BIOFUELS IN THE EASTERN CARIBBEAN: UNCLASS/SBU

UNCLAS SECTION 01 OF 06 BRIDGETOWN 001852

SIPDIS

SENSITIVE
SIPDIS

WHA/EPSC FOR FAITH CORNEILLE AND EB/ESC/IEC FOR JEFF IZZO

E.O. 12958: N/A
TAGS: ENRG EAGR ETRO EAID EPET EINV PGOV PREL BB
XK, XL, XM
SUBJECT: BIOFUELS IN THE EASTERN CARIBBEAN: UNCLASS/SBU
VERSION

REF: A. STATE 164558

B. BRIDGETOWN 1801

C. BRIDGETOWN 785

D. BRIDGETOWN 533

E. BRIDGETOWN 178

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SUMMARY
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1. (U) Discussions with eastern Caribbean Energy Ministries
in the region revealed a strong interest in alternatives to
fossil fuels. Like the countries themselves, the proposed
alternatives are very diverse, ranging from ethanol and
geothermal, to solar and wind, and even to waste conversion.
Most of the countries in the region have already begun
implementation, or at the very least, are making plans do so.
While these alternatives have great potential for domestic
consumption, the potential for export of biofuels is greatest
in Barbados and St. Kitts and Nevis, where ethanol production
is a serious focus. However, significant challenges to
public and private investment in this sector remain, such as
limited resources and challenging geographies. The recent
reduction of oil prices in the region and the expected
benefits of Petrocaribe, have also made the perceived need
for alternative energy resources less immediate. End
Summary.

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DIVERSE FACES OF ALTERNATIVE ENERGY IN THE EASTERN CARIBBEAN
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2. (U) The avenues of alternative energy being explored in
the eastern Caribbean are as diverse as the islands
themselves. In Dominica, plentiful running water produces
40% of the island,s electricity, which the government hopes
to export to the neighboring islands of Martinique and
Guadeloupe. Hydroelectric power is also producing close to
20% of St. Vincent's power. St. Lucia, Dominica, and St.
Kitts and Nevis are all exploring the feasibility of
geothermal energy with the support of the French Government
and the Organization of American States (OAS). The
Government of Antigua and Barbuda is looking to fill 40% of
its energy needs from renewable sources, specifically a
waste-to-energy plan in the short term, followed by a
longer-term ocean thermal energy conversion (OTEC) program.
Grenada is also eyeing the possibility of converting
agricultural waste to biomass energy and aggressively
promotes solar water heaters through public awareness
campaigns and tax rebates. Barbados and St. Kitts appear to
be the only countries focused more on ethanol due to their
histories and experience with sugar production. Both
countries developed plans, which they hope to present to
potential investors and financial institutions.

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BARBADOS
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I. State of Sugar Industry
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3. (SBU) According to Barbados government statistics, it cost
US$1,181 in 2004 to produce one ton of export-ready raw sugar
in Barbados. Given the US$683 average export price (all
exports went to the European Union),Barbados loses US$498 on
every ton of sugar it exports. The country exported 34,400
tons of sugar in 2004 for a total loss of US$17,136,360 or
nearly US$35,000 for each of the roughly 500 sugar workers.
The government-owned and managed Barbados Agricultural
Management Company (BAMC) runs the island's sugar factories
and handles all exports of the commodity. Explaining the
high production cost, the Minister of Agriculture, Erskine
Griffith, told post that Barbados' yield ratio of 21 tons of
sugar per acre of sugar cane is, "the lowest of any sugar
producing nation," whereas "producers in Brazil get up to 80
tons per acre."


4. (SBU) There is no longer any economic reason for Barbados
to continue producing sugar, but an historic emotional
attachment to the crop causes the government to keep the
industry alive at considerable taxpayer expense. Instead of
cutting their losses, Barbados continues cutting cane. But
now there is an additional objective: In January of 2006,
the Barbadian Government announced a US$150 million
government financed plan to construct a multipurpose facility
which would produce 30 megawatts of electricity, 14 million

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litres of ethanol, and 15,000 tons of specialty sugar for the
local and export markets. BAMC head Carl Simpson spoke
positively of the plan in several public fora, citing a
feasibility study showing ethanol production to be a viable
option for Barbados. However, concrete information on the
economics of this new plan has been difficult to obtain.

