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Cablegate: Biofuels Potential Attracts International

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

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