JORDAN'S ENERGY MINISTER DISCUSSES PIPELINE ISSUES

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 003622

SIPDIS

E.O. 12958: DECL: 07/01/2012
TAGS: ENRG ETRD JO
SUBJECT: JORDAN'S ENERGY MINISTER DISCUSSES PIPELINE ISSUES

REF: CAIRO 5992

Classified By: Ambassador Edward W. Gnehm, Reasons 1.5 (b,d)

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SUMMARY
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1. (u) Jordanian Energy Minister Mohammed Bataineh briefed
DCM and econoff on recent developments on the Egypt-Jordan
gas pipeline and the Iraq-Zarqa oil pipeline. The projects
could save Jordan a combined $50 million per year on their
current energy bill. Meanwhile, Jordan is moving closer to
privatizing the power generation and distribution sectors,
with the expectation of privatization revenues by June of

2003. End summary.

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EGYPT GAS PIPELINE MOVING FORWARD
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2. (c) In a June 24 meeting, Jordanian Energy Minister
Mohammed Bataineh downplayed an announcement that a
joint-venture company had been formed by Syrian, Lebanese,
Jordanian and Egyptian interests to develop the Al Arish gas
pipeline (reftel). According to Bataineh, the JV is a Syrian
government-backed scheme to try to secure soft loans from
regional development funds like the Kuwaiti fund to support
the project. The JV concept, Bataineh said, has never been
popular with the GOJ or with Egypt, both of whom prefer to
develop their sections of the line through private sector
means (in Jordan, through a BOOT tender). As the arrangement
now stands, Egypt and Jordan will go ahead with their
original plans to develop their sections independently, with
each of the four JV partner countries having the option to
participate in development of the line from the Jordan/Syria
border northward through the JV. Bataineh said development
of the Arish-Aqaba segment is proceeding apace, and predicted
gas would be flowing in Aqaba by April 2003.


3. (u) Bataineh expressed relief that this issue had been
settled, since progress on the pipeline deal is a necessary
precondition for Belgian energy giant Tractebel to move
forward with its own plans to build an independent power
production (IPP) facility north of Amman. Bataineh noted
that the pipeline would probably save Jordan at least $30
million per year at the outset as the Aqaba power station
switched from fuel oil (1.5 million tons/year) to gas
turbines. It would also reduce Jordan's energy dependence on
Iraq by reducing its oil imports.


4. (c) Bataineh noted with some humor that there are still
a number of questions about the future of the pipeline from
the Syrian border northward. First, there is still
disagreement about whether the line will go through Lebanon
to ports in northern Syria, or straight through Syria with a
spur to Lebanon. In addition, it is unclear how much gas
will be available north of the border. There is still some
debate whether to use a 30-inch or 36-inch diameter pipe to
convey the gas, with the group leaning toward the 30-inch
pipe. Such a pipe, Bataineh said, has a capacity of around 7
bcm/year. Jordan's consumption will be 2.5-3.0 bcm, and
Lebanon's about the same. This would leave about 1 bcm for
delivery to Syria or other customers. Cyprus has already
voiced interest in receiving the gas, with a current need of
1 bcm/year and 3-4 bmc/year by 2006. Bataineh said Syria had
assured Cyprus it would have excess gas to export, but said
he has seen no evidence of such Syrian reserves.

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ZARQA PIPELINE STALLED
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5. (c) Bataineh confirmed that a closing date for bids on
the proposed crude pipeline to Zarqa has been postponed at
the request of bidders, who are seeking more time to study
the technical merits of the project. He said financing is a
major issue, as commercial lenders for many bidders have
serious questions about political risk for the project.
Bataineh clarified that the project has no/no Iraqi
component. Instead, the plan is to build an initial pumping
station on the Jordanian side of the border, with oil
crossing the border by truck from Iraq and off-loading at the
pumping station. From there, a pipeline will convey crude to
the Zarqa refinery. Bataineh said the current transportation
system costs around $50 million per year, versus a 5-6 year
buyback period on a BOOT project of $150 million, for a cost
savings of $20 million per year over that period. In
addition to this project, Bataineh said the Zarqa refinery's
Board of Directors is discussing refinery upgrades that could
cost as much as $900 million.

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ELECTRICITY PRIVATIZATIONS - IN THE PIPELINE
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6. (u) Bataineh said the GOJ is eager to move forward with
long-planned privatizations of the kingdom's electricity
generation and distribution facilities. Further progress
must wait, he said, for changes to the current electricity
law that are currently before the cabinet. Bataineh
expressed confidence that the changes will be approved soon.
Once the legal framework is in place, RFP's will be issued
and bidders confirmed. Bataineh guessed that privatization
revenues from the sector would begin entering government
coffers by June 2003, helping to finance year two of the
GOJ's Program for Social and Economic Transformation (PSET).

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COMMENT
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7. (c) Jordan's commitment to diversifying its energy
sources and to rationalizing the power sector remains strong,
driven in large part by a desire to reduce its dependency on
Iraq as an energy source. Tractebel's unwillingness to move
forward on its IPP until the gas pipeline issue was sorted
out gives a strong indication that the new plant will likely
be gas-fired. This, coupled with the switch to gas in Aqaba
and privatization of power generation, would virtually free
Jordan's electricity supply from dependence on Iraqi oil.
Nevertheless, even with these welcome changes, Jordan will
remain reliant on Iraq for its other oil needs (crude and
refined products like kerosene and gasoline) - a $300
million-plus Iraqi energy subsidy.
Gnehm