VZCZCXYZ0001
RR RUEHWEB

DE RUEHBO #8092/01 3192207
ZNR UUUUU ZZH
R 152207Z NOV 07
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 0126
INFO RUEHBR/AMEMBASSY BRASILIA 7868
RUEHCV/AMEMBASSY CARACAS 9547
RUEHPE/AMEMBASSY LIMA 5637
RUEHZP/AMEMBASSY PANAMA 0827
RUEHQT/AMEMBASSY QUITO 6293

UNCLAS BOGOTA 008092 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
EEB/ESC FOR MCMANUS & HANDLER; WHA/EPSC FOR CORNEILLE 
 
E.O. 12958: N/A 
TAGS: ENRG EAGR ECON EAID PGOV CO
SUBJECT: COLOMBIA BIOFUELS UPDATE: PROMISE DESPITE 
UNCERTAINTY 
 
REF: A. (A) BOGOTA 4956 
 
     ¶B. (B) BOGOTA 7171 
 
¶1. (SBU) SUMMARY: The opening of Colombia's first biodiesel 
plant, establishment of a biodiesel free trade zone, and 
increasing blending mandates reinforce the GOC's commitment 
to adopt biofuels to diversify energy supplies and promote 
rural job creation.  However, while growers expand palm oil 
cultivation for biodiesel, traditional sugarcane growing 
areas needed for ethanol have reached capacity.  Likewise, 
although the GOC promised the biofuels sector will not 
destroy native habitat and private sector-environmental NGO 
cooperation is growing, analysts agree Colombia needs a 
national environmental impact assessment to obtain 
certification for its biofuels. END SUMMARY. 
 
Biodiesel: Promising Outlook 
---------------------------- 
 
¶2. (U) The GOC forecasts Colombia's diesel consumption will 
grow nine times faster than gasoline consumption over the 
next 15 years.  In this context, the GOC seeks to develop a 
robust biodiesel industry based on Colombia's growing palm 
oil industry.  Colombia currently ranks as the world's fifth 
largest palm oil producer with 200,000 hectares in production 
and another 100,000 hectares in development.  Although 
traditionally utilized in food and cosmetics, palm oil has 
become a principal feedstock for biodiesel due to its 
cost-effectiveness (seeds harvested year-round for 25 years), 
productivity (produces 3.7 tons of oil per hectare--nine 
times the oil produced by soybeans) and energy efficiency 
(twice as much energy per unit as soy).  The journal 
Environmental Science and Technology recently identified 
Colombia as one of the top five countries for capacity to 
sustainably develop a biodiesel industry, based on its strong 
agroindustrial sector, investment climate, and agricultural 
characteristics. Colombia's national palm growers' 
association, Fedepalma, estimates Colombia will have one 
million hectares in cultivation by 2010 producing 1.2 million 
tons of palm oil a year with one-half going to biodiesel. 
 
¶3. (U) To foster the palm-biodiesel sector, on November 11 
the GOC approved the creation of Colombia's first biodiesel 
free trade zone in Magdalena Department.  The Colombian 
investor, Caribbean Sustainable Biofuels, expects to produce 
100,000 tons of biodiesel for sale to the state-owned 
hydrocarbons company Ecopetrol, creating 748 new direct jobs 
and supporting 900 family farmers.  The free trade zone 
follows the July inauguration of Colombia's first biodiesel 
plant, one of at least five biodiesel projects expected to 
come on-line by mid-2008 (ref A) at a cost of approximately 
USD 100 million each.  Altogether the five plants will 
process fuel from 69,000 hectares of palm oil and produce 
315,000 tons of biodiesel.  Production from the five plants 
should fully supply the GOC mandate to blend biodiesel into 
five percent of the domestic diesel supply by January 1, 
¶2008. 
 
Ethanol: Profits To Be Had, But Sugar Supply Stretched 
--------------------------------------------- --------- 
 
¶4. (SBU) In addition to biodiesel, Colombia is developing its 
sugar-based ethanol industry.  Colombia's sugar growers are 
the most efficient in the world, producing 2.4 million tons 
of sugar per year on 197,000 hectares concentrated in  Valle 
del Cauca Department.  Colombia's high productivity results 
from a 12-month harvest season (versus 10 months in Brazil 
and 2 months in Argentina) and well-developed irrigation 
methods.  The sector consists of 14 sugar mills and supports 
250,000 direct and indirect jobs.  Colombian sugar producers 
currently dedicate 10 percent of their harvest to ethanol 
production at five distilleries.  Together the five plants 
produce one million liters of ethanol a day covering 
two-thirds of the GOC's current mandate to blend ethanol into 
10 percent of the national gasoline supply.  Colombia's 
National Biofuels Federation forecasts 25 more ethanol plants 
are needed to produce the 2.3 million liters of ethanol a day 
necessary when the blending mandate rises to 15 percent in 
2010 and the 4.4 million liters per day needed to fulfill the 
20 percent mandate by 2015. 
 
