SCENESETTER FOR AUGUST 7-9 VISIT OF ACTING DEPUTY

UNCLAS BOGOTA 002798

SIPDIS
SENSITIVE

DOE FOR GWARD AND LEINSTEIN

E.O. 12958: N/A
TAGS: ENRG PGOV PREL CO
SUBJECT: SCENESETTER FOR AUGUST 7-9 VISIT OF ACTING DEPUTY
SECRETARY OF ENERGY JEFFREY KUPFER


1. (SBU) Summary: Amid strong economic growth,
pro-investment policies, improved security, and targeted U.S.
assistance, Colombia finds itself safer, economically
stronger, better governed, and more democratic than it has
been in decades. Foreign direct investment and trade, led by
the energy sector, reached historic records in 2007 and have
helped reduce poverty by 20 percent since 2002, lower
unemployment by 25 percent, and raise government revenues to
achieve its social and democratic security goals. While the
captures or kills of key leaders of the Revolutionary Armed
Forces of Colombia (FARC),the July 2 rescue of 15 hostages
held by the FARC including three Americans, and rising
desertions have weakened Colombia's largest terrorist group,
the conflict continues to threaten further advances on human
rights, security, and poverty reduction. The Uribe
Administration places top priority on concluding the
U.S.-Colombia Trade Promotion Agreement (CTPA) and promoting
investment in traditional sectors, as well as new areas such
as biofuels, as a means of the generating employment
necessary to address Colombia's social and security
challenges. End Summary.

Energy Sector
--------------


2. (SBU) Colombia's energy and mining sectors comprise over
seven percent of the economy. Energy exports are
concentrated in oil and coal, with the U.S. ranking as the
largest recipient of exports and investor in the sector.
Investment in Colombia's oil and gas sector continues to grow
as a result of pro-market policies, expanding security, and
the successful private capitalization of state-owned
Ecopetrol. As a result, Colombia has reversed its long
decline in oil production and extended its status as a net
oil exporter through at least 2015. While few experts expect
Colombia to uncover a globally significant find, local
producers believe Colombia still holds profitable plays in
natural gas offshore, heavy oil near the Venezuelan frontier,
and micro-fields of lighter-grade oil in the interior. The
GOC is in the process of auctioning off new exploration
blocks in the Llanos Basin and offshore. U.S. majors
ExxonMobil, Chevron, and Occidental have long histories of
investment in Colombia in both upstream and downstream oil
and gas.


3. (SBU) Colombia ranks as the world's fifth largest coal
exporter and derives a majority of its electrical generation
from hydroelectric plants. Colombia looks to increase coal
production nearly 65 percent over the next three years and
recently issued contracts to build six new hydro facilities
by 2016. Rich coal deposits in Guajira and Cesar Departments
as well as attractive prospects for developing nearby natural
gas deposits augur well for coal producers like U.S.-based
Drummond, Colombia's second-largest producer. Similarly,
Colombia hopes to eventually export excess hydroelectric
generation to Ecuador and Brazil. The most significant
challenges to both industries center on limited public
infrastructure and environmental compliance.

ANDI Conference
--------------


4. (SBU) The National Association of Industries (ANDI)
represents Colombia,s most powerful private sector group,
with branches in ten departments representing 21 sectors of
the economy. ANDI is headed by former governor, senator and
vice foreign minister Luis Carlos Villegas. ANDI,s annual
meeting, which you are addressing, brings together
Colombia,s most prominent private sector leaders, and will
feature speeches by President Uribe, Minister of Defense
Santos, and other members of the Cabinet. ANDI has been
influential in promoting the U.S.-Colombia Trade Promotion
Agreement and investment climate reforms in Colombia. ANDI
has also partnered with USAID on trade capacity building
activities.

Visit to Drummond
--------------


5. (SBU) Birmingham, Alabama-based Drummond is the second
largest coal exporter in Colombia. The company began working
in Colombia in 1987 and exported over 25 million tons of coal

in 2007, roughly one-third of national production. Over 55
percent of Drummond,s exports go to the U.S. with the
remainder to Europe. The company,s contract runs through

2021. Drummond plans to double coal production to 50 million
tons by 2010 as well as significantly expand its production
of natural gas. Drummond employs 6,700 people in Colombia
and has paid over USD 700 million in royalties and taxes
since 1995. The company resolved a strike with its workers
on July 22. The company is a regular flashpoint for NGOs who
allege human rights violations, mostly based upon past
incidents. The company was absolved in a 2007 U.S. District
Court case in Alabama of charges that it was responsible for
the murder of labor leaders near their mine in 2001.
Drummond reports that it is making progress with the GOC over
a new requirement for direct-loading of all coal exports at
ocean ports by July 1, 2010, and an environmental license for
a new mine adjacent to their La Loma facility.

