VZCZCXYZ0001
RR RUEHWEB

DE RUEHSN #2040/01 2841412
ZNR UUUUU ZZH
R 111412Z OCT 07
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC 8159
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/USDA FAS WASHDC

UNCLAS SAN SALVADOR 002040 
 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC FAITH CORNEILLE, EEB/ESC/IEC/EPC MATT 
MCMANUS, EEB/ESC/IEC BRENDA HAENDLER, IIP/SEG RICHARD TAYLOR 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV EPET ETRD ES
SUBJECT: BIOFUELS FORUM IN EL SALVADOR 
 
¶1. SUMMARY: At a biofuels forum on September 25, diverse Salvadoran 
stakeholders heard presentations on biofuels, the U.S.-Brazil 
biofuels partnership and ongoing feasibility studies in El Salvador. 
A visiting biofuels researcher sponsored by EB and IIP, Dr. George 
Philippidis, drew on U.S. and Brazilian experience to discuss 
benefits and challenges of promoting biofuels.  U.S. and Brazilian 
speakers jointly presented information about the U.S.-Brazil 
partnership and feasibility studies in El Salvador. 
A panel discussion aired stakeholders' concerns over food security 
and environmental issues. A press breakfast after the forum helped 
to distribute information about the U.S.-Brazil initiative. 
Subsequent meetings with Ministers of Economy and Agriculture 
highlighted keen GOES interest in biofuels and the importance of a 
pending ethanol law which has been delayed by pricing issues. END 
SUMMARY. 
 
¶2. The forum's featured speaker, Dr. George Philippidis, provided an 
overview of U.S. and Brazilian biofuels industries and discussed the 
multiple benefits and challenges involved in promoting biofuels. 
Noting the competitiveness of El Salvador's sugar industry and 
investment climate, he discussed industry options and variables that 
will affect ethanol and biofuel industries in El Salvador.  Dr. 
Philippidis emphasized the important GOES role in establishing 
biofuels mandates, temporary incentives and a favorable business 
climate to allow the private sector to invest in biofuels projects. 
Stakeholders who attended the conference included sugar growers and 
refiners, GOES, NGO, petroleum and other political party 
representatives; though, the FMLN representatives were a no show, 
despite saying they would attend. 
 
¶3. In a similar presentation on September 26 at the Biofuels Seminar 
for Latin America and the Caribbean sponsored by the Latin American 
Energy Organization (known by it's Spanish acronym - OLADE), Dr. 
Philippidis described new technologies being developed to produce 
cellulosic ethanol.  The three-day OLADE seminar, sponsored in part 
by the GOES, Government of Brazil and the Food and Agriculture 
Association of the United Nations, attracted 200 participants from 
17 different countries.  For more information on the presentations 
at the seminar see 
http://www.olade.org/biocombustibles/ponencia s.html. 
 
U.S.-BRAZIL INITIATIVE PRESENTED 
-------------------------------- 
 
¶4. Faith Corneille of WHA/EPSC joined Mauricio Borjes of Brazil's 
Export Promotion Agency (APEX) to explain the U.S.-Brazil biofuels 
partnership.  Providing context of U.S. energy policy, Corneille 
underscored the joint U.S. and Brazilian objectives of diversifying 
energy matrices while providing environmental and economic benefits 
through biofuels production.  Borjes discussed Brazil's long 
experience and success in developing a highly efficient biofuels 
industry.  Teresa Cendrowska, Vice President of ASTM International, 
discussed ASTM's role in developing technical standards for 
biofuels, underscoring an important area of collaboration under the 
U.S.-Brazil partnership 
 
¶5. Consulting teams from Winrock International and a Brazilian NGO, 
the Getulio Vargas Foundation (FGV) delivered a joint presentation 
emphasizing their close collaboration and complementary roles in 
studying the feasibility of biofuels projects in El Salvador. 
Winrock explained their USTDA-funded definitional mission to 
identify specific investment or technical assistance projects to 
support biofuels development.  FGV described their broader and 
lengthier mission to analyze technical issues and factors affecting 
the competitiveness and feasibility of biofuels projects in El 
Salvador.  Sybille Nuenninghoff, energy officer at the 
Inter-American Development Bank (IADB), also discussed IADB's 
technical assistance and support for biofuels in El Salvador. 
 
