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DE RUEHBO #2798/01 2141208
ZNR UUUUU ZZH
P 011208Z AUG 08
FM AMEMBASSY BOGOTA
TO RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 3942
INFO RUEHBR/AMEMBASSY BRASILIA 8290
RUEHCV/AMEMBASSY CARACAS 0771
RUEHLP/AMEMBASSY LA PAZ AUG LIMA 6409
RUEHZP/AMEMBASSY PANAMA 2087
RUEHQT/AMEMBASSY QUITO 7103

UNCLAS BOGOTA 002798 
 
SIPDIS 
SENSITIVE 
 
DOE FOR GWARD AND LEINSTEIN 
 
E.O. 12958: N/A 
TAGS: ENRG PGOV PREL CO
SUBJECT: SCENESETTER FOR AUGUST 7-9 VISIT OF ACTING DEPUTY 
SECRETARY OF ENERGY JEFFREY KUPFER 
 
¶1.  (SBU) Summary:  Amid strong economic growth, 
pro-investment policies, improved security, and targeted U.S. 
assistance, Colombia finds itself safer, economically 
stronger, better governed, and more democratic than it has 
been in decades.  Foreign direct investment and trade, led by 
the energy sector, reached historic records in 2007 and have 
helped reduce poverty by 20 percent since 2002, lower 
unemployment by 25 percent, and raise government revenues to 
achieve its social and democratic security goals.  While the 
captures or kills of key leaders of the Revolutionary Armed 
Forces of Colombia (FARC), the July 2 rescue of 15 hostages 
held by the FARC including three Americans, and rising 
desertions have weakened Colombia's largest terrorist group, 
the conflict continues to threaten further advances on human 
rights, security, and poverty reduction.  The Uribe 
Administration places top priority on concluding the 
U.S.-Colombia Trade Promotion Agreement (CTPA) and promoting 
investment in traditional sectors, as well as new areas such 
as biofuels, as a means of the generating employment 
necessary to address Colombia's social and security 
challenges.  End Summary. 
 
Energy Sector 
------------- 
 
¶2.  (SBU) Colombia's energy and mining sectors comprise over 
seven percent of the economy.  Energy exports are 
concentrated in oil and coal, with the U.S. ranking as the 
largest recipient of exports and investor in the sector. 
Investment in Colombia's oil and gas sector continues to grow 
as a result of pro-market policies, expanding security, and 
the successful private capitalization of state-owned 
Ecopetrol.  As a result, Colombia has reversed its long 
decline in oil production and extended its status as a net 
oil exporter through at least 2015.  While few experts expect 
Colombia to uncover a globally significant find, local 
producers believe Colombia still holds profitable plays in 
natural gas offshore, heavy oil near the Venezuelan frontier, 
and micro-fields of lighter-grade oil in the interior.  The 
GOC is in the process of auctioning off new exploration 
blocks in the Llanos Basin and offshore.  U.S. majors 
ExxonMobil, Chevron, and Occidental have long histories of 
investment in Colombia in both upstream and downstream oil 
and gas. 
 
¶3. (SBU) Colombia ranks as the world's fifth largest coal 
exporter and derives a majority of its electrical generation 
from hydroelectric plants. Colombia looks to increase coal 
production nearly 65 percent over the next three years and 
recently issued contracts to build six new hydro facilities 
by 2016.  Rich coal deposits in Guajira and Cesar Departments 
as well as attractive prospects for developing nearby natural 
gas deposits augur well for coal producers like U.S.-based 
Drummond, Colombia's second-largest producer.  Similarly, 
Colombia hopes to eventually export excess hydroelectric 
generation to Ecuador and Brazil.  The most significant 
challenges to both industries center on limited public 
infrastructure and environmental compliance. 
 