Biofuels
--------------


6. (SBU) The GOC seeks to develop a robust biofuels industry
based on sugar-cane ethanol and palm oil biodiesel to promote
rural employment and alternatives to coca production.
Colombia's sugar growers are the most efficient in the world,
as a result of a 12-month harvest season (versus 10 months in
Brazil and 2 months in Argentina) and well-developed
irrigation methods. They currently dedicate 10 percent of
their harvest to ethanol production at five distilleries.
However, sugar production in the prime growing region (Cauca
Valley) now operates at full capacity with little additional
land for cultivation. Moreover, growers have proven hesitant
to divert a larger percentage of their production away from
the more lucrative refined sugar market. As a result, growth
in the Colombian ethanol industry depends largely on
developing other feedstocks such as sugar beet and yucca
production. At the same time, Colombia ranks as the world's
fifth largest palm oil producer, which has become a principal
feedstock for biodiesel due to its cost-effectiveness (seeds
harvested year-round for 25 years),productivity (nine times
the oil produced by soybeans) and energy efficiency (twice as
much energy per unit as soy).


7. (SBU) Much of the growth of Colombia's biofuels industry
stems from GOC incentives since 2001 to promote biofuels
development, including a value-added tax exemption, tax
exemptions for production facilities, free trade zones, price
bands, and aggressive blending mandates. The ethanol mandate
originated in large cities in 2005 to reduce car emissions
and will rise to 20 percent nationwide by 2015. In 2007 the
GOC issued a decree raising the nation-wide biodiesel
blending mandate from five percent in 2008 to 10 percent in
2010 and 20 percent by 2012. Colombia currently is not an
exporter of biofuels, but the GOC would eventually like to
export to Europe and the U.S. The Andean Trade Preferences
Act (ATPA) provides Colombian biofuels duty free access to
the U.S., which the pending CTPA would make permanent.

CTPA Solidifies Investment, Employment, and Security
--------------


8. (U) President Uribe's democratic security policy and free
market economic reforms have spurred the economy. GDP growth
reached 8.2 percent in 2007 after averaging more than five
percent annually since 2003. The economy is decelerating
this year, with recent growth slowing to just over four
percent. The United States remains Colombia's largest trade
partner (approximately 37 percent of exports and 26 percent
of imports),though Colombia could shift to greater
agricultural imports from Canada, which concluded free trade
negotiations in June 2008, and the European Union when free
trade negotiations with them conclude in 2009. In 2007, the
United States exported some USD 1.2 billion in agricultural
products to Colombia. Nearly 93 percent of Colombia's
exports already receive duty-free access to the U.S. under
the ATPA, which expires December 31, 2008, while U.S. exports
to Colombia face an average tariff of 12 percent. Investors
from around the world have boosted investment in Colombia in
anticipation of the CTPA. In 2007, Foreign Direct Investment
(FDI) exceeded USD 7.5 billion, 350 percent greater than FDI
in 2002.


9. (SBU) The Colombian Congress ratified the CTPA in 2007 by
a substantial margin, and it remains the Colombian
government's highest economic priority. The Colombian
Supreme Court ruled in favor of its constitutionality in July
2008, completing the GOC approval process. U.S. rejection of
the accord would deal a political and economic blow to Uribe
and his policy of strengthened ties with the United States.
Analysts estimate the agreement would add between one and two
percent annual GDP growth to the local economy. This growth
would add the new jobs in the formal sector that President
Uribe needs to meet his goal of cutting the poverty rate from
45 percent to 35 percent by 2010. Trade-based formal sector
growth will also provide the GOC with additional fiscal
resources to shoulder a larger portion of its security costs
as USG Plan Colombia support falls.

Democratic Security
--------------


10. (U) The establishment of greater Colombian government
territorial control and the paramilitary demobilization have
created the space for civil society and political parties to
operate more openly than ever before. The GOC maintains a
police presence in all 1099 municipalities for the first time
in history. Increased security of roads and highways have
allowed for greater freedom of movement for people and
commerce. Murders fell from over 29,000 in 2002 to less than
17,000 in 2007, and kidnappings fell from over 2,800 a year
to less than 600 during the same period. Local elections in
October 2007 reflected the improved security with over 86,000
candidates participating.

Labor Violence
--------------


11. (U) In addition to gains stemming from its democratic
security policy, the GOC has taken specific steps to protect
labor leaders and other vulnerable individuals. In 2008, the
Ministry of Interior and Justice's $44 million Protection
Program helped protect more than 9,444 human rights
activists, journalists, politicians, and other threatened
individuals, including 1,959 trade unionists. Since 2002,
labor union data shows that murders of unionists for
political reasons or common crime have fallen more than 79
percent. The murder rate for unionists is now lower than
that for the general population. A resident International
Labor Organization (ILO) representative arrived in Colombia
in January 2007 to help implement the tripartite agreement
committing the GOC to provide $4 million to finance the ILO
Special Technical Cooperation program and to provide $1.5
million a year to the Prosecutor General's Office. The
Prosecutor General operates as an independent agency
responsible for prosecuting cases of violence against trade
unionists. Since 2001, the Prosecutor General has
prosecuted 94 cases of labor violence, leading to 188
convictions. The sub-unit on labor crimes - which began
operations in November 2006 - resolved 50 cases, leading to
the conviction of 90 individuals.

