New Rum Distillery to Open in Central Puerto Rico

SAN JUAN, Puerto Rico (AP) - A new rum distillery will open in a former pharmaceutical plant in central Puerto Rico, helping to offset the loss of Captain Morgan rum from the island, economic officials said.

The Club Caribe LLC distillery is scheduled to open in early 2012 in the mountain town of Cidra and will produce 2 million gallons of rum its first year as part of a 20-year deal, said senior vice president Alberto Rivera.

The local company is affiliated to Cc1, a Puerto Rican company that distributes Coca-Cola products in the U.S. territory.

Club Caribe expects to employ 25 people and invest $10 million in machinery and equipment as it moves into the old GlaxoSmithKline factory.

"We're going to have a significant production of rum on a global level," said Jose Perez-Riera, Puerto Rico's economic development secretary.

The distillery eventually will produce up to 10 million gallons of rum, both to sell in bulk and as private labels including Club Caribe, a white rum; Black Roberts, a spiced rum; and Carlos Rum, a gold rum, Rivera said.

The company will target the U.S. mainland market.

"Vodka is the most consumed liquor in the U.S., but that is changing," Rivera said.

The anticipated production of 2 million gallons next year will eventually generate $20 million in revenue for the island, said Jorge Junquera, deputy executive director of the Puerto Industrial Development Company, a state corporation that promotes business on the island.

The type of affiliation that Club Caribe Distillers, LLC, has with Cc1 is unclear, and a spokeswoman for the company did not clarify the relationship.

Puerto Rico is expected to lose $140 million next year as a result of the lucrative production of Captain Morgan rum moving to the neighboring U.S. Virgin Islands.

In January 2009, liquor company Diageo PLC signed a long-term lease to build a Captain Morgan rum distillery in the Virgin Islands in exchange for a portion of the territory's excise-tax revenue, estimated at $2.7 billion over 30 years.

The distillery opened in late 2010 on the island of St. Croix and is expected to generate more than $100 million a year in revenue for the next 30 years.

"We are losing a mountain of money with Diageo's departure," Junquera said, referring to Diageo terminating its rum production contract in Puerto Rico.

Puerto Rico has argued that its neighbor unfairly lured away business by using revenue from a tax levied on every bottle produced in the two Caribbean territories.

All but 25 cents of the $13.50 in federal excise taxes levied on per proof gallon of rum produced in Puerto Rico and the Virgin Islands goes back to the local governments to spend on infrastructure and public services.

After the loss of Captain Morgan rum, Puerto Rico pursued several deals to help generate revenue.

In November 2010, legislators voted to increase the amount of money spent on promoting the island's rum industry from 10 percent to 25 percent of federal excise taxes.

In February, the government awarded Bacardi a $95 million grant to renovate its production plant in exchange for maintaining a minimum level of production for the next 20 years, which translates into more than $230 million in yearly revenue through excise taxes.

Puerto Rico's rum industry employs about 4,500 workers and generates $400 million annually, more than 70 percent of which comes from Bacardi.