ECONOMIC COSTS OF HURRICANE DEAN IN MEXICO

UNCLAS SECTION 01 OF 03 MEXICO 004512 SIPDIS SENSITIVE SIPDIS STATE FOR A/S SHANNON STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, EB/IFD/OIA, AND DRL/AWH STATE FOR EB/ESC MCMANUS AND IZZO USDOC FOR 4320/ITA/MAC/WHA/ONAFTA/GERI WORD USDOC FOR ITS/TD/ENERGY DIVISION TREASURY FOR IA (ALICE FAIBISHENKO) DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD NSC FOR RICHARD MILES, DAN FISK STATE PASS TO USTR (EISSENSTAT/MELLE) STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) USDOC PASS TO EXIM AND OPIC E.O. 12958: N/A TAGS: ECON EAID EAGR ENER PGOV MX SUBJECT: ECONOMIC COSTS OF HURRICANE DEAN IN MEXICO MEXICO 00004512 001.2 OF 003 Summary and Introduction -------------- ¶1. (SBU) Summary. Thirty-six hours after Hurricane Dean struck land along the southern edge of Mexico's Yucatan peninsula as a category 5 hurricane preliminary assessments show that damage is less than predicted. The tourism industry was minimally affected as the famed Riviera Maya received less than tropical storm force winds. Local authorities were also better at getting information out and encouraging people to leave than during 2005's Hurricane Wilma. Pemex is still assessing damage to Mexico's oil capabilities but already predict annual production to be lower than previously estimated due to preventative shutdowns. Pemex hopes to resume normal operations of August ¶24. The agricultural industry in the area was most affected with thousands of hectares damaged. Authorities are still monitoring the effects in the Yucatan and from Dean's second landfall near the port of Veracruz. End Summary. ¶2. (U) According to Risk Management Solutions, Dean will cost around USD 1.5 billion to insurance companies, of which only USD 300 million correspond to Mexico. Representatives from the company explained that if Dean had made landfall in one of the more northern areas of the peninsula, i.e. Cancun or Cozumel for example, losses would have been approximately three times larger. Tourism -------------- ¶3. (SBU) The tourism industry dodged the proverbial bullet when Dean took a more southerly path. While it's still too early to have exact monetary figures, the damage is estimated to be minimal. The zone that was struck by the hurricane is a poorer area inhabited mostly by descendants of the Mayas and does not have the tourist developments seen in the north. ¶4. (U) The Association of Riviera Maya Hotels (AHRM) reported that before the hurricane the occupancy rate was 80%, and after tourists were evacuated, the occupancy rate was 30%. According to the association, 18,000 tourists remained in Cancun and the Riviera Maya. In total, in Quintana Roo, there are 33,700 tourists. However, they expect to return to the normal occupancy rate soon since the Cancun airport reopened at 0800 on August 21. The association also reported that hotels did not suffer structural damage, only minor damage such as broken windows. Cancun resort Sol Melia reported that there was little erosion on Cancun beaches and only slight damage to some rooms from flooding. Power and water was cut briefly to prevent electrical shocks but has since been reestablished. ¶5. (SBU) Unlike Wilma, which created chaos in Yucatan tourist destinations, local authorities were better prepared for Hurricane Dean. They facilitated the departure of many before airports were forced to close, and evacuated people to shelters in advance of the hurricane's arrival. The Governor and government spokespeople informed the population about the risks of the hurricane, motivating people to seek shelter and protect households and businesses. The Governor publicly encouraged airlines to stop bringing incoming tourists. By August 20, when government declared "Orange Alert', the airlines were prohibited from bringing in additional passengers. Airlines added a great many outgoing seats, even MEXICO 00004512 002 OF 003 flying in empty planes to do so. As a result, many tourists were able to evacuate high-risk areas. AHRM also did a better job of keeping track of tourists this time through a website created specifically for this purpose (www.rivieramayaguestlocator.com). Not only did the website help locate tourists, it also provided information on shelter locations. Energy -------------- ¶6. (SBU) In preparation for Hurricane Dean, the Mexican government (GOM) ordered evacuation of oil platforms in the path of the hurricane. A total of 18,197 Petroleos Mexicanos (Pemex) employees were evacuated. The GOM closed 407 wells in the Sound of Campeche, suspending production of 2.65 million barrels of oil per day and 2.634 billion cubic feet of natural gas per day. In the "Northern Region," Pemex closed 32 wells -- suspending production of 18,000 more barrels of crude per day and 130 million cubic feet of natural gas per day. Local press reports that according Carlos Morales Gil, Director General of Pemex Exploration and Production, the cost of the evacuation totaled around USD 3.6 million. ¶7. (SBU) Celina Torres, Pemex's Manager of Foreign Investor Relations told EconOff that Pemex hopes to resume normal operations on Friday, August 24. She noted they are currently conducting assessments to determine damage, including to oil platforms. She also said that Pemex is evaluating the impact on production, exports, maquila, revenue, tax contribution, etc. Before the hurricane, crude inventories in the area totaled more than 10.5 million barrels. Conservative newspaper El Universal reported that Pemex's Finance Department plans to revise its production estimates downward as they had previously expected to produce the largest amount of oil for the year during the months of July thru September. ¶8. (U) Pemex's Emergency Committee authorized technical personnel return to oil facilities in the Sound of Campeche to try to resume operations as of noon on August 22. Specialized personnel have been dispatched to inspect the facilities. Pemex Director committed to resume full operations as soon as possible. Barring major damages, facilities will be up to 80% at the beginning of next week and will return to 100% by September 1. When ports reopen, distribution will be resumed as well. Agriculture -------------- 9.(U) Dean devastated agriculture in the Yucatan peninsula. There are press reports that damage is not as bad as currently believed. Septel will follow with more details. Local governments report that 25,000 hectares of corn were lost, there was damage to 50% of sugar cane production, and thousands of hectares of vegetable, peanut, chilis, and citrus crops were damaged. The beekeeping industry was also hurt. Small fishing towns such as Scalak and Punta Herrero and other poor communities were leveled, although no casualties have been reported. The newspaper El Universal reports that 70% of Ciudad del Carmen is under water. Financiera Rural, a Mexican government organization that provides credit for rural projects, announced that it will channel 50 million Mexican pesos to areas affected by the MEXICO 00004512 003 OF 003 hurricane. Monitoring will Continue -------------- ¶10. (U) The storm made landfall again at the small town of Tecolutla, north of Veracruz, Mexico's busiest shipping port. As a precaution the Laguna Verde nuclear plant in the state of Veracruz was closed. Current reports detail flooding and damage in the small fishing villages that dot the coast. Authorities are still gathering information on the amount of destruction caused by Dean, but agree that the outcome is less dire than expected as the hurricane's trajectory took it through less developed areas. Visit Mexico City's Classified Web Site at http://www.state.sgov.gov/p/wha/mexicocity and the North American Partnership Blog at http://www.intelink.gov/communities/state/nap / GARZA