ANDI Conference 
--------------- 
 
¶4. (SBU) The National Association of Industries (ANDI) 
represents Colombia,s most powerful private sector group, 
with branches in ten departments representing 21 sectors of 
the economy.  ANDI is headed by former governor, senator and 
vice foreign minister Luis Carlos Villegas.  ANDI,s annual 
meeting, which you are addressing, brings together 
Colombia,s most prominent private sector leaders, and will 
feature speeches by President Uribe, Minister of Defense 
Santos, and other members of the Cabinet.  ANDI has been 
influential in promoting the U.S.-Colombia Trade Promotion 
Agreement and investment climate reforms in Colombia.  ANDI 
has also partnered with USAID on trade capacity building 
activities. 
 
Visit to Drummond 
----------------- 
 
¶5. (SBU) Birmingham, Alabama-based Drummond is the second 
largest coal exporter in Colombia.  The company began working 
in Colombia in 1987 and exported over 25 million tons of coal 
 
in 2007, roughly one-third of national production.  Over 55 
percent of Drummond,s exports go to the U.S. with the 
remainder to Europe.   The company,s contract runs through 
¶2021.  Drummond plans to double coal production to 50 million 
tons by 2010 as well as significantly expand its production 
of natural gas.  Drummond employs 6,700 people in Colombia 
and has paid over USD 700 million in royalties and taxes 
since 1995.  The company resolved a strike with its workers 
on July 22.  The company is a regular flashpoint for NGOs who 
allege human rights violations, mostly based upon past 
incidents.  The company was absolved in a 2007 U.S. District 
Court case in Alabama of charges that it was responsible for 
the murder of labor leaders near their mine in 2001. 
Drummond reports that it is making progress with the GOC over 
a new requirement for direct-loading of all coal exports at 
ocean ports by July 1, 2010, and an environmental license for 
a new mine adjacent to their La Loma facility. 
 
Biofuels 
-------- 
 
¶6. (SBU) The GOC seeks to develop a robust biofuels industry 
based on sugar-cane ethanol and palm oil biodiesel to promote 
rural employment and alternatives to coca production. 
Colombia's sugar growers are the most efficient in the world, 
as a result of a 12-month harvest season (versus 10 months in 
Brazil and 2 months in Argentina) and well-developed 
irrigation methods.  They currently dedicate 10 percent of 
their harvest to ethanol production at five distilleries. 
However, sugar production in the prime growing region (Cauca 
Valley) now 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 sugar beet and yucca 
production.  At the same time, Colombia ranks as the world's 
fifth largest palm oil producer, which has become a principal 
feedstock for biodiesel due to its cost-effectiveness (seeds 
harvested year-round for 25 years), productivity (nine times 
the oil produced by soybeans) and energy efficiency (twice as 
much energy per unit as soy). 
 
¶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, price 
bands, and aggressive blending mandates.  The ethanol mandate 
originated in large cities in 2005 to reduce car emissions 
and will rise to 20 percent nationwide by 2015. In 2007 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.  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 CTPA would make permanent. 
 
CTPA Solidifies Investment, Employment, and Security 
------------------------------------------- 
 
¶8. (U) President Uribe's democratic security policy and free 
market economic reforms have spurred the economy.  GDP growth 
reached 8.2 percent in 2007 after averaging more than five 
percent annually since 2003.  The economy is decelerating 
this year, with recent growth slowing to just over four 
percent.  The United States remains Colombia's largest trade 
partner (approximately 37 percent of exports and 26 percent 
of imports), though Colombia could shift to greater 
agricultural imports from Canada, which concluded free trade 
negotiations in June 2008, and the European Union when free 
trade negotiations with them conclude in 2009.  In 2007, the 
United States exported some USD 1.2 billion in agricultural 
products to Colombia.  Nearly 93 percent of Colombia's 
exports already receive duty-free access to the U.S. under 
the ATPA, which expires December 31, 2008, while U.S. exports 
to Colombia face an average tariff of 12 percent.  Investors 
from around the world have boosted investment in Colombia in 
anticipation of the CTPA.  In 2007, Foreign Direct Investment 
(FDI) exceeded USD 7.5 billion, 350 percent greater than FDI 
in 2002. 
 
