VZCZCXRO9149
RR RUEHGR
DE RUEHGE #1069/01 2861953
ZNR UUUUU ZZH
R 131953Z OCT 06
FM AMEMBASSY GEORGETOWN
TO RUEHC/SECSTATE WASHDC 4244
INFO RUCNCOM/EC CARICOM COLLECTIVE

UNCLAS SECTION 01 OF 04 GEORGETOWN 001069 
 
SIPDIS 
 
WHA/EPSC - CORNEILLE 
EB/ESC/IEC - IZZO 
S/P - MANUEL 
OES/STC - PAMELA BATES 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EAGR PREL PGOV GY
SUBJECT: SURVEY OF ETHANOL POTENTIAL IN GUYANA 
 
REFS: A) STATE 164558, B) 05 GEORGETOWN 906 
 
¶1. SUMMARY: Though a small-scale sugar producer, Guyana could be a 
lucrative destination for investment in ethanol production. Guyana's 
efforts to streamline its sugar industry and lower the cost of 
production--which will enable it to remain competitive--have limited 
excess cane capacity and investment in ethanol to date. 
Nevertheless, Guyana has ample land, relatively favorable investment 
and regulatory incentives for the energy sector, and duty-free 
access to the U.S. market through the Caribbean Basin Initiative. 
Obstacles include government-ownership and control of the sugar 
industry, poor infrastructure and a shrinking labor force. END 
SUMMARY. 
 
--------------------------- 
STATE OF THE SUGAR INDUSTRY 
--------------------------- 
 
¶2. Guyana's sugar industry is struggling to remain profitable and is 
still surviving despite a 36% reduction in European Union price 
supports. The EU price reduction is expected to cost the Guyana 
Sugar Corporation (Guysuco) around US$40 million in revenue/year. 
Nevertheless, the firm has embarked on a modernization program that 
will improve cane yield and eventually lower the unit cost of 
production from US 17 cents/pound to about US 12 cents/pound of 
sugar, enabling it to remain competitive on the world market. 
Guysuco is also undertaking value-added initiatives such as 
improving the packaging of sugar, developing a stronger branding 
strategy, and building a refinery (Guyana currently exports raw cane 
sugar). 
 
¶3. The crux of this effort is the Skeldon Sugar Modernization 
Project (SSMP), which will see the construction of a new 110,000 ton 
capacity sugar factory. The GOG and the People's Republic of China 
signed a concessional loan agreement paving the way for the US$110 
million project in the eastern region of Berbice. The new factory is 
expected to begin operations in October 2007. 
 
¶4. Guysuco is a state-owned company. Since 1990 the GOG has 
contracted out the management operation of the company to the 
British firm Booker Tate Limited. Production averages around 3.67 
million tons of cane/year with a yield of approximately 80 tons of 
cane per hectare. The corporation is located along the narrow 
fertile coastal strip between the Atlantic Ocean and the rain forest 
and savannah of the interior. This area is low lying and is 
protected from the ocean by a sea wall, stretching across two 
counties, namely Demerara and Berbice. These five sugar estates 
(West Demerara Estates, East Demerara Estates, Blairmont Estate, 
East Berbice Estates and Skeldon Estate) include eight factories, 
four in the county of Demerara, with two on each bank of the 
Demerara River in the area surrounding Georgetown, and four in the 
county of Berbice in the east of the country, with three on the 
banks of the Berbice River and one on the bank of the Corentyne 
River. 
 
¶5. Guysuco's five sugar estates comprise approximately 60,000 
hectares about 41,000 of which are under cultivation. The industry 
has the potential to increase the amount of land at its disposal. 
The GOG has identified approximately 1 million acres in the Canje 
River Basin (Berbice Region) for potential cultivation. However, 
this will require prepping virgin land, which Guysuco estimates 
would require an investment of around US$100 million. 
 
¶6. Guysuco employs around 17,500 people directly plus 5,000 private 
cane farmers and 4,000 temporary workers. In addition, the industry 
employs 20,000 people indirectly through the provision of goods and 
services. Guysuco directly accounts for 10 percent of Guyana's labor 
force and is the largest single employer in the country. The 
industry's union, the Guyana Agricultural Workers Union, is a 
primary support base for the ruling People's Progressive Party. 
Accordingly, the GOG is loathe to take economically rational steps, 
such as closing or consolidating less productive estates West of the 
Demerara River, that would reduce employment in the sector (REF B). 
 
