JAMAICA: OCTOBER ECONOMIC REVIEW

UNCLAS SECTION 01 OF 02 KINGSTON 000936

SIPDIS
SENSITIVE

STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) (WSMITH)
WHA/EPSC (MROONEY)(FCORNEILLE)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW

E.O. 12958: N/A
TAGS: ENRG EAIR EINV ECON ETRD IADB IBRD IMF TRSY XL JM
SUBJECT: JAMAICA: OCTOBER ECONOMIC REVIEW

REF: A) KINGSTON 993
B) KINGSTON 755
C) KINGSTON 286
D) KINGSTON 279


1. (SBU) SUMMARY:

-- The Government of Jamaica (GOJ) signed the Open Skies Agreement
with the United States on October 30.

-- Ministry of Energy rolls out E-10 at gas stations and considers
investment in a castor bean biodiesel project.

-- Energy Ministry also announces plans to invest in coal technology
for future energy needs, switching away from earlier plans to use
natural gas. Chinese investors may be interested in the project.

-- Investors in the multi-billion dollar Harmony Cove real estate
project say the global credit crisis will not delay their efforts.

-- The Standard and Poor's Ratings Direct reaffirmed Jamaica's "B"
rating, but the outlook was revised to "Negative" from Stable.

-- The GOJ has secured up to USD 600 million in loans from
multilaterals helping to repair damage to roads and bridge the
budget financing gap. END SUMMARY.

Aviation
--------------


1. (U) The United States and Jamaica signed the Open Skies agreement
on Thursday October 30. Foreign Affairs Minister Ken Baugh signed
on behalf of the Government of Jamaica. Ambassador Brenda Johnson
was joined at the signing by Director of the Office of Caribbean
Affairs, Velia De Pirro (reftel A).

Energy/Renewable Energy
--------------


2. (U) Minister of Energy Clive Mullings launched the roll- out of
E10 fuel starting November 1, calling it "a breakthrough for Jamaica
as a developing country." E10 comprises 10 percent ethanol and 90
percent gasoline. In a press interview with the Gleaner newspaper
on October 31, he said "there are great advantages in buying
vehicles that are E10 friendly...it is cheaper...and gives off
cleaner emissions." He also announced a 60 percent duty concession
on importation of flexi fuel vehicles that run on ethanol blends.


3. (U) The Petcom gas stations are the first to offer E10. The GOJ
hopes to have E10 available across the island by May. In a press
conference on October 23, Mullings said he was keen to remind his
audience of the objectives of the energy policy, in particular
employing renewable energy, such as ethanol, and in promoting energy
conservation to reduce Jamaica's dependence on imported fuel.
Jamaica's imported oil bill totaled close to USD 2 billion for 2007.
Mullings has been a strong advocate of blended fuels and has said
his goal is to eventually offer E85 (85 percent ethanol) in Jamaica
(reftels B and C). The GOJ expects that by 2010, E10 will save the
country USD 52 million per year by reducing the need for imported
fuel.


4. (U) Petroleum Corporation of Jamaica (PCJ) is also in the process
of looking into a possible castor bean biodiesel project. PCJ has
said it is seeking farmers and suitable land for a potential
project. Although still in early stages, PCJ hopes the project will
produce 400,000 barrels of biodiesel by 2010.

Energy/ Coal Trumps LNG
--------------


5. (SBU) On October 29, Mullings announced that liquefied natural
gas (LNG) is no longer an option for Jamaica after the country
failed to secure long-term supplies from either Trinidad and Tobago
or Venezuela. Instead the GOJ will seek to build coal-fired power
plants to support Jamaica's bauxite/aluminum industry. Mullings
expressed concerns that the GOJ could not afford an LNG import
facility and associated infrastructure due to its high cost, which
could be up to USD 600 million. He also said the GOJ did not want
the country to have to rely on one fuel type. Currently relies on
imported heavy fuel oil and diesel for thermal generators for 90
percent of its energy needs, when world oil prices spiked the cost
of energy skyrocketed. Mullings told the Gleaner newspaper that the
move to coal is contingent on the island's bauxite/aluminum sector
agreeing to coal-fired plants, which would require USD 300-million
investment to build out the infrastructure. He said the GOJ was
prepared to facilitate the construction of the facility by private

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investors.

Chinese Interest in Bauxite and Coal
--------------


6. (SBU) In a meeting with Velia De Pirro, Director of Caribbean
Affairs, on October 29, Michael Stern, Minister of State in the
Ministry of Industry Investment and Commerce, said China is looking
at reviving an old bauxite plant in the St. Ann parish, but warned
that the GOJ wanted to ensure that most of the construction jobs
would go to Jamaican workers. Mullings also told reporters from the
Gleaner newspaper on October 29 that Chinese investors are
potentially interested in coal powered co-generation facilities for
the bauxite sector. Mullings said an expression of interest was
given by Mincenco Limited a subsidiary of U.S. company Century
Aluminum which as has a stake in the St. Anne Bauxite business.

Real Estate
--------------


7. (U) Leadership in the multi-billon dollar Harmony Cove real
estate project believe they will secure the funding needed for the
project despite the current global credit crunch. Harmony Cove is a
joint venture between private equity group Tavistock (51 percent)
and Jamaican state-owned Harmonization Limited (49 percent).
Harmony Cove is a ten-year project that will cover 2,000 acres
(Jamaica's contribution to the project) and will consist of luxuary
hotels and villas surrounded by a yacht club, multiple golf courses,
and retail complexes. (reftels D). Construction is to begin in 2009
and with 2,000 hotel rooms and a casino.


8. (SBU) In response to the credit crisis, National Commercial
Bank's (NCB) Managing Director and Chairman of the Harmonization
board Patrick Hylton, Chairman, told reporters on October 31 that
his partners have "really deep pockets." He stated, "We can't be in
a crisis that long...once the capital markets are freed up, then
lending will start again, persons will be comfortable again with
asset acquisition." United Kingdom citizen Joe Lewis the owner of
Tavistock lost more than USD 800 million by investing in Bear
Sterns, just weeks before it collapsed and was bought out by J.P.
Morgan at a fraction of it former value.

Rating
--------------


9. On October 21 the Standard and Poor's Ratings Direct reaffirmed
Jamaica's "B" rating, but the outlook was revised to Negative from
stable. The outlook reflects concerns that external pressures are
expected to dampen economic growth, strain high government borrowing
needs, and weaken the country's external liquidity profile.

Multilaterals
--------------


10. (U) Minister Without Portfolio in the Ministry of Finance, Don
Wehby, told the Observer newspaper on October 26 that during his
recent trip to Washington D.C., he had received commitments from
multilateral agencies to meet the balance of Jamaica's external USD
600 million financing for this fiscal year. Wehby said the interest
rates, which would be near 5 percent, are "much cheaper" than
borrowing on the international capital market. Jamaica has 200
million Euros due on Eurobond in February 2009. There are no other
bond issues maturing in the next two years. Jamaica has already has
raised USD 250 million in the capital markets earlier in the year.
Jamaica also has secured a loan of USD 50 million from the
Inter-American Development Bank (IADB) for road repair in the wake
of tropical storm Gustav.
JOHNSON