Identifier
Created
Classification
Origin
06SANSALVADOR2513
2006-10-17 20:56:00
UNCLASSIFIED
Embassy San Salvador
Cable title:
LATIN AMERICA-CARIBBEAN BIOFUELS INITIATIVE RESPONSE
how-toVZCZCXRO2182 RR RUEHLMC DE RUEHSN #2513/01 2902056 ZNR UUUUU ZZH R 172056Z OCT 06 FM AMEMBASSY SAN SALVADOR TO RUEHC/SECSTATE WASHDC 4048 INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
UNCLAS SECTION 01 OF 03 SAN SALVADOR 002513
SIPDIS
DEPT FOR WHA/EPSC CORNEILLE, EB/ESC/IEC IZZO, S/P MANUEL, OES/STC
PAMELA BATES
SIPDIS
E.O. 12958: N/A
TAGS: ECON PREL PGOV ES
SUBJECT: LATIN AMERICA-CARIBBEAN BIOFUELS INITIATIVE RESPONSE
REF: STATE 164558
SUMMARY
-------
UNCLAS SECTION 01 OF 03 SAN SALVADOR 002513
SIPDIS
DEPT FOR WHA/EPSC CORNEILLE, EB/ESC/IEC IZZO, S/P MANUEL, OES/STC
PAMELA BATES
SIPDIS
E.O. 12958: N/A
TAGS: ECON PREL PGOV ES
SUBJECT: LATIN AMERICA-CARIBBEAN BIOFUELS INITIATIVE RESPONSE
REF: STATE 164558
SUMMARY
--------------
1. This cable responds to reftel. There is significant interest in
El Salvador to promote biofuels, but to date concrete actions have
not been taken. The GOES is working on legislation to promote
ethanol production, storage, and sales. The law would mandate a
90/10 gasoline/ethanol mix, a mixture that normal gasoline engines
can use without modification. Interest in ethanol production has
grown with the increase in global petroleum prices. The GOES views
ethanol use as a way to decrease dependence on petroleum imports
(over $900 million in 2005) and to stimulate the agricultural
sector. Brazilian companies are exploring investment opportunities
in El Salvador in the renewable energy sector. End summary.
ETHANOL EXPORTS AND DOMESTIC USE
--------------
2. The GOES, led by the Ministry of Economy and the Ministry of
Agriculture, in conjunction with the Salvadoran Sugar Association,
has been working on legislation that would promote ethanol
production, storage, and sales. The legislation would create an
incentive to produce ethanol to supply the U.S. market; CAFTA
reserves for El Salvador an export quota of 5.2 million gallons of
ethanol in the first year, and the quota will increase by 1.3
million gallons every year. CAFTA requires that this ethanol be
distilled in El Salvador but not necessarily from locally grown raw
inputs. For local use, the law would mandate a 90/10 gasoline
ethanol mix, a mixture that normal gasoline engines can use without
modification.
3. Interest in ethanol production has grown with the increase in
global petroleum prices. The GOES views ethanol use as a way to
decrease dependence on petroleum imports (over $900 million in 2005)
and to stimulate the agricultural sector. According to Julio
Arroyo, Executive Director of the Salvadoran Sugar Association,
gasoline mixed with ethanol produced from sugarcane in El Salvador
can be competitive when oil prices are higher than $40 - $50 per
barrel. He also said that when using locally grown sugar cane, 80
percent of the revenues generated from ethanol production would go
directly to farmers, with 20 percent going to the refiners.
FACTS AND FIGURES
--------------
4. In 2005, El Salvador imported $900 million of petroleum
products, including approximately $455 million in direct gasoline
imports or petroleum to be refined into gasoline. Assuming ethanol
could be produced at the price of gasoline, a 10 percent ethanol mix
would mean $45.5 million generated in the local market, with $36
million of that in the rural agricultural sector. The current
breakdown of the fuel market in El Salvador is estimated to be 57
percent diesel, 26 percent regular gasoline, and 17 percent premium
gasoline--a total of 343.1 million gallons per year.
