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.

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Aviation/ Air Jamaica
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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.

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Environment/ Renewable Energy/ Energy
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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."

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Foreign and U.S. Investment
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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



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Trade
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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).

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Tourism Sector
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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.

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Budget / Tax Revenue / Debt
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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.

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Alternative Investment Schemes
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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