 
¶7. In terms of environmental impact, sugar cane harvesting methods 
in Guyana do include burning the fields prior to harvest. However, 
there is no level of local concern among citizens over environmental 
effects, given that the fields and factory are not in close 
proximity to citizens. The Environmental Protection Agency of Guyana 
ensures that Guysuco's environmental controls and mitigation 
measures keep pace with the introduction of new regulations and 
policies for the control of emissions from its factories and the 
burning of its fields. According to Guysuco, sugar cane is a net 
producer of carbon dioxide, replacing as much as 30 tons/hectare of 
carbon even when taking burning into account. Traditional 
fertilizers include sulphate of ammonia (SOP), urea, muriate of 
potas (MOP), and diammonium phospahate (DAP). Sulphosate and 
 
GEORGETOWN 00001069  002 OF 004 
 
 
fluazifop-butyl are used for chemical ripening. 
 
¶8. Guysuco uses bagasse (biomass from sugarcane) for power 
generation. Approximately 67% of the corporation's estimated 62.2 
GWH in electrical power generation is produced from bagasse, with 
the remaining 33% produced from gas-oil (diesel). 
 
------------------ 
INVESTMENT CLIMATE 
------------------ 
 
¶9. Guyana has seen little investment in the energy sector. A number 
of international investors have conducted feasibility studies in the 
areas of hydro-power generation and wind-power generation. The GOG 
has also been approached by a number of companies seeking to conduct 
both onshore and offshore oil exploration in Guyana. To date, none 
of these high-profile, speculative ventures have materialized. As 
far as ethanol is concerned, Guysuco is presently seeking funding to 
undertake a feasibility study to consider the capital, operating 
cost and economic viability of a 130 million liter/year ethanol 
plant. The company reports receiving inquiries from three potential 
investors interested in ethanol, but nothing has materialized to 
date. 
 
¶10. The GOG does not offer subsidies for private electricity 
producers in country. However, the GOG has developed a number of 
investment incentives through the Guyana Office for Investment 
(Go-Invest) encouraging investors (both local and foreign) to invest 
into the energy sector. These include duty-free waivers on customs 
tariffs and consumption tax for plant, machinery and equipment as 
well as unrestricted repatriation of profits and dividends. 
 
¶11. Presently Guyana does not have any environmental regulations 
that specifically address bio-refining. The Environmental Protection 
Agency (EPA) noted that environmental regulations for a bio-refinery 
can be addressed under Environmental Management Regulations of the 
Environmental Protection Agency Act. 
 
¶12. Infrastructure is a major constraint to investment. A 
transportation sector study concluded in 2005 found that only 35% of 
Guyana's estimated 330 miles of paved roads could be rated in "good 
condition". Defective maintenance is the primary constraint. In 
addition, ferry connections are a key feature of Guyana's limited 
road infrastructure. Sugar outputs in the most productive region of 
Berbice must travel 130 miles by barge, truck and ferry to port 
facilities on the Demerara River. 
 
¶13. The primary port facility is Georgetown Harbor, located on the 
mouth of the Demerara River. The port has a river frontage of about 
two nautical miles and is equipped with six main wharves with depths 
ranging from 4.9 - 6.1 meters. Maximum draft accepted is 8.2 meters 
(approximately 7500 tons deadweight) on high tide with a maximum 
length over all of 175 meters. Limited water depth in the face of 
heavy silting is a major limiting condition. A mudflat with depth of 
less than 5 meters over it extends 10 miles northeast of the mouth 
of the Demerara River. A channel, dredged to a depth of 6.90 meters 
in 1990, leads through the mudflat into the harbor, but no 
systematic or regular dredging is carried out. There are presently 
five wharves with capability for liquid storage each owned by 
petroleum importers. 
 
¶14. In addition to the political strength of the agricultural 
workers union noted above, which may place pressure on potential 
investors to carry excess labor capacity, migration of both skilled 
and unskilled labor is an additional constraint on productivity. 
Guyana exports roughly 2% of its population each year, and firms 
regularly report having to train as many as five workers to fill one 
position. 
 
------------- 
ENERGY SECTOR 
------------- 
 
¶15. The government adheres to free market principles in the energy 
sector. The price of energy is determined by the world market price 
of oil rather than by local demand and supply of fuel. The GOG does 
from time to time intervene in the market to keep the domestic 
market price for fuel from escalating. The government will normally 
reduce the consumption tax on import fuel when there is an increase 
in the world market price. Nevertheless, energy costs remain among 
the highest in the region, with electricity retailing at U.S. 28 
cents/KwH and gasoline at US$3.03/gallon. 
 