II. Fuel Distribution
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5. (U) The latest statistics show that Barbados produced
about 1,000 bbl of oil per day and 29.17 million cubic meters
of natural gas. Consumption is estimated at 110,000 tons of
unleaded gas; 87,000 tons of diesel; 182,000 tons of fuel oil
for electricity generation; 11.8 million cubic meters of
natural gas; and 1,800 tons of jet fuel. The most recent
data on transportation show that there are approximately
54,000 automobiles in the country. Barbados has some of the
lowest electricity rates in the Caribbean. Electricity
consumption by sector was 127 million kWh for hotels; 194
million kWh for commercial; 121 million kWh for government;
275 million kWh for domestic; 54 million kWh for industrial;
and 58 million kWh for other, unspecified consumption.
Barbados Light and Power is state-owned and the only
electrical utility company on the island. There are three
power stations run by steam, gas turbines, and diesel. The
current renewable energy portfolio for Barbados consists of a
10 MW wind farm at Lamberts, St. Lucy, and 38,000 residential
and commercial solar hot water heaters.

III. Investment Climate
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6. (SBU) In general, the investment climate is very good in
Barbados for the ethanol biofuel market. Although there is
no current ethanol production, consumption or exports, the
Minister of Energy of Barbados has made it clear that the
government fully supports the production of alternative
energy and will do what is necessary to turn talk into
action, as indicated by the allocation of over US$150 million
for a new sugar processing facility. The government has
already begun testing vehicles to run on gasoline with a 10
per cent ethanol mix and hopes to have 50 government vehicles
on the road next year that run on this ethanol mix. Barbados
has adequate port facilities and land routes for export and
has plans to build storage tanks for ethanol. The road
networks, although congested during the school year and
tourist season, are well-developed and construction is
underway for further road network improvements.


7. (SBU) According to Energy Ministry officials, there would
be no difficulty transporting and blending ethanol with
gasoline. However, the current stumbling block may be
financing due to the current shortage of ethanol, increased
demand, and high price. In addition, several costly
adjustments would need to be made along the retail supply
chain.


8. (SBU) There may also be difficulties associated with
production volume for export to larger countries as well as
the logistics of getting feedstock to other islands, which is
very expensive. The volume of cane is not large enough in
many island countries to benefit from the economies of scale.
A month ago, Acting Minister of Agriculture, Senator Tyrone
Barker, stated publicly that the Government of Barbados needs
at least 31,000 acres of land accessible for the cultivation
of sugar cane to guarantee raw material availability for a
25-30 year period. The will to invest in technology is being
manifested in the move to restructure the Barbados
Agricultural Management Company (BAMC) to manage industrial
production of raw sugar, ethanol, bagasse, molasses and
special and refined sugars. Still, bankers may not yet be
willing to take the risk of investing in alternative energy
development, citing underdeveloped capital markets and
problems of liquidity as major obstacles. In order to reduce
these risks, a regulatory environment is needed that is
conducive to alternative investment and financial
instruments, based on regional harmonization.

IV. Regulatory Structure
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9. (U) Barbados allows non-utility power generation and
permits independent power producers to sell power to the
national grid. In addition, utilities are required to
purchase from independent power producers, facilitate grid
inter-connections and participate in independent review

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panels to evaluate renewable energy projects. There are no
laws or regulations concerning local power production and
sales. However, Barbados Light and Power is a monopolistic
state-owned enterprise which prevents outside companies from
importing fuel unless there is a specific agreement between
the government and the importing company. Environmental
regulations for biofuel refineries consist of a requirement
for environmental impact assessments, much like those in the
United States, which can take six months to a year to
complete.


10. (SBU) There is relative ease of access and ownership of
land by foreign companies and individuals. A proposal was
made earlier this year by the Acting Agriculture Minister for
a legislative mandate to identify a minimum number of land
acres, under which land would be solely designated for
agricultural activities. Other than the Agriculture
Ministry,s proposal, there are no current obstacles to
acquire title to land and the process is the same as land
acquisition by Barbadian citizens. (Note: Recent op-ed
pieces in the local press, however, demonstrate public unease
with this policy or lack thereof. Continued resistance and
pressure by the general public seem to be surfacing (having
more to do with the expansion of the tourism industry) and
may influence change in land ownership laws as many feel the
island is running out of land for local people and their
future generations. End Note.)

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ST. KITTS/NEVIS
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I. State of Sugar Industry
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11. (SBU) St. Kitts and Nevis ceased centuries of sugar
production at the end of the 2005 harvest. The state sugar
company, St. Kitts and Nevis Sugar Manufacturing Corporation
(SSMC),has lost money every year since at least 1985. In
2004, the cost of debt service alone was more than the total
revenue of the company. The SSMC now has a debt of over
US$112 million, around US$2500 for every person in St. Kitts
and Nevis, and the sugar industry has contributed to the
public debt at a rate of approximately 4% of GDP per year.
If the SSMC were a private company, it would have gone
bankrupt years ago. The impending loss of European Union
trade preferences virtually eliminated any hope of the sugar
industry's comeback.