¶9.  (SBU) The Colombian Congress ratified the CTPA in 2007 by 
a substantial margin, and it remains the Colombian 
government's highest economic priority.  The Colombian 
Supreme Court ruled in favor of its constitutionality in July 
2008, completing the GOC approval process.  U.S. rejection of 
the accord would deal a political and economic blow to Uribe 
and his policy of strengthened ties with the United States. 
Analysts estimate the agreement would add between one and two 
percent annual GDP growth to the local economy.  This growth 
would add the new jobs in the formal sector that President 
Uribe needs to meet his goal of cutting the poverty rate from 
45 percent to 35 percent by 2010.  Trade-based formal sector 
growth will also provide the GOC with additional fiscal 
resources to shoulder a larger portion of its security costs 
as USG Plan Colombia support falls. 
 
Democratic Security 
------------------- 
 
¶10.  (U) The establishment of greater Colombian government 
territorial control and the paramilitary demobilization have 
created the space for civil society and political parties to 
operate more openly than ever before.  The GOC maintains a 
police presence in all 1099 municipalities for the first time 
in history.  Increased security of roads and highways have 
allowed for greater freedom of movement for people and 
commerce.  Murders fell from over 29,000 in 2002 to less than 
17,000 in 2007, and kidnappings fell from over 2,800 a year 
to less than 600 during the same period.  Local elections in 
October 2007 reflected the improved security with over 86,000 
candidates participating. 
 
Labor Violence 
-------------- 
 
¶11.  (U) In addition to gains stemming from its democratic 
security policy, the GOC has taken specific steps to protect 
labor leaders and other vulnerable individuals.  In 2008, the 
Ministry of Interior and Justice's $44 million Protection 
Program helped protect more than 9,444 human rights 
activists, journalists, politicians, and other threatened 
individuals, including 1,959 trade unionists.  Since 2002, 
labor union data shows that murders of unionists for 
political reasons or common crime have fallen more than 79 
percent.  The murder rate for unionists is now lower than 
that for the general population.  A resident International 
Labor Organization (ILO) representative arrived in Colombia 
in January 2007 to help implement the tripartite agreement 
committing the GOC to provide $4 million to finance the ILO 
Special Technical Cooperation program and to provide $1.5 
million a year to the Prosecutor General's Office.  The 
Prosecutor General operates as an independent agency 
responsible for prosecuting cases of violence against trade 
unionists.   Since 2001, the Prosecutor General has 
prosecuted 94 cases of labor violence, leading to 188 
convictions.  The sub-unit on labor crimes - which began 
operations in November 2006 - resolved 50 cases, leading to 
the conviction of 90 individuals. 
 
U.S. Hostages 
------------- 
 
¶12. (SBU) An audacious Colombian military operation rescued 
the three U.S. contractors and twelve Colombians held by the 
FARC on July 2.  The three Americans were captured by the 
FARC in February 2003, and were the longest held U.S. 
hostages in the world at the time of their rescue.  The GOC 
worked closely with us on hostage issues, and U.S. training 
of Colombian military personnel contributed to the 
operation's success.  The FARC continues to hundreds of 
hostages.  The FARC is believed to continue to hold a U.S. 
citizen who was kidnapped in Panama in April 2008, and 
perhaps a Colombian-American dual national kidnapped in 2003, 
though it has never provided proof of life. 
 
U.S. Assistance 
--------------- 
 
¶13.  (SBU) In January 2007, the GOC presented a Plan Colombia 
"consolidation strategy" pledging a Colombian investment of 
$78 billion through 2013.  The proposal emphasizes the 
importance of building social cohesion, and allocates 
 
substantial resources to help strengthen local governance, 
protect human rights, and assist displaced people, 
Afro-Colombians, and indigenous communities.  It also aims to 
reintegrate more than 48,000 demobilized ex-fighters and 
deserters and to promote Colombia's licit exports.  The GOC 
seeks funding from the United States and European countries 
to complement its own resources. 
 