¶16. The GOG has generally encouraged private investment into the 
energy sector over the years. Note that recently the GOG and 
Florida-based Synergy Holdings signed an agreement for the 
construction of a hydro-power station worth US$300M. The hydro-power 
station at Amaila Falls is expected to be completed by December 
 
GEORGETOWN 00001069  003 OF 004 
 
 
2010, though it appears to be little more than a speculative venture 
at this stage. The GOG has also agreed to similar projects with 
private investors to assess and develop Guyana's potential for other 
renewable energy generation, including wind and biomass. The GOG 
signed a technology transfer agreement with Brazil for ethanol 
production in September 2005, but cooperation in the sector has yet 
to materialize. 
 
¶17. The regulatory structure of the energy sector includes the 
following agencies with whom potential investors would have to 
interact: 
 
--Office of the Prime Minister: The Office of the Prime Minister 
(OPM) has principal policy-making and regulatory responsibility in 
the sector, including granting licenses to public utilities and 
independent power producers and approval of development and 
expansion plans. 
 
--The Public Utilities Commission: The Public Utilities Commission 
is responsible for monitoring and enforcing operators' compliance 
with commitments emanating from licenses and standard terms and 
conditions for operations, including operating standards and 
performance targets and development of expansion plans. 
 
--The Guyana Energy Agency: The Guyana Energy Agency (GEA) is 
responsible for developing and implementing national energy policy 
and for promoting energy efficiency and the development of new and 
renewable sources of energy. 
 
--The Environmental Protection Agency (EPA): The EPA is responsible 
for drafting environmental regulations, enforcing compliance of 
sector operations with environmental laws and regulations and 
advising OPM and Office of the President of the Republic on the 
public suppliers' environmental audits and management plans. 
 
¶18. Presently the sector is dominated by the state-owned entity 
Guyana Power and Light. An effort at privatization ended in 2003 
when the investor, American Caribbean Power, sold its shares back to 
the GOG. Several private manufacturers, including Guysuco, produce 
their own electricity to aid their production process. Private 
sector electricity producers are permitted to sell power back to the 
national grid. However, the Electricity Sector Reform Act of 1999 
prohibits private sector electricity producers to distribute 
electricity directly to other consumers. On the fuel side, the 
government-owned Guyana Oil Company (Guyoil) competes with Esso, 
Shell, and Texaco. 
 
¶19. Guyana currently spends roughly a third of GDP on oil imports. 
The following table, based on data provided by the Guyana Energy 
Agency, breaks down average annual petroleum use by sector from 2000 
to 2005 ('000s of BBLs): 
 
 Commercial/Services   36.0 
 Residential     231.4 
 Industry including sugar  425.6 
 Marine & Road Transportation  856.0 
 Air Transportation    53.8 
 Agriculture/Mining    449.4 
 Fishing      180.3 
 Electricity Generation   1657.2 
 ------------------------------------- 
 Total      38732.4 
 
¶20. Guyana has no government mandated ethanol blending requirement. 
The GOG has no plans in the near future nor has there been any 
attempt to legislate a mandatory ethanol blending requirement. 
Detailed information on Guyana's vehicle fleet is unavailable. 
However, high tariffs on vehicle imports have led to a prevalence of 
older model Japanese automobiles. Flex fuel vehicles are 
nonexistent. Guysuco's technical assessment of ethanol potential 
suggests that an output of 11 million liters/year would satisfy a 
10% substitution requirement for domestic consumption. 
 
------- 
COMMENT 
------- 
 
¶21. At present, all available land, capital and labor at the sugar 
industry's disposal is geared toward sugar production. Several of 
the inputs necessary for ethanol to be viable--land, water, 
knowledge of cane cultivation, political will--are present. Access 
to capital is lacking. Guyana's relatively small production 
capacity, especially vis a vis Brazil, make it easy to overlook and 
limits interest among foreign investors. The Chinese-financed sugar 
modernization program, while ultimately keeping the sugar industry 
competitive, has also weakened Guyana's debt posture. Guyana's 
history as a Heavily Indebted Poor Country and commitments to the 
IMF limit state-owned Guysuco's ability to finance expansion into 
 
GEORGETOWN 00001069  004 OF 004 
 
 
ethanol. However, this also raises an opportunity for strategic USG 
involvement, perhaps through funding of a thorough feasibility study 
of ethanol potential. 
 
ROBINSON