VZCZCXYZ0000
RR RUEHWEB

DE RUEHPE #0087/01 0112021
ZNR UUUUU ZZH
R 112021Z JAN 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 3572
RUEHQT/AMEMBASSY QUITO 0927
INFO RUEHBO/AMEMBASSY BOGOTA 4248
RUEHBR/AMEMBASSY BRASILIA 7161
RUEHBU/AMEMBASSY BUENOS AIRES 2735
RUEHCV/AMEMBASSY CARACAS 0063
RUEHLP/AMEMBASSY LA PAZ JAN SANTIAGO 1040
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUMIAAA/USSOUTHCOM MIAMI FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS LIMA 000087 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/AND,/EPSC (FCorneille), EB/ESC/IEC(Izzo) 
DEPT FOR OES/STC (PBates), S/P (GManuel), E 
TREASURY FOR J. LEVINE 
STATE PASS TO EXIM, OPIC, TDA 
STATE PASS TO EPA/OIA 
DEPT OF ENERGY FOR S. LADISLAW 
ENERGY INFORMATION ADMIN. FOR CHARLES ESSER 
USDA for FAS/CMP 
USDOC FOR M. CAMERON 
 
E.O. 12958:  N/A 
TAGS: ENRG ECON ETRD SENV SNAR PE
SUBJECT: GARCIA TOUTS MAPLE GAS ETHANOL PROJECT 
 
REF: A)Lima 4221 (B)Lima 4404 
 
¶1. (U) SUMMARY: On January 5, U.S. oil firm Maple Gas signed a $650 
million contract with the Piura Regional Government for a sugar 
cane-based ethanol plant.  President Garcia spoke at the signing 
ceremony, calling the biofuel project the start of an "agrarian 
revolution" that showcased foreign private investment.  Sited on the 
northern desert coast, the plant should produce 30 million 
gallons/year by 2010.  Garcia announced other biofuel projects in 
the works. The Maple project is a model for U.S investors on how to 
coordinate land and water rights acquisition with the national and a 
regional government. END SUMMARY. 
 
PRESIDENT GARCIA AT SIGNING CEREMONY 
------------------------------------ 

¶2.  On 5 January, Maple Gas Peru (MGP) consummated the purchase of 
10,600 undeveloped hectares in the northern desert from the regional 
government of Piura.  MGP's ethanol project is officially launching 
the bio-energy industry in Peru.  President Alan Garcia spoke at the 
signing ceremony to an enthusiastic crowd; glowing speeches were 
also made by the Regional President, the Ministers of Production and 
Agriculture, and parent company Maple Gas president Rex Cannon. 
Econoffs and Ag Counselor witnessed a love fest of optimism over the 
chance to bring prosperity to impoverished but once wealthy Piura. 
Garcia touted an "agrarian revolution" whereby now agriculture would 
produce energy.  He labeled the investment a hallmark for 
decentralization, and described the need for and benefits of private 
foreign investment in Piura. 
 
ETHANOL PROJECT DESCRIPTION 
--------------------------- 

¶3. MGP is a subsidiary of Texas-based Maple Gas Corporation.  With 
the signing of the land purchase agreement, MGP will produce sugar 
cane, and build and operate a mill, ethanol processing plant, 
co-generation power plant, and a marine terminal at Piata for 
export.  Operations will require 400 direct and 2000-3000 indirect 
jobs, most local, and around 1000 for construction. Ground breaking 
is expected in October, with ethanol production to start in 2010. 
Staggered production lands, coupled with the coast's ideal cane 
climate (no rain) will make for low-cost, year-round production. 
 
¶4. Water rights from the nearby Chira River were secured from the 
national government by Supreme Decree last year.  MGP's next step is 
to complete environmental impact assessments (EIA) underway and 
secure construction permits. (Note: this desert is not considered 
environmentally sensitive; impacts from diverting water from the 
river will have to be addressed.  Neither MGP nor government 
proponents expect problems, but on 1/10 an opposition Congress 
person announced an inquiry into MGP's proposed water diversion. 
End note.) 
 
¶5.  MGP is investing $120 million, with $80 million of debt. Lima 
investment firm AC Capitales is an equity partner with $10 million. 
(AC invests Peruvian pension funds.)  MGP projects annual revenues 
at $35 million. (Note: MGP also operates the Aguayta natural gas 
projet and an oil refinery in the Peruvian jungle.  End Note.) 
Estimated cost of production is $0.50 per gallon, compared to $0.65 
per gallon in Brazil.  The U.S. is the target market, with Peru a 
possible market if the GOP improves ethanol incentives. 
 
CORPORATE SOCIAL RESPONSIBILITY HELPS 
------------------------------------- 

¶6. Maple Gas Per will contribute $500,000/year to Piura's regional 
government for 20 years; the GOP has agreed to treat these payments 
as tax-deductible donations (although tax agency SUNAT has not given 
its final approval).  Piura's reelected APRA party Regional 
President, Csar Trelles (as enthusiastic as Garcia at the ceremony) 
said that he will invest the funds in health and education.  To 
encourage local farmers on surrounding lands to switch from low-tech 
but water-hungry/low value rice cultivation (begun after the 70's 
military government's expropriations destroyed the lucrative cotton 
industry), MGP will provide technical training for cane production, 
plus pay up to one-half the value of the first harvest upfront. 
 
LAND, WATER, POWER: MODEL FOR U.S. INVESTORS 
-------------------------------------------- 

¶7. Key hurdles were acquiring sufficient land, securing clear titles 
and ensuring water rights for irrigation.  Water rights in Peru have 
suffered from conflicting local/national regulation; MGP convinced 
President Toledo to set a precedent with a Supreme Decree that 
guaranteed water.  The power plant will produce 37MW, with excess 
capacity of 12MW which MGP will sell to the local power grid. A 
careful land purchase process, coupled with constant patrolling, 
good police cooperation and local security officers have managed to 
minimize squatter issues that frequently plague large projects. 
 
ETHANOL AND CELLULOSE PROJECTS IN THE WORKS 
------------------------------------------- 

¶8. MGP's investment is part of an accelerating investment climate 
for biofuels.  Overall investment could reach $280 million as Grupo 
Romero (Peru) and Manuelita (Colombia, the second-largest ethanol 
producer in Brazil) are negotiating with Piura to develop ethanol 
production facilities.  Andean Trade Promotion and Drug Eradication 
Act (ATPDEA) preferences, plus U.S. mandatory ethanol use in many 
states are the prime incentive, per MGP.  If as predicted the GOP 
legislates mandatory ethanol use to combat serious urban air 
pollution, Peru will become a market.  Garcia also announced that a 
bio-oil project in the jungle is well along (Ref B). 
 
COMMENT 
------- 

¶9. While not surprising that Garcia would show up to support his 
fellow APRA party Regional President, it is a welcome sign that he 
made a long trip to plug U.S. investment in the politically 
sensitive agricultural and energy sectors. This project, the first 
major deal with a regional government since Regional Presidents took 
office in 2003, shows U.S. firms that it is possible to acquire some 
of the millions of hectares that the GOP ceded to the regions. 
MGP's deal shows how a firm can navigate Peru's vague water law 
regime to secure desert water rights from the national government. 
It also shows less investment-friendly regional presidents - such as 
mine-rich Arequipa's, that working with foreign investors is a key 
to prosperity. MGP's careful attention to local needs is also a 
model for future investors. Peru is further along the road to 
becoming a net energy exporter. 
POWERS