JAMAICA: JULY ECONOMIC REVIEW

UNCLAS SECTION 01 OF 03 KINGSTON 000703 SIPDIS SENSITIVE STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) WHA/EPSC (MROONEY) EEB/ESC/IEC (GGRIFFIN) EEB/TPP/IPE (JHALLOCK) SANTO DOMINGO FOR FCS AND FAS TREASURY FOR ERIN NEPHEW E.O. 12958: N/A TAGS: ENRG EAIR EINV ECON ETRD EIND IADB IBRD IMF TRSY XL, JM SUBJECT: JAMAICA: JULY ECONOMIC REVIEW REF: A) KINGSTON 542 B) KINGSTON 365 C) KINGSTON 263 D) 07 KINGSTON 1614 E) KINGSTON 490 F) KINSTON 343 G) KINGSTON 648 ¶1. SUMMARY: -- Air Jamaica losses USD 85 million in the first quarter and revamps its corporate board. -- Energy expert Dr. Raymond Wright is optimistic about Jamaica's potential for offshore natural gas. -- Wigton Windfarm plans to double in size by adding 18 megawatts of new wind turbines. -- Energy Minister Clive Mullings announces plans to build a 120 megawatt petcoke cogeneration plant at a cost of USD 300 million. -- The Government of Jamaica (GOJ) has finalized an agreement to sell the former state-owned sugar estates to Brazil's Infinity Bio-energy. -- Jamaica's export earnings from bauxite/alumina grew by more than 14 percent in 2007 to USD 1.3 billion, fueled by demand from China and other emerging economies. The President and CEO of Alcoa visited its operations in Jamaica to discuss a potential expansion. -- The Burger King and Popeye's franchise owner purchased nearly USD 1 million in restaurant equipment from the U.S. through assistance from Ex-Im bank -- Tourism Minister Bartlett says the GOJ will sign a tourism agreement with Cuba next month. -- Finance Minister Audley Shaw announced a 37 percent jump in taxes collected for June 2008 versus June 2007; the increase USD 170 million increase in tax revenue highlights the success of Shaw's tax amnesty program. -- Alternative investment scheme Olint has collapsed; its offices are closed in Kingston and its offices in Turks and Caicos were raided by police as part of an investigation into possible financial fraud. -------------- Aviation/ Air Jamaica -------------- ¶2. (SBU) Air Jamaica has experienced an increase in flight delays and cancellations as the struggling airline continues to limp along (reftel A). (COMMENT: Post has noticed that the diplomatic pouch which travels on Air Jamaica's cargo service has been increasingly delayed due to airline staff shortages and reports of maintenance issues causing aircraft delays are on the rise. End Comment). The airline, which underwent a major board reshuffling on July 3, has lost more than USD 85 million in the first five months of the year, according to a speech by Finance Minister Audley Shaw to Parliament on July 15. Shaw told Parliament that USD 9.6 million of the losses were incurred from leasing two A340 aircraft. Shaw said some of the first quarter losses were covered through funds raised from a bond issued through Bear Stearns (prior to its collapse) and USD 20 million from Venezuela's PetroCaribe Development Fund. ¶3. (SBU) The new board includes Derick Latibeaudiere (Governor of the Bank of Jamaica) Colin Steele (financial analyst and former chair of economic policy for the Private Sector Organization of Jamaica) and Chris Berry (a respected investment advisor and Chairman of Mayberry Investments). Canadian David Banmiller is being considered to replace Board chair Shirley Williams to run daily operations at the airline. Banmiller served as CEO of Air Jamaica from 2003 to 2004; during his tenure he cut upper management by 36 percent, through layoffs and a hiring freeze. When Banmiller was not able to take the airline in the direction he wanted, he left to run Aloha Airlines based in Hawaii. He successfully navigated Aloha through Chapter 11 bankruptcy proceedings. -------------- Environment/ Renewable Energy/ Energy -------------- KINGSTON 00000703 002 OF 003 ¶4. (U) Respected Energy Consultant and manager of special projects at the Petroleum Corporation of Jamaica (PCJ),Dr. Raymond Wright, told the Gleaner newspaper on July 6 that Jamaica's coastal waters may contain reserves of 2.5-3 trillion cubic feet of natural gas. Three foreign firms are currently working in Jamaica to explore 20 offshore blocks for oil and gas. Australian-based Finder Exploration is expected to start drilling by November of 2009. Although it would take years to exploit, any commercially viable discovery of natural gas would be a tremendous asset to Jamaica, which currently suffers an energy crisis brought on by dependency on imported oil. Jamaica's current electricity costs are 31 cents per kilowatt hour, compared to 4 cents per kilowatt hour in Trinidad which relies on its significant resources of natural gas and 14 cents per kilowatt hour for other Caribbean countries. ¶5. (U) Jamaica will be expanding its 20 megawatt Wigton Windfarm by hiring Vestas Wind Systems based in Denmark to add nine more turbines for an additional 18 megawatts. Wigton is owned by the Petroleum Corporation of Jamaica (PCJ). Currently, Wigton has 23 turbines that have an installed capacity of 900 kilowatts each; the wind farm generates seven to nine megawatts on average. The cost of the project will be USD 47.6 million. It is not yet clear how PCJ will finance this expansion. Power produced at Wigton is sold into the national grid under a 20-year power purchase agreement with Jamaica Public Service Company Limited, the sole power distributor. ¶6. (U) Jamaica Broilers (JB) announced it will invest USD 15 million to expand its ethanol business. JB sold 45 million gallons of ethanol to the United States in the last ten months under the benefits of the Caribbean Basin Initiative (CBI). One of the two largest poultry businesses in Jamaica, the firm has expanded into ethanol by opening a plant in July 2007. The ethanol plant