VZCZCXYZ0022
RR RUEHWEB

DE RUEHMU #0788/01 0822106
ZNR UUUUU ZZH
R 232106Z MAR 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 9600
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1025
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS MANAGUA 000788 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, EB/ESC 
 
E.O. 12958: N/A 
TAGS: ENRG EPET EMIN TBIO SENV EINV PINR VE NU
SUBJECT: NICARAGUA: AMBASSADOR MEETS NEW MINISTER OF ENERGY 
AND MINES 
 
REF: A. MANAGUA 0640 
 
     ¶B. MANAGUA 0196 
     ¶C. 06 MANAGUA 2384 
     ¶D. MANAGUA 0781 
 
¶1. (SBU) Summary. The Ambassador called on the new Minister 
of Energy and Mines Emilio de Jesus Rappaccioli Baltodano on 
February 14 to introduce himself and discuss energy issues in 
Nicaragua.  Rappaccioli summarized recent changes to energy 
sector governance, including the creation of the Ministry of 
Energy and Mines.  He told the Ambassador that his primary 
focus will be to increase access to electricity for the poor, 
especially in rural areas, and the provision of power to 
productive sectors of the economy.  In addition, Rappaccioli 
wants to "rehabilitate" Petronic, so that it can play a more 
collaborative role with Petroleos de Venezuela (PDVSA). 
Rappaccioli outlined his views on and Nicaraguan developments 
in the petroleum sector, biofuels, as well as hydroelectric, 
geothermal, and wind power.  He welcomed the continuation of 
technical assistance on regulatory matters, but did not 
expressly commit himself.  End Summary. 
 
¶2. (SBU) The Ambassador called on new Minister of Energy and 
Mines Emilio de Jesus Rappaccioli Baltodano on February 14 to 
introduce himself and discuss energy issues in Nicaragua. 
Rappaccioli was joined by his Vice Minister Lorena Lanza 
Espinosa and Secretary General Donald Espinosa Romero. 
Earlier in her career, Lanza served in the Ministry of Trade, 
Industry, and Development in the Directorate of Hydrocarbons. 
 Most recently, Espinosa served as the Director of 
Hydrocarbons at the Nicaraguan Institute of Energy. 
Rappaccioli told the Ambassador that his primary focus will 
be to increase access to electricity for the poor, especially 
in rural areas, and the provision of power to productive 
sectors of the economy.  Rappaccioli outlined developments in 
the hydropower, biofuels, and wind generation.  He envisions 
roles for both private and public sector investment in the 
energy sector.  He did not talk much about mining, except to 
note that existing mines are primarily in private hands. 
(Note: Canadian-based Triton owns the rights to three small 
gold mines in Nicaragua, output from which is exported to the 
United States at 90-95% purity for refining.) 
 
A New Ministry 
-------------- 
¶3. (SBU) Minister Rappaccioli opened the meeting with a brief 
summary of recent changes to energy sector governance.  All 
functions of the National Commission on Energy (CNE) have 
been folded into the new Ministry of Energy and Mines (MEM), 
along with many of the functions of the Nicaraguan Energy 
Institute (INE), including the authority to grant permission 
for power generation, contract for power distribution, and 
award exploration and production concessions to mining 
ventures and oil and gas companies.  The Ministry of Trade, 
Industry, and Development (MIFIC) will transfer its 
Directorate of Mines to MEM soon.  When this occurs, MEM will 
bear responsibility for all policy as it relates to 
electricity, renewable energy, hydrocarbons, and investment 
in the mining and energy sectors.  The power to regulate 
consumer prices on electricity and propane gas will remain 
with INE. 
 
¶4. (SBU) Rappaccioli confirmed that Empresa Nacional de 
Electricidad (the state-owned national electric company, 
ENEL) and Petronic (the state-owned oil and gasoline 
distributor) will report to MEM.  MEM will supervise the 
contract with Glencore (Switzerland) for the management of 
Petronic, and the contract with Union Fenosa (Spanish) for 
the management of Nicaragua's two power distribution 
companies, Disnorte and Dissur. 
 
Making Way for Venezuela 
------------------------ 
¶5. (SBU) Rappaccioli told the Ambassador that he intends to 
"rehabilitate" Petronic so that it can play a more 
collaborative role with Petroleos de Venezuela (PDVSA, the 
Venezuelan National Oil Company) on the importation and 
distribution of Venezuelan fuel, the construction of a 
Venezuelan proposed refinery and transithsmus pipeline, and 
perhaps oil and gas exploration in Nicaragua.  Currently, 
Petronic is little more than a holding company, contracting 
the use of oil storage and offloading facilities as well as 
Petronic's retail gasoline stations to Glencore.  Since 
Petronic's contract with Glencore remains in force until June 
2009, Rappaccioli is looking to create some other entity in 
the interim to manage fuel purchases from Venezuela and serve 
 
as a counterpart to PDVSA.  Rappaccioli believes that such an 
interim company could forge an arrangement with Glencore for 
the use of Petronic facilities to receive and store oil, 
diesel, and gasoline from PDVSA at the Port of Corinto for 
distribution to power producers, public transport companies, 
and businesses throughout the country -- and even the ESSO 
refinery over the medium term. 
 
