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C O N F I D E N T I A L SECTION 01 OF 02 LA PAZ 002928 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/EPSC FAITH CORNEILLE 
 
E.O. 12958: DECL: 03/07/2017 
TAGS: ECON PGOV AGR FAO FAS IFAD IICA PREL EPET BL
SUBJECT: READY TO GAMBLE ON BIOFUELS IN BOLIVIA? 
 
 
Classified By: EcoPol Chief Mike Hammer for reasons 1.4 (b) and (d). 
 
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Summary 
-------- 
 
¶1.  (C)  The potential for biofuel development in Bolivia is 
significant:  land is abundant, fertile, and cheap; labor is 
plentiful (and employment demands great); and there is even 
an under-used pipeline to carry the fuel to a pacific port. 
Government rhetoric, lack of legal definitions, and potential 
for expropriation or random tax increases all coalesce to 
generally shelve investment plans.  However, there are signs 
that the potential may be realized.  Some investors are ready 
to take the gamble, some regional leaders are pointing the 
way, and internal debate is ongoing within relevant federal 
agencies. End Summary. 
 
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The Private Sector 
------------------ 
 
¶2.  (C)  Bolivia currently has eight active sugar cane 
plants, with two exporting their alcohol production to 
Europe.  The exported alcohol is only refined to about 96% 
purity (an additional refinement would be needed to turn this 
type of alcohol into fuel ethanol).  Cristobal Rodas, 
President of the largest national sugar producer Guabira, 
said that it would be easy enough to squeeze the additional 
2% of water out of the alcohol, but this way they avoid any 
chance that the government could classify their production as 
a hydrocarbon, and thus subject it to nationalization and/or 
additional taxes.  Moreover, he believes that the market for 
the less pure alcohol is also sizable. 
 
¶3.  (C)  Guabira also recently began construction of a US$10 
million sugar processing plant which, by using Brazilian 
technology and burning the sugar cane byproduct, will supply 
14MW of power to the national grid (the plant will use an 
additional 2MW to power its operations).  The plant is 
scheduled to begin operations September 2008. Cristobal Rodas 
hopes that by providing power to an over stressed electricity 
grid, the new plant will be viewed favorably by the national 
government and may also help illuminate an additional benefit 
to ethanol production (Note:  Guabira is also operating on 
the assumption that they are already here in Bolivia, so why 
not take advantage of the boom times and lack of foreign 
competition scared off by government rhetoric.  Similar 
attitudes have been expressed in the both the transportation 
and consumer goods sectors. Guabira is one of the few 
companies, however, willing to invest in a productive asset. 
End Note). 
 
¶4.  (C)  Currently, Guabira exports its ethanol production 
from Eastern Bolivia via the Paraguay river and Argentinean 
ports.  What really excites Rodas is the possibility of 
utilizing an under-used petroleum pipeline to export ethanol 
via the Pacific port of Arica, Chile; he is not the only one. 
 Oscar Serrate, Vice President of Transredes (the pipeline 
operator), said that four companies had approached him 
regarding the pacific pipeline (currently used at only 30% of 
capacity).  He said that the technical barriers to 
transporting ethanol were manageable and the company had an 
open offer to any producers.  The most advanced project 
proposal came from Bethanol Energy Corporation, a Las Vegas 
based company which has secured an initial US$120 million 
from private investors and a bank in Dubai.  According to 
Reynaldo Suarez, the risk manager for Bethanol, the last 
hurdle for beginning the project is political risk insurance. 
 Suarez is working with the Overseas Private Investment 
Corporation (OPIC), but to date has received no guarantees. 
(Note:  Ecoff has been told that currently OPIC is not 
considering any mining projects in Bolivia.  End Note).  Risk 
insurance is available through private markets, but Suarez 
says that it is prohibitively expensive at the moment, but 
 
LA PAZ 00002928  002 OF 002 
 
 
they may have to consider it in the future. 
 
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The Government 
--------------- 
 
¶5.  (C)  In January 2005, a decree was issued to create a 
biodiesel program in Bolivia and add a minimum of 2.5% 
biodiesel to all diesel sold in the country by January 2007. 
Regulation and legal outlines for the industry were to follow 
in 90 days:  no regulation has yet been proposed and there 
seems to be no movement in that direction.  President Evo 
Morales made explicitly clear at his UN Assembly address that 
he is not interested in taking food out of Bolivian mouths 
and placing it in the tanks of American cars.  This is the 
government's official position but, according to Andres 
Jimenez Villegas, Head of the Export Unit at the Ministry of 
Production and Micro Enterprises, debate is intense within 
the ministry itself as the benefits of biofuels for Bolivia 
become increasingly clear. 
 
¶6.  (C)  At a regional level, support is also growing.  The 
Prefect in Santa Cruz recently announced that it would invest 
US$2 million in three pilot plants for the production of 
biodiesel, principally using soy beans.  The region is the 
heart of resistance toward Movement Toward Socialism (MAS) 
plans though, and initiatives that favor regional soy 
producers are unlikely to receive any central government 
support. 
 
------- 
Summary 
------- 
 
¶7.  (C)  Evo Morales himself appears dead set against 
developing Bolivia's potential as a biofuels producer.  By 
taking this position, which appears to be deeply rooted in 
the ideological positions originating in Cuba and Venezuela, 
he is setting himself against strong market forces.  We 
expect the private sector will continue to push the 
boundaries set by the government and will try to demonstrate 
the benefits of the new industry.  Economic logic would 
dictate a strong move to capitalize on the advantages Bolivia 
enjoys, but economic logic is not currently in favor in the 
Presidential Palace.  End Summary. 
GOLDBERG