JORDAN'S ENERGY MINISTER ON TANKERS AND PIPELINES

S E C R E T SECTION 01 OF 02 AMMAN 007130

SIPDIS

TREASURY FOR MILLS/PIPATANAGUL

E.O. 12958: DECL: 12/04/2012
TAGS: ENRG EPET ETTC IZ JO
SUBJECT: JORDAN'S ENERGY MINISTER ON TANKERS AND PIPELINES
AND PRICE HIKES (OH MY!)

Classified By: Charge D'Affaires Gregory Berry, reasons 1.5 (b.d)

Summary


1. (s) Energy Minister Mohammed Bataineh updated DCM
December 4 on a number of developments in Jordan's energy
sector. The Minister commented on challenges facing the GOJ
in maintaining a floating oil reserve in a tanker in Aqaba,
discussed latest developments on the al-Arish-Aqaba gas
pipeline, and reviewed the kingdom's ongoing efforts to
privatize the energy sector and to marketize prices for
petroleum products. The updates portray a ministry that is
committed to diversifying and marketizing. End summary.

Tanker Update


2. (s) Following discussions of Jordan's negotiations with
Iraq on the annual trade and oil protocol (septel),Energy
Minister Mohammed Bataineh briefed the DCM on developments in
a range of activities under the ministry's supervision.
Bataineh said the oil tanker Jordan has purchased as a
floating oil storage facility is roughly one-third filled
(80,000 tons out of a capacity of 260,000 tons). This
initial inflow had been accomplished by emptying the existing
storage tanks in Aqaba into the ship. Additional filling of
the ship, he said, would be much slower, owing to logistical
constraints -- the rate at which tanker trucks could off-load
into either the Aqaba storage tanks or the ship itself, plus
a recent problem removing 50,000 tons of ballast water from
some of the tanker's receptacles (in an environmentally
friendly way) to make room for additional oil. Bataineh said
oil for the ship is being received from Iraq at the rate of
about 3,800 tons per day, meaning it will take at least
another 48 days before the tanker is fully loaded.


3. (s) Complicating this calculation, said Bataineh, is the
fact that Jordan has only one oil jetty that also functions
as the sole jetty for vegetable oil, Liquid Propane Gas (LPG)
and sulpho-chemicals. Every time another ship needs to use
the jetty, the tanker must be moved at a cost of $50,000 in
fuel oil and gasoil (used to fire the inefficient steam
engines of the tanker). Bataineh said the GOJ had considered
"banking" the ships, i.e., holding multiple ships in parallel
at the jetty and running hoses across the decks of the
close-to ships out to the outlying ships. However, while
this proved a workable solution for vegetable oil, safety
concerns precluded using this method to load/offload LPG or
sulpho-chemicals. Bataineh said the GOJ is now looking into
transforming an existing jetty currently used for offloading
timber (south of the main port) into a second oil jetty. The
main problem so far, he said, was that the draft at the
timber jetty was only 6.5 meters, compared to the 12 meters
needed to house oil tankers. Bataineh said the GOJ would be
interested in examining the potential for dredging the timber
jetty, but did not have the expertise or equipment to do so.

Al Arish Proceeding Apace


4. (c) Bataineh said the gas pipeline project between al
Arish gas field in Egypt and Aqaba was on schedule, with gas
delivery to the Aqaba power plant planned to begin in June

2003. The Aqaba plant generates 40% of Jordan's power needs,
and currently accounts for 14% of Jordan's oil consumption.
The next step, said Bataineh, is to negotiate the terms for
extending the pipeline from Aqaba to northern Jordan.

Price Hikes In The Offing


5. (c) Bataineh confirmed that the GOJ is looking ahead to
raising prices for certain petroleum products in the coming
months. Gasoline prices, according to Bataineh, are roughly
at world market levels (note: $1.45/gallon for leaded regular
at the pump. End note.). Thus the GOJ is focusing on
heavily-subsidized products, including LPG, gasoil and
kerosene. Bataineh said a plan is in the works to phase out
subsidies for LPG over two years. Currently, consumers pay
approximately $3.52 for a bottle of LPG that costs the GOJ
$4.93 to produce. The government's aim is to eliminate that
cost to the government by slowly rationalizing prices.
However, Bataineh stressed, the GOJ was loathe to undertake
price hikes immediately in advance of elections (currently
scheduled for spring 2003).

Privatizations: Rolling, Rocky


6. (c) Bataineh said privatization plans for Jordan's
electrical power generation and distribution operations are
proceeding as planned. He expected the GOJ to be ready to
issue RFP's for the two operations by the end of January
2003, and noted several multinationals had expressed interest
(though he did not name them). At the same time, plans long
underway to build the al-Samra independent power project
(IPP) in northern Jordan have fallen into disarray after
Belgian energy giant Tractebel pulled out of its pledge to
take on the project at the eleventh hour. Bataineh said
Tractebel blamed a 44% decline in its share prices for its
decision to pull out of the IPP as well as a $2 billion
refinery project in Abu Dhabi. The GOJ's back-up plan, he
said, was to task CEGCO, the government-owned generation
company, to build the plant. It was unclear what impact on
CEGCO's own privatization such a new project might have.

Comment


7. (s) Jordan continues to move forward on a number of
fronts both to diversify its sources of energy and to get the
government out of the energy subsidy business, which is in
all cases a loss-making operation. Bataineh said the GOJ
would welcome any offered assistance on plans to study
dredging the timber jetty.


8. (sbu) He also said the GOJ would welcome TDA or other
USG assistance to study Jordan's future energy infrastructure
- what its capacity would be, how to organize the various
power generation facilities (oil, gas, wind, solar),and what
likely national and regional demand is likely to be. In this
regard, he praised TDA assistance earlier this year on
Jordan's wind farms.
BERRY