was built at a cost of USD 17.7 million (reftel D),but has generated close to USD 100 million for the firm since opening. ¶7. The PCJ, the Jamaica Public Service Company (JPS) and the Ministry of Energy announced on July 23 that it signed a letter of intent to construct a 100-120 megawatt petroleum coke (petcoke) cogeneration plant at a cost of USD 300 million. The plant will be located at Hunts Bay and is scheduled to begin operation in 2013. Petcoke is a byproduct of the refining process and can be used to generate power at a cost lower than petroleum thermal generators currently used. Once completed the plant would bring Jamaica's installed capacity to just under 1,000 megawatts. During the signing Minster of Energy Clive Mullings said that the project "marked a new era of diversification and efficiency in the generation sector." -------------- Foreign and U.S. Investment -------------- ¶8. (U) The GOJ has finalized an agreement with Brazilian-based Infinity Bio-Energy for the sale of the assets of its former sugar estate parastatals. Under the agreement 75 percent of the assets will be transferred to Infinity on September 30; the GOJ will retain a 25 percent interest for at least three years. The agreement is supported by the National Workers Union and the All-Island Jamaica Cane Farmers' Association Infinity selected in April and was the only firm out of eight bidders to make it through the tender process. The GOJ hopes the deal will help Jamaica develop its potential for sugar-based ethanol (reftel E). ¶9. (U) The State Minister for Mining and Telecommunications, Laurie Broderick, told the Parliament on July 8 that Jamaica's gross export earnings from bauxite/alumina grew by more than 14 percent in 2007 to USD 1.3 billion. He said Jamaica's output of just over four million tons accounted for nearly six percent of global output; while world consumption grew by 12.7 percent to 74.57 million tons. The increase is being fueled by demand from China and other emerging economies. Broderick anticipates a three percent increase in total bauxite production in 2008. ¶10. (SBU) Alcoa President and CEO, Klaus Kleinfeld, visited Jamaica in July telling reporters, "Jamaica should be a crown jewel for Alcoa." Alcoa had been considering a possible second phase expansion of its operations; the first phase was completed in early ¶2006. The bauxite industry is extremely energy intensive, absorbing 50 percent of power produced on the island. The GOJ has not been able to find a suitable alternative power source to support the proposed Alcoa expansion. Plans to obtain Liquefied Natural Gas (LNG) from Trinidad and Tobago were unsuccessful. KINGSTON 00000703 003 OF 003 -------------- Trade -------------- ¶11. (U) Restaurant Associates Limited, which owns the Burger King and Popeye's franchises in Jamaica, is purchasing restaurant equipment from the U.S. valued at USD 992,240. The equipment will be used in opening five new Burger King and Popeye's restaurants in Trinidad and Tobago. The purchase is being supported through a loan guarantee from the U.S. Export-Import Bank. Restaurant Associates owns a total of 36 restaurants in Caribbean (Jamaica, Trinidad and Tobago, and St. Lucia). -------------- Tourism Sector -------------- ¶12. (U) The GOJ intends to sign a tourism agreement with Cuba. Tourism Minister Ed Bartlett did not provide specific details, but told reporters of the Gleaner newspaper that, "Jamaica stands ready to assist Cuba in its tourism business and a formal memorandum of understanding will be signed in Kingston in August. Bartlett added that the two countries would explore the possibility of marketing tourism packages that combine visits to both Cuba and Jamaica. The two countries already have tourism linkages through investors that own hotels in both destinations. -------------- Budget / Tax Revenue / Debt -------------- ¶13. (SBU) Minister of Finance and the Public Service, Audley Shaw announced a 37 percent increase in taxes collected in June 2008 from the same month last year. The USD 170 million in increased tax revenue this year is partially attributed to Shaw's successful tax amnesty. Shaw decided to extend the 100 percent amnesty on interest and penalties an additional month, to July 31, to allow those who were still trying to come into compliance to take advantage of the program. Shaw said collection of arrears has increased by 71 percent. The amnesty will decline each month until it is ends on October 31. (reftels B and F). Shaw renewed his promise of using tax payers money more effectively saying, "paying taxes is to be a partnership, pay your taxes and watch your money being spent in a transparent and fiscally responsible way." Shaw said the GOJ wants to harmonize corporate tax rates (33.33 percent) with personal income tax rates (25 percent) and subsequently lower the overall rates on both. -------------- Alternative Investment Schemes -------------- ¶14. (SBU) The currency trading alternative investment scheme know as Olint closed its offices in Kingston, citing threats against the lives of its employees; the following day Olint's offices and the home of CEO David Smith were raided in Turks and Caicos (reftel G). According to press reports, Smith's assets have been frozen in the Turks and Caicos Islands as part of a probe into allegations of financial fraud. Smith also is being sued by two former clients who are seeking to recover USD 3.3 million plus interest that they claim they invested with Olint. In court documents Christopher Walker claims he lost nearly USD 2.5 million and Michael Belcher claims he lost USD 800,000. The claimants are seeking damages for "fraudulent representation" and have asked for a court order seeking a disclosure of Smith's assets. JOHNSON