U.S. Hostages
--------------


12. (SBU) An audacious Colombian military operation rescued
the three U.S. contractors and twelve Colombians held by the
FARC on July 2. The three Americans were captured by the
FARC in February 2003, and were the longest held U.S.
hostages in the world at the time of their rescue. The GOC
worked closely with us on hostage issues, and U.S. training
of Colombian military personnel contributed to the
operation's success. The FARC continues to hundreds of
hostages. The FARC is believed to continue to hold a U.S.
citizen who was kidnapped in Panama in April 2008, and
perhaps a Colombian-American dual national kidnapped in 2003,
though it has never provided proof of life.

U.S. Assistance
--------------


13. (SBU) In January 2007, the GOC presented a Plan Colombia
"consolidation strategy" pledging a Colombian investment of
$78 billion through 2013. The proposal emphasizes the
importance of building social cohesion, and allocates

substantial resources to help strengthen local governance,
protect human rights, and assist displaced people,
Afro-Colombians, and indigenous communities. It also aims to
reintegrate more than 48,000 demobilized ex-fighters and
deserters and to promote Colombia's licit exports. The GOC
seeks funding from the United States and European countries
to complement its own resources.


14. (SBU) Under Plan Colombia, the USG has provided more
than USD 5.5 billion in assistance, including USD 950 million
in economic and social assistance. USG security assistance
combats drug trafficking and terrorism through training,
equipment, and technical assistance. It supports Colombian
military aviation, essential for all programs - civilian or
military - outside Colombia's major cities. U.S. social and
economic aid focuses on alternative development, displaced
and other vulnerable communities, human rights and democratic
institutions, and reintegration of demobilized fighters.
Congress increased economic and social assistance from USD
140 million in FY 07 to USD 215 million in FY 08, while
security assistance was reduced in FY 08.

Drug Eradication and Interdiction
--------------


15. (SBU) Eradication of coca and poppy crops and
interdiction of cocaine and heroin reached near-record levels
in 2007. President Uribe supports greater manual
eradication, but recognizes that continued aerial eradication
is also key. He seeks a complementary approach using both
methods. In 2008, the national police and military forces
have set a brisk pace for cocaine, coca base and marijuana
seizures, and are over half way to record-level seizure
totals. We continue to work with the Colombian government to
maximize our scarce resources to achieve the eradication and
interdiction targets as well as a productive dialogue on how
best to transfer key tasks from the USG to the GOC.

Extradition
--------------


16. (SBU) Since taking office, President Uribe has approved
over 750 extraditions to the United States, including a
record number of 164 in 2007. The Colombian Government is on
pace to break that record, having already extradited 119
criminals to the United States in 2008, including 15 former
paramilitary leaders.

Demobilization and Peace Process
--------------


17. (SBU) Over 32,000 former paramilitaries have demobilized
since 2002, and a further 16,000 have deserted from other
illegal armed groups (about one-half from the FARC). The
Organization of American States estimates there are 30
emerging criminal groups with a combined membership of over
3000 persons. Reintegration programs and targeted law
enforcement are working to counter these groups. Under the
Justice and Peace Law (JPL) process, many former paramilitary
leaders have confessed their participation in violent crimes.
To date, the JPL process has revealed the location of the
graves of almost 1,200 paramilitary victims and provided
information on 3,600 crimes. Almost 100,000 victims have
registered under the JPL, with the GOC working on measures to
accelerate the payment of reparations. The Supreme Court and
the Prosecutor--with GOC support--continue to investigate
politicians with alleged paramilitary ties. Fifty-two
Congressmen, 19 mayors, and 11 governors have been implicated
in the scandal.


18. (SBU) The National Liberation Army (ELN) has negotiated
with the Colombian government for over two years on a
cease-fire agreement, but ELN infighting and FARC pressure
have prevented a deal. The ELN kidnap civilians to fund its
operations, but its military capability is declining. The
FARC has rebuffed GOC initiatives to engage in any meaningful
peace talks.

Regional Relations
--------------


19. (SBU) Colombia's commitment to free markets, democracy,

and close relations with the United States are an exception
to trends in region. Following Colombia's March 1 air-strike
killing FARC senior leader Raul Reyes across the border in
Ecuador, Venezuela joined Ecuador in breaking relations and
deployed military forces to its border. Venezuela called off
the buildup after reaching agreement with Colombia on March 7
to reduce tensions and reestablish commercial and diplomatic
ties. Computers found in Raul Reyes' camp have information
that implicates Venezuelan and Ecuadorian government
officials in providing support to the FARC, as well as a
wider than thought international support network for the
terrorist group. After months of strained relations,
President Uribe and President Chavez met on July 11 and
affirmed their commitment to improve ties, but tensions
remain over Venezuela's ambiguous relations with the FARC.
Ecuador and Colombia are yet to restore relations. Colombia
and Nicaragua maintain strained relations over the
sovereignty of Caribbean islands San Andres and Providencia,
and recent accusations that President Ortega has hosted FARC
rebels.
BROWNFIELD