¶6. (SBU) Under the Venezuelan scheme, Rappaccioli explained 
that 40% of the cost of the fuel would not come due for 25 
years (Ref A).  If Nicaragua imports $200 million worth of 
oil from Venezuela in 2007, for example, then as much as $80 
million would be available to spend on health, education, and 
rural development programs.  Rappacciolli expects that 
Nicaragua will conclude a contract for the supply of fuel 
through Corinto with Venezuela by April.  (Note: In 2006, 
Nicaragua imported $656 million worth of petroleum products, 
$209 million from Venezuela and $191 million from Mexico.) 
 
Oil and Gas Exploration 
----------------------- 
¶7. (SBU) The Ambassador inquired about progress on removing 
the injunction on exploration concessions off the Atlantic 
coast awarded to U.S. firms MKJ and Infinity (Ref B).  He 
told the Ambassador that the companies had recently visited 
MEM, and that the ministry is reviewing their cases.  He 
added that MEM had requested the contracts from INE, but INE 
had not yet done so.  Rappaccioli added that "it is in the 
interest of the government to resolve the situation as 
quickly as and in the best form possible."  Contrary to 
claims supporting the injunction, Rappaccioli observed that 
the concessions appeared to be "external," i.e., falling 
outside the purview of the autonomous regions on the 
Atlantic.  Another positive development, he said, is that 
Foreign Minister Santos had taken an interest in the case. 
(Note: In a previous decision, INE had stopped the clock on 
the concessions to MKJ and Infinity, so that milestones 
missed as a result of the injunction will not jeopardize the 
ability of the companies to fulfill the terms of their 
concessions.) 
 
¶8. (SBU) Rappaccioli did not mention the recent find of 
Canadian-based Norwood Resources, which has an onshore 
exploration concession along the Pacific Coast.  On the day 
of this meeting (February 14), Norwood announced that it 
found gas, condensate, and light oil in separate zones in its 
exploration well at San Bartolo Rodriguez.  The discovery was 
made below 6000 feet in various tubidite sands.  Norwood said 
that it plans to drill another exploratory well into a 
similar geological structure located 11 kilometers away. 
 
Biofuels 
-------- 
¶9. (SBU) Rappaccioli said that he thought that Nicaragua 
could increase ethanol and biodiesel production either for 
export or domestic use, estimating the potential to 
substitute up to 30% of Nicaragua's gasoline requirement in 
the near term.  (Note: Nicaragua may be able to almost double 
the land under sugar cane production over the next five 
years, to 100,000 hectares (Ref C).)  With more sugar cane 
production, Rappaccioli observed, power generated from 
bagasse would also grow.  He noted that the Atlantic coast 
had started to produce biodiesel from African palm for export 
to nearby Costa Rica, and that there is the potential to 
produce much more. 
 
¶10. (SBU) The Ambassador offered to bring a U.S. expert to 
Nicaragua to discuss the prospect for expanding biofuel 
production in Nicaragua.  Rappaccioli tacitly approved of the 
idea, suggesting that Grupo Pellas also make a presentation 
on its ethanol production.  Rappaccioli added that Pellas' 
first shipment of ethanol recently sailed to Europe, and that 
the next shipment will go to the United States. 
 
¶11. (SBU) Rappaccioli told the Ambassador that President 
Ortega would soon send a biofuels bill to the National 
Assembly.  (Note: Since this statement, Ortega has joined 
President Chavez of Venezuela in publicly criticizing ethanol 
production and U.S. policy on biofuels, stressing food 
security and the need to keep food and fuel markets separate. 
 In March, Ortega cancelled a trip to Brazil where he was 
supposed to sign a bilateral cooperative agreement to promote 
ethanol production. (Ref D)) 
 
Hydropower 
---------- 
 
¶12. (SBU) Rappaccioli believes that Nicaragua has great 
potential to develop hydropower and hinted that a pipeline of 
feasibility studies is in the works.  Rappaccioli said that 
ENEL is looking at constructing several small hydroelectric 
dams.  (Note: ENEL has sought assistance from the U.S. Trade 
and Development Agency for a feasibility study for a 15 MW 
hydroelectric dam at El Barro).  For some time, a group of 
investors comprising COPALAR has floated a proposal to 
construct a large hydroelectric dam on the Rio Grande of 
Matagalpa, which could generate as much as 900 MW and cost 
more than $1 billion to build.  Legislation facilitating the 
project is pending before the National Assembly.  Rappaccioli 
told the Ambassador that a decision on COPALAR would be made 
by the end of the year, adding that Mexican billionaire 
investor Carlos Slim had shown interest in the project during 
his recent visit to Nicaragua.  (Note: Rappaccioli lists 
COPALAR as one of his consulting clients on his curriculum 
vitae between 1997 and 2006.) 
 
