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Cablegate: Argentina: Information for the U.S. Itc Report On

VZCZCXYZ0008
OO RUEHWEB

DE RUEHBU #2354/01 3521408
ZNR UUUUU ZZH
O 181408Z DEC 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9926
INFO RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHAC/AMEMBASSY ASUNCION 6735
RUEHBK/AMEMBASSY BANGKOK 0074
RUEHBJ/AMEMBASSY BEIJING 0181
RUEHBR/AMEMBASSY BRASILIA 6619
RUEHBY/AMEMBASSY CANBERRA 0082
RUEHMN/AMEMBASSY MONTEVIDEO 6939
RUEHLO/AMEMBASSY LONDON 1230
RUEHNE/AMEMBASSY NEW DELHI 0091
RUEHJA/AMEMBASSY JAKARTA 0038
RUEHKO/AMEMBASSY TOKYO 0842
RUEHML/AMEMBASSY MANILA 0063
RUEHOT/AMEMBASSY OTTAWA 0563
RUEHSG/AMEMBASSY SANTIAGO 0950

UNCLAS BUENOS AIRES 002354

SIPDIS

SIPDIS

COMMERCE PLEASE PASS TO USITC, Attn: L.M. Schlitt

E.O. 12958: N/A
TAGS: ECON OTRA
SUBJECT: ARGENTINA: INFORMATION FOR THE U.S. ITC REPORT ON
INDUSTRIAL BIOTECHNOLOGY - DEVELOPMENT AND ADOPTION BY CHEMICAL AND
BIOFUEL INDUSTRIES

REF: (A) STATE 133131, (B) STATE 164195, (C) BUENOS AIRES 02074

Summary
-------
1. In response to Ref A, Post has compiled the following
information on government policies in Argentina as they relate to
the biofuels industry. Additional information is available in Ref
C, which provided a response to a related request for information on
industrial biotechnology (Ref B). Argentina legislation mandates the
use of biofuels by 2010. Current biofuel production is mainly
focused on biodiesel for export. End Summary

Government of Argentina's Biofuels Policy
------------------------------------------
2. Argentina has had a framework that regulates and promotes the
production and use of biofuels since 2007. The main objectives of
this framework are to diversify the supply of energy, to become more
environmentally friendly, and to promote the development of rural
areas (primarily nontraditional production areas), especially in
benefit of small and medium producers.
The law mandates the use of biofuels by 2010, with an obligatory mix
of five percent of ethanol in gasoline and five percent of biodiesel
in diesel. The GOA will control investment, production and
marketing of biofuels for the domestic market. Companies which
produce biofuels will have three alternatives: 1) to produce for the
domestic market, taking advantage of various tax incentives; 2)
produce for self-consumption, with similar advantages as in 1; and
3) produce for the export market, subject themselves to government
controls, and not be eligible to receive the tax incentives.
Although most players indicate that it is very important to have a
regulatory framework, they point out that current regulations are
cumbersome, unclear, and many aspects of these regulations need to
be defined. They would like to see modifications in the regulations
which would stimulate investment and take advantage of the current
favorable world situation. Local businessmen are optimistic that
this will happen, as the GOA gains a better understanding of the
importance of biofuels and their value for the national economy.
A summary of Argentina's biofuels law and regulation follows:
In April 2006, the Argentine Congress passed Law 26,093 which
regulates and promotes the production and sustainable use of
biofuels. In February 2007, the Executive Branch, through Decree
109, published the regulations for implementing that law.
Chapter I of the law creates incentives for production and use of
biofuels in the domestic market for a period of 15 years (beginning
on the date of the enactment of the law). It establishes that the
Secretariat of Energy will be the controlling authority, with the

SIPDIS
exception of oversight of tax breaks which will be under the control
of the Ministry of Economy (every year, that ministry will set the
maximum overall amount of the fiscal incentives directed to
biofuels, and also the percentage of this total which will accrue to
individual companies).
Some of the responsibilities of the controlling authority are to
establish quality levels, security conditions, registration of
participating companies, approval of projects which benefit from
incentives, and the percentage mix of biodiesel with diesel and
ethanol with gasoline for the domestic market. Every year, the
controlling authority will establish the volumes of biofuels needed
to comply with the law, determine and modify the percentage mixes,
set prices of biofuels for the domestic market, establish volumes,
terms and conditions for those producing for their own consumption,
and approve exports.
Chapter II provides details concerning the incentives of the
biofuels promotional regime. To be eligible for incentives,
companies have to operate in Argentina and be dedicated exclusively
to biofuel production, with the majority of the company's equity in
the hands of the government (i.e., government at either the
national, provincial, or municipal levels), or agricultural
producers (and producers' cooperatives).

Companies have to operate under the above regulations and
specifications, and will be assigned a percentage of the total tax
break granted by the GOA (the law gives priority to small and medium
enterprises, farmers, and entities which operate in nontraditional


production areas). Biofuels governed by this promotional regime will
be exempt from three specific taxes on fossil fuels. Also, biofuel
producers for the domestic market will enjoy tax breaks and other
advantages (e.g. exemption from the value added tax, and other
taxes). Eventually, Chapter II leaves open the possibility for
producers to receive direct subsidies.

