VZCZCXRO0744
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #1341/01 3191338
ZNR UUUUU ZZH
R 151338Z NOV 07 (ZDK ZUI STATE SVC 05191)
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 8194
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHBJ/AMEMBASSY BEIJING 0217
RUEHBR/AMEMBASSY BRASILIA 0116
RUEHLO/AMEMBASSY LONDON 0079
RUEHNE/AMEMBASSY NEW DELHI 0024
RUEHOT/AMEMBASSY OTTAWA 0445
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEAWJA/DOJ WASHDC

UNCLAS SECTION 01 OF 03 MAPUTO 001341 
 
SIPDIS 
 
SIPDIS 
 
DOS FOR ALL AFRICAN DIPLOMATIC POSTS COLLECTIVE AND 
USDA FOR FAS/OGA/JARRELL AND OCRA/FERUS 
 
E.O. 12958: N/A 
TAGS: ENRG EAGR SENV EINV PGOV TBIO MZ
SUBJECT: BIOFUELS POTENTIAL ATTRACTS INTERNATIONAL 
INVESTMENT TO MOZAMBIQUE 
 
¶1.  Summary: Interest in bioenergy development in Mozambique 
is increasing rapidly.  The country has significant tracts of 
undeveloped land and a climate conducive to biofuel crops. 
Mozambique participates in trade regimes with the European 
Union and the United States that could provide preferential 
treatment for Mozambican biofuels.  However, drought, food 
security challenges, and infrastructure problems could hinder 
growth.  In response, the GRM is developing a national 
biofuels strategy to assure sustainable economic growth and 
equitable use of natural resources to ensure the benefits 
from the industry are broad-based.  International interest is 
concrete, with several major development agreements, 
including one for $510 million, signed in recent months. As 
Mozambique and Brazil recently signed a cooperation agreement 
on biofuels, we believe that Mozambique would be an excellent 
candidate for further USG-Brazil cooperation on biofuels 
production.  End Summary. 
 
---------------- 
Potential Supply 
---------------- 
 
¶2.  Mozambique has 36 million hectares of arable land, but 
currently only 9% of that land is under cultivation.  With a 
climate similar to Brazil's, many biofuel sources grow 
easily, including sugar cane, jatropha, sorghum, sunflowers, 
palms, cassava and coconuts.  In July 2007 the GRM released a 
study by the International Energy Agency which predicts that 
Mozambique could reach an annually sustainable biomass 
production of 6.7exajoules (the equivalent of 1 billion 
barrels of oil a year) using strict sustainability criteria 
which, among other things, ensures the protection of forests 
and keeping biofuels from impacting on food production. 
Claudio James, an engineer with the state-owned oil company 
Petromoc, told Poloff that, theoretically, Mozambique could 
produce enough biodiesel to supply the entire country within 
48 months. 
 
---------------- 
Potential Demand 
---------------- 
 
¶3.  At the same time that Mozambique's bioenergy resources 
are being identified, opportunities for biofuels sale in 
international markets are opening.  The European Union has 
preferential trade agreements with Least Developed Countries, 
including Mozambique, under its Everything But Arms 
Initiative (EBA), enabling biofuels from Mozambique to enter 
the European market duty and quota free. Opportunities exist 
for Mozambican biofuels to preferentially enter the U.S. 
market without the ad valorem duty applied under the African 
Growth and Opportunity Act (AGOA). 
 
------------------- 
Potential Obstacles 
------------------- 
 
¶4.  The areas of Mozambique most frequently mentioned for 
biofuels generation are areas that also suffer from drought. 
Farmers on the lower Limpopo River have already expressed 
concern that there will not be enough water both for proposed 
sugar cane plantations upstream and for their own needs.  In 
addition, Mozambique still suffers from a lack of physical 
infrastructure to bring biofuel crops to market.  Finally, 
international observers note that if farmers shift from food 
production to production of biofuels, additional food 
shortages could occur in a country that is already highly 
dependent on international food aid. 
 
-------------------------------- 
GRM Developing Biofuels Strategy 
-------------------------------- 
 
¶5.  As the scale of bioenergy potential in Mozambique has 
become apparent, the GRM has recognized a need for an overall 
strategy and policy for addressing bioenergy.  In June 2007 
the GRM announced a two-phased effort by an intra-Ministerial 
committee to establish the policy.  During a recent courtesy 
call, the Minister of Agriculture Erasmo Muhate told the 
Charge and Regional Agricultural  Counselor that, as requests 
to develop biofuels concessions of over 5 million hectares 
 
MAPUTO 00001341  002 OF 003 
 
 
had arrived on his desk since January, the GRM decided to 
delay granting any further concessions until the review is 
finished.  He indicated that Phase I is a technical 
assessment of economic, social and environmental 
sustainability including evaluation of the potential market, 
identification of different feed stocks, competitive 
production costs and identification of key issues.  The 
Minister said Phase II will create an implementation strategy 
- which currently remains in draft form.  The policy will 
address social and environmental dimensions, and assist the 
GRM in policy implementation with all relevant stakeholders. 
 