¶13. (U) Note: Nicaragua currently sources 80% of its 
electricity from power plants that import oil for fuel. 
Installed capacity is roughly 650 MW, which meets current 
demand, but leaves no room for error and is inadequate in the 
context of projected rising demand.  In fact, the lack of new 
investment in power generation presents a serious obstacle to 
investors, often raising the cost of a project.  ITG Cone 
Denim's $100 million denim plant under construction in Ciudad 
Sandino, for example, includes a $20 million power plant as 
part of its investment so that the assured supply of power is 
not an issue.  End Note. 
 
Geothermal Power 
---------------- 
¶14. (SBU) Rappaccioli wants Nicaragua to further develop its 
potential to generate power from geothermal sources.  He 
mentioned the Israeli (Ormat) Italian (ENEL), and Salvadorean 
investment in a geothermal plant at Momotombo which generates 
about 20 MW.  He also mentioned the Canadian, U.S., and 
German investment at San Jacinto, now named Polaris, 
lamenting the fact that San Jacinto is only generating about 
7.5 MW although it had the potential to produce 66 MW.  As 
the President of INE eleven years ago, Rappaccioli said that 
he had signed the contract to develop San Jacinto and not 
much had happened since.  He told the Ambassador that the 
government was reviewing Polaris' concession.  (Note: Shortly 
after this meeting, the Attorney General's office announced 
its opinion that Polaris' poor performance constituted 
sufficient grounds for the government to void its concession. 
 Polaris has been fighting back, pointing out negotiated 
changes to its concession and work program with INE, and the 
company's declaration of force majeure in 2004 as a result of 
the worldwide shortage of drilling equipment.) 
 
Wind Power 
---------- 
¶15. (SBU) Rappaccioli welcomed the recently launched wind 
generation project in the Department of Rivas, terming it a 
very positive development.  The $80 million Amayo wind farm 
involves the erection of 19 wind propelled turbines 
manufactured in India by a Danish firm and installed by a 
Spanish firm.  The previous day, Vice Minister Lanza attended 
the signing ceremony for Amayo's power purchase agreement to 
supply up to 40MW to Union Fenosa.  The project is the 
brainchild of U.S., Guatemalan, and Nicaraguan investors. 
 
¶16. (SBU) Rappaccioli told the Ambassador that another wind 
farm similar to Amayo is under development for the Department 
of Chontales.  The plan is to produce up to 20 MW for ENACAL, 
the state-owned water company.  ENACAL will manage the pluses 
and minuses with Union Fenosa, and thus channel excess power 
to the grid. 
 
¶17. (SBU) Rappaccioli described the prospects for generating 
wind power in Rivas and Chontales as excellent, especially 
during the dry season.  Nevertheless, the nature of the 
enterprise is that sometimes power will not be available. 
Whatever power these two wind farms generate, he observed, 
they will be cost competitive, constitute a domestic energy 
source, and reduce the requirement for oil imports. 
 
Technical Assistance: Energy Regulation 
--------------------------------------- 
¶18. (SBU) The Ambassador explained that before the change in 
government on January 10, USAID brought two energy experts to 
Nicaragua to consult with energy sector stakeholders and the 
government on Nicaragua's energy regulatory regime, 
 
especially as it pertained to power generation and tariffs. 
Rappaccioli replied that he would welcome the continuation of 
such technical assistance, but did not expressly commit 
himself.  (Note: A USAID consultant visited during the week 
of March 19 to explore the possibility of advancing technical 
assistance in this area.) 
 
Biography: Emilio de Jesus Rappaccioli Baltodano 
--------------------------------------------- --- 
¶19. (SBU) Emilio de Jesus Rappaccioli Baltodano returns to 
government after a hiatus of ten years.  From 1979 to 1990, 
he headed the Nicaraguan Energy Institute under the 
Sandinista regime.  During this time, Rappaccioli earned the 
nickname "Don Rapagon" (Sir Outage, with a play on the "R" in 
his last name), for his many power rationing schemes. 
Rappaccioli continued at the Nicaraguan Energy Institute 
during the administration of Violeta Barrios de Chamorro. 
From 1995 to 1997, he served as President of the state owned 
Nicaraguan Electric Company (Empresa Nicaraguense de 
Electricidad, ENEL).  For the past 10 years, he worked as an 
international consultant.  During this period, he served as 
President of the FSLN's National Commission on Judicial and 
Ethical Affairs. 
 
¶20. (SBU) Rappacciolli received his bachelor's degree from 
the University of Central America in Managua and a master's 
degree in civil engineering from Northeastern University in 
Boston, Massachusetts.  In the early 1970's, he taught 
engineering at the University of Central America and National 
University of Nicaragua.  He remains an active member of the 
American Association of Civil Engineers, the Nicaraguan 
College of Engineers, and the Association of Engineers and 
Architects.  He is 65 years old (DOB: 5/5/41), married, and 
has children. 
TRIVELLI