BOOSTING BIOFUELS IN PARAGUAY

UNCLAS ASUNCION 000005

OPIC WASHDC PRIORITY

SIPDIS

STATE FOR WHA/BSC MDASCHBACH, WHA/EPSC FCORNEILE

E.O. 12958: N/A
TAGS: ECON PREL EAGR EPSC PA
SUBJECT: BOOSTING BIOFUELS IN PARAGUAY


1. (SBU) SUMMARY: A public-private working group approached
the Embassy December 23 to outline an ambitious plan to
dramatically increase Paraguayan sugarcane-based ethanol
production. They asserted a five-fold increase in five years
is quite feasible, if more favorable access to the U.S.
market were apparent to help offset high transport costs.
Such plan to increase ethanol production by Paraguay --
already the world's fourth-largest soy producer -- could have
a positive impact on President Lugo's job creation
imperative, and on USG efforts to promote the use and
production of multiple sources of renewable energy supplies.
END SUMMARY.


2. (SBU) A seemingly cohesive public-private working group on
biofuels met the Charge and Econoff December 23 to discuss
Paraguay's plans to grow the sector. Led by Vice Minister of
Energy Carlos Buttner, officials from the Ministry of Foreign
Affairs, the Ministry of Agriculture, the Ministry of
Commerce and Industry, and key private sector representatives
presented an ambitious plan to increase Paraguay's
sugarcane-based ethanol production, and solicited support to
gain duty-free market access to the U.S.


3. (SBU) The participants stated there are currently 7
ethanol-producing plants in Paraguay with a combined capacity
of 120 million liters per year. Given domestic regulations
that require on average a 24 percent ethanol-blend for
gasoline, all of the current production is locally consumed.
Production in 2008 reached 80 million liters, compared to 60
million liters in 2007. The projection for 2009 is production
of 90 million liters, and a local demand of roughly 100
million liters.


4. (SBU) Participants explained that Paraguay seeks to become
a net exporter of sugar-based ethanol by 2013, and they see
the U.S. as the main market. Two projects with a combined
capacity of 50 million liters per year are expected to begin
operations in 2010, and several existing plants are looking
to expand capacity to a combined total of 470 million liters
per year by 2013. The plan described by participants is that
Paraguay reaches a capacity of 590 million liters per year by
2013 to supply local demand (projected at 250 million liters)
and export the difference. The total investment needs, mostly
directed at the production plants, are estimated at about 500
million USD. Private sector representatives remarked that
they have been slow to invest because of uncertainty about
market access opportunities. Participants claimed that
Paraguay's enormous potential is constrained by high
transport costs, and the current U.S. tariff structure prices
them out of our market. They asserted that Paraguay by 2013
could realistically export to the U.S. about 200 million
liters, if more favorable market access conditions were
provided. Participants indicated that Paraguay's position is
in support of the diversification of ethanol-producing
countries to make the fuel a common and widely available
commodity -- a process referred to as "commoditization". They
emphasized that over 80,000 new jobs in the ethanol
production-chain would be the direct social benefit of being
able to export to the U.S.


5. (SBU) The Charge discussed USG initiatives that can
support Paraguay's plans. He described the Overseas Private
Investment Corporation (OPIC) initiative to support renewable
energy projects, including biofuels, and the opportunities
for technical exchanges outlined in the bilateral Memorandum
of Understanding on biofuels, currently awaiting the setting
of a date for signature by the Ministry of Foreign Relations.


6. (SBU) COMMENT: The mixed public-private sector working
group appeared organized, knowledgeable, and technically
competent. In fact, several of the participants would make
fine candidates for the country-specific International
Visitor Leadership Program on biofuels planned for Paraguay
in 2009. The private sector clearly is intent in scaling up
production if market access opportunities are sufficient to
offset high transport costs. Though ambitious, if the plan to
boost Paraguay's ethanol production is carried out it would
yield significant economic and social returns, particularly
in the all important job creation imperative. Paraguay's plan
and its expressed support for the "commoditization" of
ethanol could also positively contribute to USG efforts to
promote the use and production of renewable energy supplies
by multiple sources. END COMMENT.

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