------- 
COMMENT 
------- 
 
¶6.  With a conducive climate, plenty of available arable 
land, and the beneficiary of favorable trade arrangements, 
Mozambique is preparing to become an active player in the 
biofuels market.  While some rush to produce biomass, if the 
concomitant processing plants are not built, roads cannot 
handle truck traffic and no local market exists, farmers may 
find themselves overextended.  Ironically, the race to 
bioenergy could result in unintended consequences and 
potentially damage the agriculture sector if not carefully 
planned.  In this light, the GRM's decision to craft a 
national strategy to ensure coherent policies and broad-based 
growth is especially prescient.  The GRM is open to increased 
USG engagement on this issue.  As Mozambique and Brazil 
recently signed a cooperation agreement on biofuels, we 
believe that Mozambique would be an excellent candidate for 
further USG-Brazil cooperation on biofuels production.  END 
COMMENT. 
 
--------------------------------------------- -- 
Annex: Int'l Biofuels Commitments in Mozambique 
--------------------------------------------- -- 
 
¶7. Recent commitments by numerous international entities to 
invest in the development of bioenergy in Mozambique include: 
 
- In August 2007, Mozambique and Brazil signed a Memorandum 
of Understanding which established an action plan to be 
drafted over the following 180 days, aimed at studying local 
conditions and at transferring technologies and scientific 
expertise on renewable bio-based fuels as well as training 
Mozambican engineers and technicians and creation of a 
framework to help Mozambique create an internal and 
export-oriented market for biofuels.  The goal of the MOU is 
to replicate Brazil's sustainable biofuels production model 
in Africa. 
 
- In August, Vancouver-based Energem Resources, a natural 
resources company listed on the Toronto Stock Exchange, 
announced that it had acquired a 70% controlling interest at 
a cost of $5.5M in a jatropha based biodiesel venture in 
Mozambique.  The enterprise, now named Energem Renewable 
Energy Limited, has jatropha seedling nursery facilities and 
recently commenced clearing and planting 1000 hectares of 
land with jatropha.  The project includes a three year 
research and development project to analyze the use of 
jatropha as a crop to produce oil for refining to biodiesel 
in Mozambique. 
 
- In October, the GRM announced that London-based Central 
African Mining and Exploration Company (CAMEC) will invest 
$510M in Gaza province.  The project is known as Procana and 
will produce 120M liters of ethanol a year from 30,000 
hectares of sugar cane.  In addition to producing ethanol for 
domestic and regional markets, the project is projected to 
produce electricity for local use, create 7,000 jobs and 
produce an annual income of over $440M beginning in 2010. 
 
- In October, state-owned Petromoc signed a Memorandum of 
Understanding with the Indian company Rusni Distilleries and 
the International Crops Research Institute for the Semi-Arid 
Tropics (ICRISAT) for a feasibility study on the production 
of ethanol from sweet sorghum.  Petromoc is looking to build 
a factory which would produce a million liters of ethanol per 
day.  The distillery would be located in the central province 
of Sofala and would use sorghum raised by smallholder farmers 
 
MAPUTO 00001341  003 OF 003 
 
 
on an efficient and sustainable basis. 
 
- In August, state-owned Petromoc announced it is partnering 
with Brazil's INM International, Sonipal Ltd and Aruangua 
Agro-Industrial to plant 45,000 hectares of jatropha which 
will be used to produce 226M liters of biodiesel a year. 
Petromoc, through a subsidiary Energias Alternativas 
Renovaveis Lda (ECOMOZ), is working on a smaller project 
which relies on coconut oil as basis to produce up to 40M 
liters of biodiesel per year.  The plant is located in 
Inhambane Province. 
 
- Commercial production of biodiesel from jatropha is set to 
begin in February 2008 in the Panda District of Inhambane 
province.  The project is being implemented by ESV BIO 
AFRICA, a company consisting of Mozambican, South African and 
British interests.  The company will build a processing plant 
which will produce 5000 liters per day; the plant is to be in 
operation by February 2008.  ESV BIO AFRICA established its 
operation in Inhambane in August 2006 and, to date, has 
invested $2M on expansion of the planting of jatropha. 
 
- The Government of China and EMBRAPA, a Brazilian company 
and the world's leading research organization dealing with 
tropical agriculture, are offering a combined bioenergy 
package to Mozambique.  EMBRAPA provides agronomic expertise; 
China invests in infrastructure (roads, rail, waterways) 
needed to bring products to market.  The cooperation in 
Mozambique is part of China's $5B investment strategy for 
Southern Africa. 
 
- British Petroleum (BP) recently created a biofuels 
division; one of the first countries it is evaluating for 
biofuels potential (initially growing sugar cane for export) 
is Mozambique. 
 
- The UK has a UK-Brazil-South Africa-Mozambique Biofuels 
taskforce working on solutions to regional issues using 
techniques identified in Brazil. 
Chapman