Nicaragua's first export of ethanol, Ortega may not be

UNCLAS MANAGUA 000781 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/CEN, WHA/EPSC, EEB/ESC/IEC USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR E.O. 12958: N/A TAGS: EAGR EPET ENRG SENV PREL VE NU SUBJECT: Nicaragua's first export of ethanol, Ortega may not be supportive REF: 06 MANAGUA 2384 ¶1. (SBU) Summary: On February 19, Nicaragua exported ethanol for the first time, sending 3 million liters (793,000 gallons) valued at $2 million to the Netherlands. Grupo Pellas plans to increase production of ethanol from 100,000 to 400,000 liters per day by the end of 2008. If Nicaragua approves blending domestic gasoline with 10% ethanol, Grupo Pellas will dedicate all of its production to the domestic market. Despite the potential to produce more ethanol, President Daniel Ortega has backed away from his earlier support of biofuels, recently voicing some of the same criticisms as Venezuelan President Hugo Chavez. Ortega's flip flop and deference to Chavez is causing a political stir. End Summary. ¶2. (U) Nicaragua Sugar Estates Limited and Compania Licorera de Nicaragua -- both members of Grupo Pellas, Nicaragua's largest private company -- combined forces to produce ethanol to fill the first part of a 20 million liter (5.3 million gallon) contract with Vertical (United Kingdom). Over the next several months, Grupo Pellas will deliver five more shipments of 3-4 million liters each to Vertical. ¶3. (U) Grupo Pellas has invested more than $45 million in plant and equipment, as well in storage tanks and offloading facilities at the Port of Corinto to develop its ethanol business. Project Director Alvaro Martinez explains that the business is viable as long as international crude prices exceed $45 a barrel. If prices fall below $45, Grupo Pellas will simply increase production of their flagship "Flor de Cana" rum. As it stands, Grupo Pellas plans to increase production of ethanol from 100,000 to 400,000 liters per day by the end of 2008. If Nicaragua approves blending domestic gasoline with 10% ethanol, Grupo Pellas will dedicate all of its production to the domestic market. ¶4. (U) Despite this success and the potential to produce more ethanol (reftel),President Ortega has backed away from his earlier support of biofuels. During a meeting with A/S Sullivan on February 27, for example, Ortega expressed interest in developing biofuels as an alternative energy source, even highlighting the fact that several U.S. investors have been exploring possibilities in Nicaragua. After President Bush's recent tour of Latin America and Venezuelan President Chavez' shadow tour which included Nicaragua, however, Ortega has changed his tune. On March 17, Ortega was quoted as decrying ethanol for threatening food security and encouraging Latin America to return to cash crops and monocultivation. He has equated U.S. interest in advancing biofuel production to an imperialist attempt to create dependency on the U.S. market so that American citizens can continue their "wasteful spending on more vehicles." Ortega followed his comment with the cancellation of his trip to Brazil, where he was scheduled to confirm ministry-to-ministry cooperative agreements on biofuel production (as well as hydroelectric power, rural access to electricity, and the regulatory regime for oil and gas exploration). ¶5. (SBU) Comment: Venezuela's absolute rejection of the InterAmerican Development Bank's (IDB) proposed $200 million lending facility to support regional production of ethanol caused a stir in Nicaragua when Venezuelan Foreign Minister Nicolas Maduro Moros added that Nicaragua supported Venezuela's opposition. Chavez was quoted as saying, "With President Ortega, we say that we will not allow them to turn Latin America into producers of corn and sugar cane for American cars." Immediately after Maduro's comments Nicaraguan Foreign Minster Samuel Santos was quoted as saying that Nicaragua would explore and work with all kinds of energy sources, including ethanol, but was seemingly contradicted later by Ortega. In Nicaragua, Ortega's flip flop and deference to Chavez is attracting attention. Local newspapers have been playing up the issue, as have opinion writers and cartoonists in the context of Ortega's relationship with Chavez. Grupo Pellas, IDB, and International Institute for Cooperation in Agriculture representatives have come forward to espouse the potential to develop the industry and the positive aspects of biofuels. Sadly, adopting Chavez's path would mean that Nicaragua will only become more dependent upon Venezuela and the oil that it produces. End Comment. TRIVELLI