COLOMBIA: COMMENTS ON OPIC-SUPPORTED INVESTMENT

UNCLAS BOGOTA 003824

SIPDIS

FOR EEB/OIA MCULLINANE; EEB PASS TO OPIC WPEARCE AND
JHANSLEY

E.O. 12958: N/A
TAGS: EINV ENRG SENV ECON OPIC CO
SUBJECT: COLOMBIA: COMMENTS ON OPIC-SUPPORTED INVESTMENT
FUNDS IN THE REGION

REF: STATE 103210


1. (SBU) SUMMARY: In addition to pursuing increased
exploration and production in its traditional hydrocarbons
sector in order to maintain its net energy exporter status
beyond 2015, Colombia is also increasing renewable energy
production through new hydroelectric plants, aggressive
biofuel blending mandates, and exploration of wind, solar and
geothermal projects. Based on the preliminary information in
reftel, the objectives of the OPIC-supported private equity
investment fund to be managed by VGF Partners I appears
compatible and complementary to Colombian government
development programs in the areas of energy efficiency,
sustainable resource management and emissions reductions. END
SUMMARY.


2. (SBU) According to GOC figures, hydroelectric power
currently accounts for 78 percent of Colombia's electricity
generation (13,600 MW) with almost 3,000 MW of additional
capacity under construction through six new plants scheduled
for completion by 2018. In addition to supplying rising
domestic demand with emissions-neutral, renewable
hydroelectric power, Colombia aims to sell excess electricity
to regional neighbors including Brazil. Colombia currently
exports a small amount of electricity to Ecuador.


3. (SBU) The GOC has also implemented blending mandates of
renewable biodiesel (5 percent) and ethanol (10 percent) into
diesel and gasoline transportation fuel supplies,
respectively, with the mandates scheduled to rise to 20
percent by 2015. Colombia currently has five privately owned
ethanol plants and is scheduled to have six operational
private biodiesel plants by mid-2009. The GOC has
aggressively pursued biofuels as a means of reducing
pollution in major metropolitan areas, generating rural
employment alternatives to narcotics cultivation, and
diversifying its transportation fuel supply. The GOC has
also publicly pledged to develop the industry without
destruction of native ecosystems through use of degraded or
underutilized agricultural lands already in production.


4. (SBU) Complementing its emission reduction goals for
diesel, the GOC has supported the extensive renovation of the
Cartagena refinery by Swiss-owned Glencore and Colombian
parastatal hydrocarbons company Ecopetrol to significantly
improve the quality and reduce the pollutants in diesel
produced by the plant. Current diesel supplies account for a
large portion of metropolitan air pollution in Colombia.


5. (SBU) While it is difficult to predict the precise success
of any activities that VGF Partners I may pursue in Colombia,
the GOC's energy sector development policies are favorable
for the type of investment envisioned by the fund. While
Colombia has received record foreign direct investment (FDI)
over the last few years, most of the investment has flowed to
the traditional hydrocarbons sector. Given tight GOC fiscal
constraints and the current focus of FDI on hydrocarbons, new
sources of capital are needed to develop further renewable
energy projects in hydropower and biofuels, as well as pursue
exploratory efforts in wind, solar and geothermal.


6. (SBU) Post has no derogatory information regarding the
prospective fund managers.
BROWNFIELD