VZCZCXRO0051
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #5463/01 2882220
ZNR UUUUU ZZH
P 152220Z OCT 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 9225
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHBR/AMEMBASSY BRASILIA 1456

UNCLAS SECTION 01 OF 02 MEXICO 005463 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, AND WHA/EPSC 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD 
USDOC FOR ITS/TD/ENERGY DIVISION 
DOE FOR INTERNATIONAL AFFAIRS RDAVIS AND ALOCKWOOD 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ENRG EPET MX
SUBJECT: MEXICO: BIOFUELS UPDATE 
 
Summary 
------- 
 
¶1.  (SBU) The Agriculture Committee in the lower house of the 
Mexican Congress is preparing to issue a second draft of a 
biofuels bill to replace an earlier version vetoed by 
President Calderon September 1.  The newer version should 
provide a legal framework for ethanol production from palm, 
sorghum and other crops while not specifically mentioning 
agriculturally sensitive corn and sugar.  Nevertheless, 
despite optimism from our government contacts, there is no 
firm indication that the framework will include 
implementation funds.  End Summary. 
 
Current Biofuels State of Play 
------------------------------ 
 
¶2.  (SBU) According to the Director General responsible for 
Renewable Energy and Technology at the Energy Secretariat 
(SENER), as well as sources inside the committee,  the 
Agriculture Committee of the Chamber of Deputies will  hold a 
committee vote as soon as October 16 on a second version of 
the Mexican Biofuels law.  Legislators took into 
consideration President Calderon's observations in his veto 
last month of an initial proposal and came up with what they 
say it is "a great law."  According to Congressional sources, 
all political parties, with the exception of the Green Party, 
will support the bill.  Once approved by the Chamber of 
Deputies, the proposal would move to the Senate for its 
approval.  According to Senate staffers, Deputies have 
already lobbied the bill with Senate members so it "should be 
approved quickly." 
 
¶3.  (U) While our sources would not disclose details of the 
new proposal, in a September press conference, Secretary of 
Agriculture Alberto Cardenas called for a Mexican strategy 
"different than Brazil's and the U.S.'s where biofuels 
production is based on one product."  Under the new proposal, 
Mexico would likely seek to produce ethanol from a variety of 
stocks including palm and sorghum to be planted in underused 
land.  The Agriculture Secretariat (SAGARPA) is also seeking 
to avoid political pressure by not specifically mentioning 
basic food products, such as corn and sugar cane in the bill 
given the complicated economic structures already in place in 
those markets. 
 
¶4.   (U) According to Cardenas, the state of Sinaloa has the 
greatest potential for ethanol production.  Cardenas also 
said the bill would not include subsidies, but "financial 
schemes" to stimulate production.  According to one senior 
Energy Secretariat source to whom we spoke, "we would like 
it."   Cardenas said he would ask for budget funds to 
encourage palm, sorghum, and other feedstock crops and 
develop the necessary infrastructure and R and D in the 
states of Campeche, Veracruz, and Chiapas.  Cardenas said the 
government would "take gradual and well-planned steps toward 
biofuels production." 
 
¶5.  (SBU) Nevertheless, our sources are quick to point out 
that while the bill will provide a "good framework" for 
biofuels production, it is not clear that any funding at all 
will be provided in the budget for supporting these 
alternative crops. 
 
Background 
---------- 
 
¶6. (U) This current legislation replaces an earlier version 
of a biofuels bill vetoed by President Calderon on September 
1 (his first veto of any legislative proposal).  In a 
document sent to Congress explaining the veto, the Calderon 
Administration argued that the earlier bill focused only on 
ethanol production from corn and sugar cane, rather than 
promoting the use of other more sustainable sources.  The 
Administration also objected to the earlier law's empowering 
SAGARPA to fix prices, approve projects, promote and develop 
biofuels, and create indicators and quality systems arguing 
that those issues should fall directly under SENER.   The 
Administration argued SAGARPA should be responsible for 
promotion and development of inputs, while the SENER should 
control the production, transportation, and commercialization 
of ethanol. 
 
 
MEXICO 00005463  002 OF 002 
 
 
¶7.  (U) Calderon Administration officials had also objected 
to the earlier bill's mandating replacement of the Methyl 
Tertiary-Butyl Ether (MBTE) as an oxygenating agent in 
gasoline sold in Mexico City, Monterrey and Guadalajara, 
which would require importing ethanol.  According to 
Undersecretary for Energy Planning Jordy Herrera, The vetoed 
law would have obliged Pemex to incorporate 2.6 million 
liters of ethanol to gasoline while Mexico remains an ethanol 
importer.  The Calderon Administration seeks a more gradual 
introduction and the development of new technologies since 
the conversion capacity would not have been sufficient to 
satisfy the demand for many years. 
 
Biofuels a Political Issue 
-------------------------- 
 
¶8.  (SBU) The vetoed biofuels law had been drafted by 
Institutional Revolutionary Party (PRI) legislators and 
sugarcane producers.  Some observers had suggested that 
Calderon's vetoed the proposal to shield biofuels from 
political pressures by agricultural organizations and the 
PRI.  Party of the Democratic Revolution (PRD) legislators 
responded favorably to Calderon's veto as the party had voted 
against the law.  The National Agricultural Confederation 
(CNC) accused Calderon and his National Action Party (PAN) of 
betraying their agreement with the PRI.  The CNC alleges that 
Calderon sought to give SENER and multinationals control of 
Mexican biofuels.  Farmers responded to the veto by saying 
that Mexico will now have to import ethanol and pay more for 
it. 
 
¶9.  (U) In reality, Mexico's production of yellow corn is 
insufficient for ethanol-production.  Mexico currently 
imports yellow corn for animal feed and the fructose 
industry.   While sugar cane could be used to produce 
ethanol, benefiting the 12 million Mexicans that work in or 
depend on that industry, Mexican sugar mills' low 
productivity and profitability and the current contract 
between sugar mills and producers make sugar production for 
ethanol uneconomic. 
 
Comment 
------- 
¶10.  (SBU) While Embassy sources were almost unanimous in 
their approval of the replacement biofuels draft now being 
prepared in the lower chamber's Agriculture Committee, all 
note that the law only provides a framework for how biofuels 
development will be handled.  Without mandating specific 
targets or providing funds for subsidies or infrastructure 
development, biofuel production remains an optimistic goal. 
Additionally, agriculture special interests were able to lard 
Mexico's previous biofuels bill with enough pork to sink it. 
There is only anecdotal evidence to show that this will not 
happen a second time around. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
GARZA