DRC ENERGY SECTOR UPDATE

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 001270

SIPDIS

E.O. 12958: DECL: 07/08/2009
TAGS: ECON ENRG PGOV CG
SUBJECT: DRC ENERGY SECTOR UPDATE

Classified By: Econoff Peter Newman for reasons 1.5 b/d


1. (C) SUMMARY. Activity in the DRC energy sector picked up
during the first half of 2004. Chevron-Texaco is in the
process of selling its offshore drilling operation to
European junior firm Perenco but intends to stay active in
the DRC through exploration and pipelines. Cobil continues to
function as a parastatal despite some discontent within the
government over the purchase of former Mobil Oil Congo
assets. Construction has begun on two hydroelectric plants in
Kasai Occidental and Bandundu while progress is made in
financing a third in North Kivu. END SUMMARY

CHEVRON-TEXACO CHANGING ITS DRC OPERATIONS


2. (C) Chevron-Texaco representative Tim Magner called on
Ambassador on June 8 to inform him of Chevron-Texaco's
forthcoming sale of its offshore operations to European
junior petroleum company, Perenco. Perenco operates onshore
concessions near Muanda, DRC, formerly owned by
Total-Fina-Elf. It has offered to Chevron double the present
value of the offshore concession. Chevron had planned for
7-12 more years of life in the concession (which covers 390
square miles and produces 19,000 barrels per day),but were
willing to negotiate on the terms offered by Perenco. The
deal is scheduled to be finalized in early July upon which a
press release will be made. Magner stated that Chevron
preferred for the potential sale to remain quiet until
completed because of political difficulties that might be
encountered due to certain alleged shadow investors in
Perenco. He alluded to President Sassou of Congo-Brazzaville
and President Bongo of Gabon.


3. (C) The GDRC acceded to the deal based on Chevron's
continuing presence in the DRC. (COMMENT. It is important to
give the perception that Chevron is staying in the DRC. Some
economic and political actors consistently comment to Post
that the USA continues to "disinvest" from the DRC, citing
long past examples of General Motors and a recent possibility
of withdrawal by Citibank. This creates a negative ambiance
for discussions of economics and of US presence in general.
END COMMENT.) The Ministry of Energy has been searching for a
senior petroleum exploration and production company to
continue exploration in the Central Congo Basin (essentially
where the provinces of Equateur, Bandundu and Oriental meet)
that was started in 1981 by Exxon. Exxon's research was
somewhat promising, but most oil finds were heavily laden
with sediment. Recent exploration has been performed by small
firms such as King and King of Poland. Chevron has
tentatively agreed to participate in exploration activities
and will continue to maintain an office in Kinshasa. (POC:
Legal and Government Relations Director Koni Mukoka. Phone:
243 81 700 8005)


4. (C) Chevron also has continued interest in developing a
pipeline from Cabinda to Luanda, Angola as well as
development of processing facilities in Cabinda. The pipeline
would have to traverse DRC territory (land or maritime) and
processing facilities would necessitate a high load of
electricity, most likely provided by a line from Inga Dam.
Chevron intends to coordinate with the Reynolds Group which
would like to run a line from Inga to Pointe Noire. The
linchpin to this deal would be financing by Chevron and
Reynolds to rehabilitate and upgrade some of the turbines in
the Inga system.

REPAIRS TO INGA


5. (SBU) In the first quarter of CY 2004, Congo-Brazzaville
made a USD 32 million payment to the DRC for an overdue
electricity bill. The Ministry of Energy plans to use these
funds to rehabilitate one turbine in either Inga I or II. The
engineering firm to be contracted for the rehabilitation is
Alstom-France.

COBIL OIL - MINISTRY OF ENERGY REBUTS ACCUSATIONS OF
WRONGDOING


6. (SBU) Some actors within the GDRC and the private sector
have grumbled that the purchase of Mobil Oil Congo (now
Cobil) by the GDRC is not good business for the country
because it now competes with the other petroleum parastatal,
Cohydro. Furthermore, they claim that the quality of gasoline
and diesel fuel is uncertain. Ministry of Energy Chief of
Staff Guillaume Bolenga offered the following justification.
(Note. Bolenga is also on the board of directors of Cobil.
End Note.) The GDRC needed to purchase Mobil's assets in the
DRC to prevent a duopoly of Shell and Total/Fina/Elf. Total
holds 50 percent of the petroleum product market, while Shell
holds 30 percent and Mobil held 15 percent. Both Total Group
and Shell made offers for Mobil's DRC operations. The GDRC
paid bargain basement prices for Mobil's assets, according to
Bolenga, because Mobil Oil Congo had USD 2 million in debt
and had not updated its infrastructure (e.g. replacing
station pumps) in 15 years. Furthermore, the lubricant
factory Mobil built in the DRC does not function and is
dilapidated to the point of having little value. On
competition with Cohydro, Bolenga explained that Cohydro only
held 4 percent of the retail market and was primarily
interested in transportation and distribution. (COMMENT. To a
certain extent, Bolenga's logic makes sense. However, Shell's
market share is largely dependent upon its sales to Monuc. If
Monuc were taken out of the equation, other suppliers such as
Sonangol and X-Oil would have much larger market shares. END
COMMENT.)
PLANS FOR PREPAID ELECTRICITY IN KINSHASA


7. (SBU) The Ministry of Energy is currently in negotiations
with ESKOM of South Africa to rehabilitate and extend the
electricity distribution system in Kinshasa. In return, ESKOM
will convert the payment system to prepaid cards until its
investment plus profit is recuperated. The contract is purely
notional at the moment.

RURAL ELECTRIFICATION - CLACKSON POWER AND SEGELEC PROJECTS


8. (SBU) Clackson Power of South Africa is currently building
three hydroelectric power plants in the DRC on
build-own-operate-transfer contracts. These dams are in
Butembo (North Kivu),Katende (Kasai Occidental) and Kakabola
(Bandundu). In Butembo, the main problem has been financing,
in response to which the Ministry of Energy has negotiated
for USD 200,000 of money liberated by debt reduction
agreements (and earmarked for poverty reduction) to be
directed to Butembo and in part to this project. (COMMENT.
These funds are not sufficient for a several million dollar
project. However, it is a proactive measure by the Ministry,
in light of the small amount of the national budget directed
toward infrastructure rehabilitation and development. END
COMMENT.) Financing for the dams at Katende and Kakabola are
largely resolved and construction has begun. However, there
was a small problem with the local community at Kakabola
which was withholding signing the project contract unless
greater "social programs" were presented. The Ministry
settled the issue by reminding the local community that the
site for the project could be changed as there are many
waterfalls and rapids nearby. To facilitate these projects,
the Ministry of Energy is also negotiating preferential
shipping rates on the national freight railway company (SNCC)
to reduce material costs.


9. (U) The Ministry of Energy is also negotiating a contract
with Cegelec-France to develop another hydroelectric plant
60Km from Kananga (Kasai Occidental). This dam would be
larger than the one being built by Clackson and would likely
be connected to the Clackson system as well as to the Mbuji
Mayi grid.

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