THE SUGAR INDUSTRY
--------------
5. Although El Salvador lacks environmental regulations for
bio-refinery, two local companies produce ethanol, Las Cabaas
Refinery and The Salvadoran Sugarcane Company (CASSA):
--Las Cabaas Refinery: In 1987, Las Cabaas sugarcane mill
installed machinery to produce ethanol and ran it for 4 years.
(Note: This was to supply ethanol to mix with gasoline, a voluntary
pilot project which some gasoline stations participated in between
1987 and 1991. End note) In 2005, with an investment of $800,000,
they refurbished the existing equipment, giving them the ability to
produce 31,700 gallons per day from raw sugarcane or 15,850 gallons
per day using molasses, a byproduct of sugar refining. To date they
have only tested small batches and have not run at capacity. Ana
Mariella Rivas, the General Manager at Las Cabaas, told emboffs
they worry about competition from Brazil but believe they can find a
market for their product in the United States. (Note: Rivas also
said they are looking for ways to dispose of the vinasse, a
byproduct of the distillation process high in potassium but
extremely acidic, of which 20 gallons is created for each gallon of
ethanol. She suggested they it may be used as fertilizer, with
careful Ph monitoring. End note.)
--The Salvadoran Sugarcane Company (CASSA): A joint venture between
CASSA, Cargill, and the American Renewable Fuel Suppliers resulted
in the construction of a $10.5 million alcohol dehydration plant in
Acajutla. The plant has the capacity to produce 60 million gallons
of ethanol a year but hasn't yet been tested to this level. The
plant began operations in September 2005 and is now dehydrating
Brazilian alcohol to re-export to the United States under CAFTA-DR.
6. The GOES is also experimenting with an ethanol and biodiesel
pilot project to determine their economic and technical feasibility.
SAN SALVAD 00002513 002 OF 003
El Salvador does not have flex-fuel vehicles, but the decision to
move forward with ethanol/gasoline mix could represent an
opportunity for flex-fuel (running up to 85 percent ethanol) car
manufacturers, such as Toyota and Volkswagen.
7. According to Julio Arroyo, Executive Director of the Salvadoran
Sugar Association, to produce 15 million gallons of ethanol per
year, which is the estimated need for a 10 percent ethanol mix, El
Salvador would need 4 ethanol plants producing 31,700 gallons per
day running for 120-150 days per year. Arroyo estimates an
additional 7,000 hectares of sugar would need to be planted,
creating 4,000 new jobs. Currently, 72,000 hectares are under sugar
cultivation and 7,000 farmers grow sugarcane. The construction of
an ethanol plant that could produce 31,700 gallons per day would
require an initial investment of $10 to $12 million.
8. The Salvadoran Sugar Association, Las Cabaas, and CASSA are
anxious to see the passage of legislation to promote ethanol use
through tax incentives for production and local usage. They are
concerned about competition from Brazil, which has a well-developed
industry and lower operating costs. One local fuel producer, Esso,
which owns a share of the RASA refinery at Acajutla, is not worried
about increased competition from ethanol, but is concerned that its
production will be subsidized by the sugar industry and the true
costs of production will be hidden. The petroleum companies in the
Salvadoran market have also cautioned that the use of a
gasoline-ethanol mix not be mandatory unless adequate supply were
guaranteed. Neither industry representatives nor Director of
Hydrocarbons and Mines at the Ministry of Economy Gina Hernandez
could provide a timetable for passage of the legislation. Julio
Noltenius, Executive Director of CASSA, believes that high fuel
prices will drive other sugar mills to invest in ethanol production
plants, even if there is no government legislation in place.
9. Note: With few exceptions, foreign citizens and private
companies can freely establish businesses in El Salvador. Foreign
firms can also own essential national infrastructure. End note.
