligated to buy material that is certified by the GOB to
have a substantial input from small farmers. In the case of
Petrobras' developing new H-bio fuel (which, unlike
bio-diesel mix, is a refined product),both industrial and
small farm sources will be needed, she added. In the area of
H-bio, Rousseff looks for substantial U.S.-Brazil
collaboration, in light of the large number of U.S.
refineries suitable for the process, and the advanced
capabilities of U.S. bio-chemical research labs.

THIRD COUNTRY DEVELOPMENT AND BOLIVIA
--------------


7. (SBU) Focusing further on use of bio-fuels in third
country development and poverty alleviation, Ambassador
shared with Rousseff a chart showing the extremely high
levels of GDP expended on energy by many poor countries.
Rousseff opined that the Caribbean and Central America seem
most likely to benefit from ethanol production, at least in
the early stage, while bio-diesel technologies could offer
the most immediate promise in Africa and other areas. She
reiterated that Brazil shares with the U.S. the desire to see
the new technologies incorporated into development and
foreign assistance policies, and wants to work together with
the USG on such projects.


8. (SBU) Ambassador asked Rousseff specifically about an idea
she had discussed in a meeting earlier in the year with WHA
A/S Tom Shannon, in which Rousseff proposed U.S.-Brazil
collaboration in offering bio-fuel capacity and guaranteed
U.S. and Brazilian markets to Bolivia as a substitution
commodity for coca planted in the Chapare region. Rousseff
indicated that President Lula has since raised the general
possibility of bio-fuel substitution for coca crops directly
on two occasions with Bolivian President Evo Morales, who
appeared receptive and requested a specific proposal.
Ambassador indicated there is interest within the USG in this
concept, and undertook to discuss a way ahead with Washington
agencies and report back to Rousseff.

COOPERATION IN LAW ENFORCEMENT AND INVESTMENT
--------------


9. (SBU) Continuing on the issues of narcotics and crime,
Ambassador noted his recent meetings with Justice Minister
Bastos and with senior state officials in Sao Paulo and Rio,
in which USG assistance in dealing with Brazil's organized
crime crisis and narcotics problem was warmly welcomed.
Rousseff concurred emphatically, saying "we need your help
now, this cannot wait until after our elections." (Note:
Brazil has general elections in October. End note.)
Ambassador specifically offered U.S. information on "lessons
learned" in investigation of organized crime groups within
the prison system, which Rousseff agreed is of urgent
relevance to Brazil in confronting the PCC organized crime
groups violent attacks in Sao Paulo. Rousseff echoed Justice

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Minister Bastos' receptivity to visits to Brazil by the U.S.
Attorney General and DEA Administrator, and committed to use
her office to assure "top-down" momentum for enhanced
bilateral strategic cooperation on law enforcement.


10. (SBU) In closing, Ambassador underscored his strong
interest in bringing increased and socially responsible U.S.
investment to Brazil, and offered to bring investor groups
and the Council on Competitiveness to Brazil for meetings
with Rousseff and GOB and industry leaders. Rousseff said
she would enthusiastically work with the Embassy on this, and
warmly welcomed the fact that the United States "has an
energetic Ambassador" in Brasilia.


11. (SBU) Comment. This initial meeting between Ambassador
and Rousseff was warm, positively-charged and substantively
dense. We have in Rousseff, we believe, an enthusiastic and
highly influential senior GOB interlocutor on these key
issues, and we intend to cultivate our relationship with her.
If Lula wins re-election, we think it likely she will
continue in her current post, and in the event of a Lula
victory in October, it would be highly productive to arrange
a visit soon thereafter to Washington for Rousseff for
top-level consultations.

Sobel