¶14.  (SBU) Under Plan Colombia, the USG has provided more 
than USD 5.5 billion in assistance, including USD 950 million 
in economic and social assistance.  USG security assistance 
combats drug trafficking and terrorism through training, 
equipment, and technical assistance.  It supports Colombian 
military aviation, essential for all programs - civilian or 
military - outside Colombia's major cities.  U.S. social and 
economic aid focuses on alternative development, displaced 
and other vulnerable communities, human rights and democratic 
institutions, and reintegration of demobilized fighters. 
Congress increased economic and social assistance from USD 
140 million in FY 07 to USD 215 million in FY 08, while 
security assistance was reduced in FY 08. 
 
Drug Eradication and Interdiction 
---------------------------------- 
 
¶15.  (SBU) Eradication of coca and poppy crops and 
interdiction of cocaine and heroin reached near-record levels 
in 2007.  President Uribe supports greater manual 
eradication, but recognizes that continued aerial eradication 
is also key.  He seeks a complementary approach using both 
methods.  In 2008, the national police and military forces 
have set a brisk pace for cocaine, coca base and marijuana 
seizures, and are over half way to record-level seizure 
totals.  We continue to work with the Colombian government to 
maximize our scarce resources to achieve the eradication and 
interdiction targets as well as a productive dialogue on how 
best to transfer key tasks from the USG to the GOC. 
 
Extradition 
----------- 
 
¶16.  (SBU) Since taking office, President Uribe has approved 
over 750 extraditions to the United States, including a 
record number of 164 in 2007.  The Colombian Government is on 
pace to break that record, having already extradited 119 
criminals to the United States in 2008, including 15 former 
paramilitary leaders. 
 
Demobilization and Peace Process 
-------------------------------- 
 
¶17.  (SBU) Over 32,000 former paramilitaries have demobilized 
since 2002, and a further 16,000 have deserted from other 
illegal armed groups (about one-half from the FARC).  The 
Organization of American States estimates there are 30 
emerging criminal groups with a combined membership of over 
3000 persons.  Reintegration programs and targeted law 
enforcement are working to counter these groups.  Under the 
Justice and Peace Law (JPL) process, many former paramilitary 
leaders have confessed their participation in violent crimes. 
 To date, the JPL process has revealed the location of the 
graves of almost 1,200 paramilitary victims and provided 
information on 3,600 crimes.  Almost 100,000 victims have 
registered under the JPL, with the GOC working on measures to 
accelerate the payment of reparations. The Supreme Court and 
the Prosecutor--with GOC support--continue to investigate 
politicians with alleged paramilitary ties.  Fifty-two 
Congressmen, 19 mayors, and 11 governors have been implicated 
in the scandal. 
 
¶18.  (SBU) The National Liberation Army (ELN) has negotiated 
with the Colombian government for over two years on a 
cease-fire agreement, but ELN infighting and FARC pressure 
have prevented a deal.  The ELN kidnap civilians to fund its 
operations, but its military capability is declining.  The 
FARC has rebuffed GOC initiatives to engage in any meaningful 
peace talks. 
 
Regional Relations 
------------------ 
 
¶19. (SBU) Colombia's commitment to free markets, democracy, 
 
and close relations with the United States are an exception 
to trends in region.  Following Colombia's March 1 air-strike 
killing FARC senior leader Raul Reyes across the border in 
Ecuador, Venezuela joined Ecuador in breaking relations and 
deployed military forces to its border.  Venezuela called off 
the buildup after reaching agreement with Colombia on March 7 
to reduce tensions and reestablish commercial and diplomatic 
ties.  Computers found in Raul Reyes' camp have information 
that implicates Venezuelan and Ecuadorian government 
officials in providing support to the FARC, as well as a 
wider than thought international support network for the 
terrorist group.  After months of strained relations, 
President Uribe and President Chavez met on July 11 and 
affirmed their commitment to improve ties, but tensions 
remain over Venezuela's ambiguous relations with the FARC. 
Ecuador and Colombia are yet to restore relations.  Colombia 
and Nicaragua maintain strained relations over the 
sovereignty of Caribbean islands San Andres and Providencia, 
and recent accusations that President Ortega has hosted FARC 
rebels. 
BROWNFIELD