II. Fuel Distribution
--------------


12. (U) Rising oil prices and supply problems are the biggest
energy challenges for St. Kitts and Nevis. The country is
totally dependent on imported petroleum for electricity
generation. The high maintenance requirements and poor
reliability of small diesel generation results in electricity
outages and produces negative environmental impacts.
According to the latest figures acquired by post, St. Kitts
consumes approximately 800 bbl of oil per day. Approximately
130 million kWh hours are produced, of which 120 million kWh
is consumed. Some 7.8 to 8.5 million gallons per annum of
diesel are used in electricity production. At present, the
Nevis Electricity Company, Ltd. (NEVLEC) is the only
electrical utility in the country.


13. (U) There is not yet any ethanol/biofuels production in
St. Kitts and Nevis. Embassy Bridgetown recently sponsored
two Science Fellows to conduct research on ethanol potential
in St. Kitts and Nevis. They suggest that the present volume
of sugar cane lands could produce about 7 million gallons per
annum of ethanol at most. However, production of about 4
million gallons per year is more likely, using historical
yields from St. Kitts Sugar Manufacturing Corporation (SSMC).
Imported feedstock, such as molasses, high-test molasses
(sugar syrup),or grains could be imported to supplement the
locally grown sugar cane feedstock and produce 10 million
gallons per year through a full fermentation plant. This
production could be supplemented by an ethanol dehydration
plant that would process Brazilian hydrous (95%) alcohol into
motor fuel grade ethanol (99.5% ) which has the potential to
produce 20-30 million gallons a year, but too much dependency
on feedstock would mean higher commodity risk. Other energy
efficiency alternatives currently being explored consist of
improvements to the electric utility system; commercial and
household energy conservation; use of energy efficient
appliances and lighting; implementation of environmental

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standards and regulations; and solar water heating.

III. Investment Climate
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14. (U) Diversification of the sugar to produce biofuels or
other sugar cane-based industrial products is possible due to
existing infrastructure and equipment, but the planning will
require the crafting of a long-term strategic plan that will
make efficient use of the little available cane acreage as
well as near-obsolete technology. The government of St.
Kitts and Nevis is currently looking at proposals for ethanol
production from American and Norwegian companies. Prime
Minister Denzil Douglas told the press that Global Green, a
Norwegian company, Transmediair Incorporated from the United
States, and Caribbean Energy Resources of Florida have each
submitted proposals to the Sugar Transition Office. Another
company, Alboomberg International, has representatives
currently visiting St. Kitts and Nevis, and has submitted a
proposal for financing. Douglas told reporters his
government gave a specific time period for proposal
submissions and that the Sugar Transition Management Team,
the Department of Legal Affairs, and the Ministry of Finance
would work together to make a final determination as to which
company would most effectively use the assets the industry
already has in place.


15. (U) The most significant barrier to ethanol use is
acreage volume of cane. Last month in Trinidad, St. Kitts
Energy Minister Earl Martin told U.S. Department of Energy
A/S Harbert that the country must seriously evaluate how
practical ethanol production can be considering the
availability of land, which only totals 68 square miles, of
which there are only 8,000 usable acres for production.
There are no apparent barriers with regard to adequacy of
port facilities or land routes for export. The port
facilities are adequate to import ethanol and feedstocks for
ethanol, using the SSMC tanks and sugar warehouse. The same
tanker trucks moving petroleum would handle ethanol without
any major problems. The marine fleet could use biodiesel and
gasoline engines with 10 per cent ethanol blends, though
there have been some problems with old boat engines using
ethanol as it can dissolve some old seals and tank liners.
However, potential problems associated with the transition to
ethanol-blended gasoline could be easily overcome by private
oil companies, which have the necessary experience with
maintenance, monitoring and parts replacement. Flex-fuel
cars are available from most U.S. and Brazilian automobile
manufacturers, and the St. Kitts and Nevis Sustainable Energy
Plan, drafted in collaboration with the Global Sustainable
Energy Island Initiative (GSEII),aims to import hybrid, E85,
and other alternative energy vehicles in the near future.