PORT FACILITIES
--------------
10. Currently, El Salvador's only cargo seaport is located in
Acajutla. However, the Japan Bank for International Cooperation
provided a $129 million loan to finance development of port
facilities, including a terminal, peripheral equipment, and access
roads at La Union Port (formerly Cutuco Port) located southwest of
Fonseca Bay, at the eastern end of El Salvador. Puerto de La Union
will offer excellent infrastructure by 2009. Its 117 hectares will
have one terminal for containers, two for receiving and distributing
grains, and one for passenger traffic. Thus, El Salvador will soon
have additional facilities to accommodate vessels to transport
ethanol to the United States. The port is 185km by highway and
252km by rail from San Salvador.
BRAZIL LOOKING FOR OPPORTUNITIES
--------------
11. In May of this year, Plinio Nastari of Datargo, a Brazilian
Consulting Company, met with the Salvadoran Sugar Association, the
Salvadoran Private Sector Association (ANEP),the Salvadoran Chamber
of Commerce, and the Ministry of Economy to describe the Brazilian
history with ethanol production and offer advice on investment in
renewable energy. On June 2, a Brazilian trade delegation visited
El Salvador seeking new investment opportunities with the local
industry, including renewable energy.
ENERGY SECTOR
--------------
12. In 1998, the government privatized electricity distribution and
established an electricity market separated among generation,
transmission, and distribution. The law established an electricity
market in which generators bid power into the market based on the
price of their generation. However, the GOES is seriously
considering shifting to a cost based pricing mechanism.
13. Distribution is controlled by two U.S. companies with a
combined investment of $699 million. In 1999, CEL sold its shares
of a 265 MW thermal generation facility to an American company at a
cost of $210 million and its shares of Nejapa Power to another
American company at an estimated cost of $212 million. During the
dry season, both companies provide more than 50 percent of the total
energy produced in the country. The government owns all
hydroelectric resources and 85 percent of a geothermal company.
14. SIGET (the electricity and telecommunications regulator),sets
end-user tariffs every six months. Energy cost is calculated as the
average cost of the last 6 months that was negotiated in the spot
market. There is no government mandated ethanol blending
requirement.
SAN SALVAD 00002513 003 OF 003
COMMENT
--------------
15. At current gasoline prices (approximately $3.10/gallon for
regular unleaded gasoline) using a 10 percent ethanol mix makes
economic sense. Both Julio Arroyo and GOES officials admit it will
not lower fuel costs, but rather offers an opportunity to keep more
of that $3.10/gallon in El Salvador. The sugar industry's support
for the ethanol legislation--especially the support of CASSA and the
wealthy Regalado family--make it likely that ethanol legislation
will be passed sooner rather than later. End comment.
Barclay
SIPDIS
DEPT FOR WHA/EPSC CORNEILLE, EB/ESC/IEC IZZO, S/P MANUEL, OES/STC
PAMELA BATES
SIPDIS
E.O. 12958: N/A
TAGS: ECON PREL PGOV ES
SUBJECT: LATIN AMERICA-CARIBBEAN BIOFUELS INITIATIVE RESPONSE
REF: STATE 164558
SUMMARY
--------------
1. This cable responds to reftel. There is significant interest in
El Salvador to promote biofuels, but to date concrete actions have
not been taken. The GOES is working on legislation to promote
ethanol production, storage, and sales. The law would mandate a
90/10 gasoline/ethanol mix, a mixture that normal gasoline engines
can use without modification. Interest in ethanol production has
grown with the increase in global petroleum prices. The GOES views
ethanol use as a way to decrease dependence on petroleum imports
(over $900 million in 2005) and to stimulate the agricultural
sector. Brazilian companies are exploring investment opportunities
in El Salvador in the renewable energy sector. End summary.
ETHANOL EXPORTS AND DOMESTIC USE
--------------
2. The GOES, led by the Ministry of Economy and the Ministry of
Agriculture, in conjunction with the Salvadoran Sugar Association,
has been working on legislation that would promote ethanol
production, storage, and sales. The legislation would create an
incentive to produce ethanol to supply the U.S. market; CAFTA
reserves for El Salvador an export quota of 5.2 million gallons of
ethanol in the first year, and the quota will increase by 1.3
million gallons every year. CAFTA requires that this ethanol be
distilled in El Salvador but not necessarily from locally grown raw
inputs. For local use, the law would mandate a 90/10 gasoline
ethanol mix, a mixture that normal gasoline engines can use without
modification.