¶5. (SBU) In the face of growing domestic demand for ethanol, 
the sector confronts a supply challenge.  Sugar production in 
the Cauca valley currently operates at full capacity with 
little additional land for cultivation.  Moreover, growers 
 
 
have proven hesitant to divert a larger percentage of their 
production away from the more lucrative refined sugar market. 
 As a result, growth in the Colombian ethanol industry 
depends largely on developing other feedstocks such as 
sugarbeet and yucca production.  On November 5, in the 
presence of President Uribe, British firm ED&FMan inaugurated 
a $270 million investment in a 10,000 hectare project in 
Boyaca Department that will produce 900,000 liters a day of 
sugarbeet-derived ethanol.  ED&FMan selected Boyaca for its 
soil and climate characteristics, which the firm estimates 
will provide a 30 percent increase in productivity over its 
sugarbeet facility in Chile.  The project is expected to 
create 6,000 direct and indirect jobs.  ED&FMan is currently 
looking at a second project on the Caribbean Coast with 
sugarbeet varieties adapted to tropical climates. 
 
Energy Diversification Good, Job Creation Better 
--------------------------------------------- --- 
 
¶6. (SBU) While keen to diversify the nation's energy supply 
amid diminishing domestic oil production, the GOC views 
biofuels first and foremost as a rural development mechanism 
and a promising alternative to illicit crop production. The 
GOC calculates that biofuels will create 1.5 million formal 
sector jobs and support 6 million Colombians over the next 
ten years.  In order to reach that goal, the GOC set a target 
of cultivating 3 million hectares in biofuels feedstock by 
2017 (1 million for ethanol and 2 million for biodiesel).  At 
the moment, ethanol production supports approximately 25,000 
direct and indirect jobs in Colombia while palm cultivation 
supports an estimated 80,000 direct jobs.  Colombia currently 
is not an exporter of biofuels, but the GOC would eventually 
like to export to Europe and the U.S.  The Andean Trade 
Preferences Act (ATPA) provides Colombian biofuels duty free 
access to the U.S., which the pending Colombia-U.S. Trade 
Promotion Agreement would make permanent. 
 
Aggressive Incentives & Mandates 
--------------------------------- 
 
¶7. (SBU) Much of the growth of Colombia's biofuels industry 
stems from GOC incentives since 2001 to promote biofuels 
development, including a value-added tax exemption, tax 
exemptions for production facilities, free trade zones, and 
price bands.  Aggressive blending mandates have also helped 
stimulate domestic demand.  The ethanol mandate originated in 
large cities in 2005 to reduce car emissions and will rise to 
20 percent nationwide by 2015. In July the GOC issued a 
decree raising the nation-wide biodiesel blending mandate 
from five percent in 2008 to 10 percent in 2010 and 20 
percent by 2012.  The GOC is currently testing up to 50 
percent biodiesel blends in Bogota's Transmilenio public bus 
system. 
 
¶8. (SBU) Although Colombia's ambitious incentives reflect the 
government's strong interest in making Colombia a leader in 
biofuels, the blending mandates will require a rapid 
expansion in biofuels production to meet local demand.  Such 
an expansion of ethanol production may prove particularly 
difficult.  The Ministry of Mines and Energy estimates the 10 
percent national ethanol mandate will require 60,000 hectares 
of sugarcane dedicated to ethanol production--approximately 
three times the current amount.  Conversely, the oil palm 
acreage and five biodiesel plants coming on-line in 2008 
should fully cover the initial 5 percent biodiesel blending 
mandate and the GOC estimates the 100,000 hectares of oil 
palm needed for the 10 percent biodiesel mandate will be 
on-line by 2010.  However, palm oil prices have risen 90 
percent since 2004, placing cost pressures on biodiesel 
manufacturers that could cause supply challenges in the near 
term. 
 
Environmental and Land Challenges 
--------------------------------- 
 
¶9. (SBU) Despite Colombian biofuels' potential, environmental 
and land issues, if not managed properly, could limit the 
sector.  Environmental NGOs are concerned the GOC cannot 
fulfill its commitment to expand biofuels production without 
harming the environment.  To address concerns about palm 
production, Fedepalma has engaged NGOs directly and through 
the Zurich-based Roundtable for Sustainable Palm Oil, which 
established a set of eight principles and 38 criteria for 
sustainable palm oil development.  Likewise, the sugar 
industry has developed innovative practices to recycle 
 
ethanol distillery byproduct (vinasse) as fertilizer, utilize 
sugarcane organic waste (bagasse) for electricity 
co-generation, and optimize irrigation water usage. 
Nevertheless, differences remain between the GOC, industry, 
and environmentalists regarding areas to cultivate feedstocks 
without deforestation or biodiversity destruction. 
Environmental experts, including a Conservation International 
biologist who recently surveyed the Colombian biofuels sector 
as part of an Embassy-sponsored visit (ref B), have urged the 
GOC to commission an independent environmental impact 
assessment as well as press biofuels producers to pursue 
international certifications for their products. 
 
¶10. (SBU) Separately, human rights NGOs have linked palm 
production in the Choco and Tumaco Departments to Colombia's 
armed conflict and the land rights of Afro-Colombians.  NGOs 
have accused the palm growers of illegally occupying lands in 
which Afro-Colombians were displaced by the conflict and 
preventing the populations from recovering their land. While 
less than 10 percent of Colombia's palm cultivation lies 
within disputed areas and the vast majority of the industry 
has not been subject to such land issues, slow progress in 
resolving the disputes risk tarnishing the broader industry. 
Brownfield