Government of Argentina's Biofuels R&D Funding
--------------------------------------------- ----------
3. Funding for research and development on biofuels by the
Government of Argentina is limited. The Secretariat of Science and
Technology and the National Institute of Agricultural Technology are
working on some research programs. Funding levels are very
difficult to determine, but they are expected to increase in the
future, as there are some international entities, such as the
Inter-American Development Bank, which are encouraging research
programs. In addition to the two entities above, there are other
institutions in Argentina that have started research on biofuels
within the past few years. The most active of those research
institutions include: INTA (Argentina's Agricultural Research
Institute) of the Secretariat of Agriculture; the Universidad
Nacional del Litoral in Santa Fe Province; the Universidad of Buenos
Aires; the Univeridad Nacional del Sur in Bahia Blanca; and the
Universidad Tecnologica Nacional in Villa Maria. Most of these
institutions carry out technical research in advanced laboratories,
as well as some market research for the biofuels sector. Although
most of these research institutions focus primarily on biodiesel,
ethanol and biogas are also being studied to a lesser extent.

Biofuels Industry Investment Incentives
----------------------------------------
4. The biofuels law provides details concerning the incentives of
the biofuels promotional regime. Companies will be assigned a
percentage of the total tax break granted by the GOA (the law gives
priority to small and medium enterprises, farmers, and entities
which operate in nontraditional production areas). Biofuels
governed by the promotional regime will be exempt from three
specific taxes on fossil fuels. Also, biofuels producers for the
domestic market will enjoy tax breaks and other advantages (e.g.
exemption from the value added tax, or accelerated depreciation in
the first three months). There are obstacles to attracting U.S.
investment in the Argentine biofuels sector. Export taxes on
petroleum-based diesel designed to increase domestic supply and cap
local end-consumer costs have pushed prices down to around US$38 per
barrel. With biodiesel significantly more expensive than regular
diesel, a very limited domestic market, and a dependence on exports
which are highly dependent on government policies on export taxes,
investors are somewhat apprehensive. With regard to potential for
U.S. biodiesel processing technology adoption, Argentine plants are
typically opting for European technology due to its stronger
presence in the Argentine marketplace.

Tax and Trade Policies
----------------------
5. The differential between the export tax of 32 percent for
soybean oil and 5 percent on biodiesel creates a very large and
inexpensive supply of feedstock available for conversion into
biodiesel. The main market is for export, since export taxes on
petroleum and petroleum products ensure petroleum-based diesel is
much cheaper than biodiesel in the domestic market. However, the
GoA has a history of modifying export tariffs on short notice to
raise revenues and influence domestic price levels, and so the
current disincentive to produce biodiesel for domestic consumption
could change on short notice. There are other minor tax incentives
that focus exclusively on the domestic market program and do not
create significant industry development.

List of Leading Firms and Contacts
----------------------------------
6. Please see below lists of leading contacts. To direct dial a
cellular phone in Argentina, the following sequence must be keyed:
011-54-9-11-followed by cell number without the preceeding -15.
However, if you have difficulty contacting one of the listed numbers


below, feel free to request assistance from Post. Post will also
email additional background materials on biofuels.

Firms:
* Soy Energy: Jos Luis Martinez Justo, President (cell)
15-4992-6735, joseluismartinezjusto@yahoo.com.ar
* Advance Materials Organics (AOM): Diego Mejuto, (land line)
011-54-11-4735-5000, dmejuto@glencore.com.ar
* Vicentn, Sergio Nardelli, 011-54-3482-48-1149,
sergio.nardelli@vicentin.com.ar
* Bio Madero, Ricardo Olaviaga, olaviaga8@yahoo.com.ar
* Derivados San Luis, Enrique Lasgoity, (cell) 54-3476-15-53-1645,
lasgoity@arnet.com.ar
* Renova, Diego Mejuto, Director, (land line) 011-54-11-4735-5000,
dmejuto@glencore.com.ar
* Biodiesel SA, lperez@powervt.com.ar
* Unitec Bio, Fernando Pelaez, CEO, (land line) 011-54-11-4852-6450,
rwinholz@unitecagro.com.ar
* Patagonia Bioenergia, Gabriel Obrador, Director, (land line)
011-54-11-4763-5500

Entities:
* Miguel Almada, National Biofuels Program, Secretariat of
Agriculture, (land line) 011-54-11-4349-2226, malmad@mecon.gov.ar
* Claudio Molina, Executive Director, Asociaicion Argentina de
Biocombustibles e Hidrogeno, (cell) 15-4479-9781,
direccion@aabh.com.ar
* Carlos St. James, President, Argentine Biofuels Chamber, (cell)
15-6862-9902, cstjames@aregentinebiofuels.org

Individuals:
* Hector Huergo, President AABH, (cell) 15-4422-2495,
hhuergo@clarin.com
* Dr. Gaston Fernandez Palma, Board of Directos, AAPRESID, (land
line) 011-341-4260745/46, gastonfernandezpalma@speedy.com.ar
* Miguel Calvo, VP ACSOJA, (cell) 54-341-15-5083130,
acsoja@bcr.com.ar
* Martin Fraguio, Executive Director MAIZAR, (land line)
011-54-11-5238-1177, mfraguio@maizar.org.ar
* Gustavo Vergagni, Director, Desarrollos Empresarios, (land line)
011-54-11-4334-0033, gv@dempresarios.com.ar

7. Embassy points of contact for future inquiries are EST science
officer Alfred Schandlbauer. (Email: SchandlbauerAX@state.gov
Telephone: 011-54-11 5777-4747) or Dwight Wilder, Agricultural
Attache, Dwight.wilder@usda.gov, 011-54-11-5777-4627. Additional
information is also available in the USDA biofuels report for
Argentina, http://www.fas.usda.gov/gainfiles/200706/1462 91490.pdf

WAYNE

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