3. Interest in ethanol production has grown with the increase in
global petroleum prices. The GOES views ethanol use as a way to
decrease dependence on petroleum imports (over $900 million in 2005)
and to stimulate the agricultural sector. According to Julio
Arroyo, Executive Director of the Salvadoran Sugar Association,
gasoline mixed with ethanol produced from sugarcane in El Salvador
can be competitive when oil prices are higher than $40 - $50 per
barrel. He also said that when using locally grown sugar cane, 80
percent of the revenues generated from ethanol production would go
directly to farmers, with 20 percent going to the refiners.
FACTS AND FIGURES
--------------
4. In 2005, El Salvador imported $900 million of petroleum
products, including approximately $455 million in direct gasoline
imports or petroleum to be refined into gasoline. Assuming ethanol
could be produced at the price of gasoline, a 10 percent ethanol mix
would mean $45.5 million generated in the local market, with $36
million of that in the rural agricultural sector. The current
breakdown of the fuel market in El Salvador is estimated to be 57
percent diesel, 26 percent regular gasoline, and 17 percent premium
gasoline--a total of 343.1 million gallons per year.
THE SUGAR INDUSTRY
--------------
5. Although El Salvador lacks environmental regulations for
bio-refinery, two local companies produce ethanol, Las Cabaas
Refinery and The Salvadoran Sugarcane Company (CASSA):
--Las Cabaas Refinery: In 1987, Las Cabaas sugarcane mill
installed machinery to produce ethanol and ran it for 4 years.
(Note: This was to supply ethanol to mix with gasoline, a voluntary
pilot project which some gasoline stations participated in between
1987 and 1991. End note) In 2005, with an investment of $800,000,
they refurbished the existing equipment, giving them the ability to
produce 31,700 gallons per day from raw sugarcane or 15,850 gallons
per day using molasses, a byproduct of sugar refining. To date they
have only tested small batches and have not run at capacity. Ana
Mariella Rivas, the General Manager at Las Cabaas, told emboffs
they worry about competition from Brazil but believe they can find a
market for their product in the United States. (Note: Rivas also
said they are looking for ways to dispose of the vinasse, a
byproduct of the distillation process high in potassium but
extremely acidic, of which 20 gallons is created for each gallon of
ethanol. She suggested they it may be used as fertilizer, with
careful Ph monitoring. End note.)
--The Salvadoran Sugarcane Company (CASSA): A joint venture between
CASSA, Cargill, and the American Renewable Fuel Suppliers resulted
in the construction of a $10.5 million alcohol dehydration plant in
Acajutla. The plant has the capacity to produce 60 million gallons
of ethanol a year but hasn't yet been tested to this level. The
plant began operations in September 2005 and is now dehydrating
Brazilian alcohol to re-export to the United States under CAFTA-DR.
6. The GOES is also experimenting with an ethanol and biodiesel
pilot project to determine their economic and technical feasibility.
SAN SALVAD 00002513 002 OF 003
El Salvador does not have flex-fuel vehicles, but the decision to
move forward with ethanol/gasoline mix could represent an
opportunity for flex-fuel (running up to 85 percent ethanol) car
manufacturers, such as Toyota and Volkswagen.
7. According to Julio Arroyo, Executive Director of the Salvadoran
Sugar Association, to produce 15 million gallons of ethanol per
year, which is the estimated need for a 10 percent ethanol mix, El
Salvador would need 4 ethanol plants producing 31,700 gallons per
day running for 120-150 days per year. Arroyo estimates an
additional 7,000 hectares of sugar would need to be planted,
creating 4,000 new jobs. Currently, 72,000 hectares are under sugar
cultivation and 7,000 farmers grow sugarcane. The construction of
an ethanol plant that could produce 31,700 gallons per day would
require an initial investment of $10 to $12 million.