IV. Regulatory Structure
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16. (U) At present, state-run utilities control generation,
transmission and distribution of electricity as well as
prices, and there is limited or no opportunity for private
power generation. There is no legislation to mandate any
ethanol blends or flex-fuel automobiles. There are also no
environmental regulations on bio-refineries. The Global
Sustainable Energy Island Initiative (GSEII) and the United
Nations Industrial Development Organization (UNIDO) are
conducting a financial and economic analysis of sugar cane on
the island for ethanol use and biomass for power and heat
generation, which will include the administrative and legal
requirements and/or barriers to developing alternative
biofuels.

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ANTIGUA AND BARBUDA
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I. State of Sugar Industry
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17. (U) There has been no competitive sugar industry in
Antigua and Barbuda for over 46 years. During the 1960s, the
economy of Antigua moved away from agriculture to primarily
tourism, which continues to be the dominant activity,
accounting for more than half of GDP. Agricultural activity
is now largely for subsistence farming and for sales in the
domestic market, but production is constrained by a limited
water supply and a labor shortage stemming from the lure of
higher wages in tourism and construction work.


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II. Fuel Distribution
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18. (SBU) Electricity demand is mostly supplied with fossil
fuel-fired power stations. Reciprocating diesel engines
account for 70% of the installed capacity in Antigua. A
dual-purpose electricity and water production steam plant
accounts for the remaining 30% of installed electricity
generation capacity. Close to 20% of households use coal for
cooking. The quality and delivery of electricity supplied by
the Antigua Public Utilities Authority (APUA) has
deteriorated considerably in recent years. The APUA
Electricity Division is subject to frequent power outages
because of breakdowns of its power generation plants.
APUA,s financial situation is very weak, making upgrades
almost impossible, which may be due to inefficient internal
management and alleged corruption.

III: Non-Ethanol Alternatives
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19. (U) Up until early 1970, renewable energy played a
significant role in Antigua and Barbuda. Antigua,s
topography and year-round sunshine were very conducive to
wind power and solar energy. Efforts to exploit wind energy
in the 1980s failed, however, due to mechanical and control
problems. Since then, solar water heaters have been the
most successful renewable energy program in Antigua and
Barbuda, due to credit facilities initially offered by the
main suppliers of solar water heaters and tax concessions by
the government. It is estimated that there are 14,000 solar
water heaters in Antigua. More recently, in November of last
year, the United Nations Development Program (UNDP) and the
Environment Division of Antigua and Barbuda proposed a
one-year plan to fill 40% of Antigua and Barbuda energy needs
from renewable sources. The plan is to convert 250 tons of
daily waste into energy, in the short term, and harness power
from the surrounding sea by ocean thermal energy conversion
(OTEC). To date, post is unaware whether Antigua and Barbuda
has begun implementing this plan.

IV: Obstacles to Alternative Energy
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20. (SBU) The main obstacles to renewable energy exploration
appear to be awareness and finance. Low-cost financing is
necessary but not always available for successful development
of further renewable projects. Renewable power has to be
commercially competitive with the traditional petroleum-based
electricity supply, which is currently a challenge due to a
lack of infrastructure and poor internal management, as well
as the perceived immediate and tangible benefits of
Petrocaribe. In addition, there is an ongoing problem with
land registration, land use, and land ownership and leasing
despite government efforts to offer tax incentives. This
problem has discouraged foreign investors from coming to
Antigua and, in some cases, caused them to leave.

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COMMENT
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21. (SBU) From wind and solar to geothermal and ethanol, the
eastern Caribbean countries are serious candidates for
sustainable alternative energy investment. In terms of
alternative energy export potential, Barbados and St. Kitts
are most likely the best candidates, particularly with
ethanol production. Both countries have histories,
experiences, and remaining infrastructure related to sugar
cane production. However, the small volume of cane acreage
in each country is one of the biggest challenges. Another
challenge is trade-related. Both countries want reassurance
that 1) duty-free market access will continue for many years
in the future, and 2) the U.S. will not erode Caribbean Basin
Initiative (CBI) preferences by cutting tariffs on Brazilian
ethanol. With the CBI possibly expiring in 2007, however,
Barbados and St. Kitts are reluctant to stake their future
now on U.S. market access.


22. (SBU) The overwhelming dependency on diesel fuel in the
region, some of which carries the Petrocaribe label,
threatens the economic well-being of the region,s citizens,
as well as their choices. At the very least, domestic supply
and consumption of alternative energy may provide these
countries with the breathing space needed to pay down their
national debts and open new opportunities for cooperation
with the United States.

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KRAMER