¶6. Following the presentations, another visiting biofuels 
specialist, Dr. Johanna Mendelson Forman, joined Dr. Philippidis to 
facilitate a panel discussion.  Several stakeholders raised concerns 
over potential negative effects on food Security and the environment 
from ethanol production.  Dr. Philippidis explained that Biofuels 
projects are unlikely to affect food prices in El Salvador since 
initial ethanol production would probably use molasses and existing 
sugar production.  (COMMENT: El Salvador sells roughly half of its 
500,000 metric tons of annual sugar production at higher prices to 
the U.S. and internal market, while the remainder is exported at 
lower world prices.  Initial ethanol projects could use molasses and 
possibly sugar that would otherwise be exported at lower world 
prices. END COMMENT.)  Dr. Philippidis also clarified that the 
implementation of Biofuels projects are more likely to have a 
positive rather than a negative impact on the environment. 
 
¶7. At a media breakfast on September 26, forum speakers fielded 
questions from 10 Salvadoran print journalists on the U.S.-Brazil 
initiative and implications of potential biofuels projects in El 
Salvador.  One local paper, La Prensa Grafica, exaggerated a 
conflict between speakers' comments supporting investment incentives 
and GOES opposition to incentives.  The GOES does not expect 
investment incentives to be necessary if the ethanol law includes a 
10% mixing mandate and pricing mechanisms to reduce investment 
risks. 
 
PRICING ISSUES DELAY ETHANOL LAW 
-------------------------------- 
 
¶8. Econoff and Faith Corneille joined Winrock consultants in 
meetings with Minister of Economy Yolanda de Gavidia on September 25 
and Minister of Agriculture Mario Salaverria with his Vice Minister 
Emilio Suadi and Presidential Agricultural Advisor Carmen Elena Diaz 
de Sol on September 26.  Both Ministers emphasized strong private 
sector interest in biofuels projects and underscored the importance 
of an ethanol law being drafted to establish a 10% mixing mandate 
and encourage private investment in biofuels.  Both described in 
detail the outstanding issues and political pressures over pricing 
mechanisms and profit-sharing arrangements that the GOES is working 
to resolve. 
 
¶9. In order to limit investment risk, the GOES has proposed a price 
floor of $1.95 per gallon and a pricing band linked to world fuel 
prices but influential sugar producers are pushing for a higher 
price floor and more favorable terms to further reduce investment 
risks.  Minister de Gavidia emphasized the GOES goal of encouraging 
private sector investment without raising fuel prices.  A consultant 
from Colombia will visit in October to discuss Colombia's success in 
promoting biofuels including their legislative framework.  As sugar 
producers have expressed frustration over delays in preparing 
ethanol legislation since 2004, the GOES has repeatedly promised to 
finalize the ethanol law by the end of 2007.  Minister de Gavidia 
noted that numerous consultants have provided sufficient analysis 
and proposals, but the GOES needs to make careful political 
decisions to resolve the pricing issues. 
 
COMMENT 
------- 
 
¶10. The biofuels forum provided an opportunity to roll out U.S. and 
Brazilian consulting missions under the U.S.-Brazil Initiative and 
address important stakeholders in EL Salvador.  The forum also 
highlighted stakeholders' concerns over potential negative impact of 
biofuels projects on food security and the environment.  While 
visiting speakers may have helped to allay these concerns, the forum 
highlighted the need for further public education on the benefits 
and risks of biofuels.  The GOES meetings underscored the keen 
interest of Ministers de Gavidia and Salaverria in biofuels and the 
importance of pending ethanol legislation.  In addition to ethanol, 
the GOES is very interested in biodiesel projects, since El Salvador 
consumes more diesel than gasoline and diesel may offer greater 
income and employment opportunities for small farmers. 
Presentations from the biofuels forum will be posted on Embassy-San 
Salvador's internet website (http://sansalvador.usembassy.gov/). 
END COMMENT. 
 
 
Glazer