8. The Salvadoran Sugar Association, Las Cabaas, and CASSA are
anxious to see the passage of legislation to promote ethanol use
through tax incentives for production and local usage. They are
concerned about competition from Brazil, which has a well-developed
industry and lower operating costs. One local fuel producer, Esso,
which owns a share of the RASA refinery at Acajutla, is not worried
about increased competition from ethanol, but is concerned that its
production will be subsidized by the sugar industry and the true
costs of production will be hidden. The petroleum companies in the
Salvadoran market have also cautioned that the use of a
gasoline-ethanol mix not be mandatory unless adequate supply were
guaranteed. Neither industry representatives nor Director of
Hydrocarbons and Mines at the Ministry of Economy Gina Hernandez
could provide a timetable for passage of the legislation. Julio
Noltenius, Executive Director of CASSA, believes that high fuel
prices will drive other sugar mills to invest in ethanol production
plants, even if there is no government legislation in place.
9. Note: With few exceptions, foreign citizens and private
companies can freely establish businesses in El Salvador. Foreign
firms can also own essential national infrastructure. End note.
PORT FACILITIES
--------------
10. Currently, El Salvador's only cargo seaport is located in
Acajutla. However, the Japan Bank for International Cooperation
provided a $129 million loan to finance development of port
facilities, including a terminal, peripheral equipment, and access
roads at La Union Port (formerly Cutuco Port) located southwest of
Fonseca Bay, at the eastern end of El Salvador. Puerto de La Union
will offer excellent infrastructure by 2009. Its 117 hectares will
have one terminal for containers, two for receiving and distributing
grains, and one for passenger traffic. Thus, El Salvador will soon
have additional facilities to accommodate vessels to transport
ethanol to the United States. The port is 185km by highway and
252km by rail from San Salvador.
BRAZIL LOOKING FOR OPPORTUNITIES
--------------
11. In May of this year, Plinio Nastari of Datargo, a Brazilian
Consulting Company, met with the Salvadoran Sugar Association, the
Salvadoran Private Sector Association (ANEP),the Salvadoran Chamber
of Commerce, and the Ministry of Economy to describe the Brazilian
history with ethanol production and offer advice on investment in
renewable energy. On June 2, a Brazilian trade delegation visited
El Salvador seeking new investment opportunities with the local
industry, including renewable energy.
ENERGY SECTOR
--------------
12. In 1998, the government privatized electricity distribution and
established an electricity market separated among generation,
transmission, and distribution. The law established an electricity
market in which generators bid power into the market based on the
price of their generation. However, the GOES is seriously
considering shifting to a cost based pricing mechanism.
13. Distribution is controlled by two U.S. companies with a
combined investment of $699 million. In 1999, CEL sold its shares
of a 265 MW thermal generation facility to an American company at a
cost of $210 million and its shares of Nejapa Power to another
American company at an estimated cost of $212 million. During the
dry season, both companies provide more than 50 percent of the total
energy produced in the country. The government owns all
hydroelectric resources and 85 percent of a geothermal company.
14. SIGET (the electricity and telecommunications regulator),sets
end-user tariffs every six months. Energy cost is calculated as the
average cost of the last 6 months that was negotiated in the spot
market. There is no government mandated ethanol blending
requirement.
SAN SALVAD 00002513 003 OF 003
COMMENT
--------------
15. At current gasoline prices (approximately $3.10/gallon for
regular unleaded gasoline) using a 10 percent ethanol mix makes
economic sense. Both Julio Arroyo and GOES officials admit it will
not lower fuel costs, but rather offers an opportunity to keep more
of that $3.10/gallon in El Salvador. The sugar industry's support
for the ethanol legislation--especially the support of CASSA and the
wealthy Regalado family--make it likely that ethanol legislation
will be passed sooner rather than later. End comment.
Barclay