DECISION ON LNG PROJECT STILL PENDING

C O N F I D E N T I A L SECTION 01 OF 03 NASSAU 000851

SIPDIS

E.O. 12958: DECL: 05/03/2010
TAGS: ENRG EPET EINV PREL PGOV BF
SUBJECT: DECISION ON LNG PROJECT STILL PENDING

Classified By: Ambassador John Darrell Rood, Reasons 1.4 b and d


1. (C) SUMMARY: Representatives from the U.S.-based AES
Corporation visited the Ambassador on April 27 to discuss the
status of their proposed $650 million Liquefied Natural Gas
project. AES expressed its frustration at the inability to
get a final decision from Prime Minster Perry G. Christie,
whom they claim is delaying a decision in an effort to get
them to withdraw so he will not be blamed for the project's
failure. AES is the current front-runner to get the LNG
project. Opposition has centered on the impact any possible
environmental damage would have on the Bahamian tourist
industry. END SUMMARY.


2. (U) The Bahamian government is currently considering a
pair of competing proposals for a Liquefied Natural Gas (LNG)
facility and pipeline in The Bahamas. Both projects would
include an import terminal, a re-gasification plant, and an
undersea pipeline to South Florida, in addition to other
support infrastructure. Florida Light and Power is expected
to be the final customer in the U.S.


AES Proposal for Ocean Cay
--------------


3. (U) U.S.-based Applied Energy Services Corporation (AES)
has proposed a $650 million project to build an LNG facility
on Ocean Cay in the northern Bahamas.


4. (U) Ocean Cay is a 95-acre man-made island situated 20
miles south of Bimini and 65 miles east of Miami. It was
built in 1970 as a site for aragonite dredging and
processing. AES proposes to construct a LNG importation and
regasification facility; a Liquefied Petroleum Gas (LPG)
removal plant; a seawater desalination plant; and an undersea
Natural Gas (NG) supply pipeline. The proposed pipeline
would be constructed of steel and extend approximately 64
kilometers from the Ocean Cay site to a connection point at
the U.S. Exclusive Economic Zone (EEZ) boundary. Linkage
would be made from there to the Ocean Express Pipeline,
which, in turn, would transport the Natural Gas to South
Florida for distribution.


5. (U) AES Ocean LNG Ltd. submitted an Environmental Impact
Assessment (EIA) to the Bahamian government in 2003. The
Bahamas Environmental Science and Technology (BEST)
Commission contracted U.S.-based ICF Consulting to review the
EIA and opened it for public comment in November 2003. The
BEST Commission completed its review and forwarded the EIA to
the Cabinet for approval. AES was issued U.S. Federal
Environmental Regulatory Commission (FERC) approval in
December 2003.


6. (U) The Applied Energy Services Corporation (AES) is a
U.S. company founded by two former U.S. Government officials
in 1981. It is listed on the S&P 500 and operates power
generation facilities in 27 countries around the world,
including an LNG terminal and natural gas pipeline at AES
Andres in the Dominican Republic. Its Ocean Cay project
would be operated by AES Ocean LNG, Ltd.


AES Representatives Visit Ambassador
--------------


7. (C) AES officials Aaron Samson and Scott J. Taylor and
their locally retained attorney, H. Campbell Cleare, III,
visited Ambassador Rood on April 27 to provide an update on
their LNG proposal and to request assistance in dealing with
an indecisive Christie cabinet. Samson explained that AES
has already spent over $55M on this project, an agreement in
principle has been signed, and the Prime Minister will not
speak to them because there are no other requirements that
AES must satisfy. Attorney Cleare said that the PM has
difficulty with the project because of his concerns about any
accident at an LNG facility on tourism and wants to delay the
LNG project as long as possible.


8. (C) Cleare suggested that the Prime Minister orchestrated
the recent public battle between Cat Cay resident and LNG
opponent Manny Diaz and LNG advocate Minister Leslie Miller
on Cat Cay (see para 12) as part of his strategy to delay the
project until AES gives up and pulls out. If AES withdraws,
PM Christie believes he will not be held responsible for the
failure of the project. Nevertheless, the PM has told both
Ambassador Rood and Cleare that the project will be approved.


9. (U) AES officials are especially frustrated with Bahamians
and complained that although they have visited an operating
AES LNG plant and seemed to be convinced of its safety, they
now fail to speak out in favor of an LNG plant on Ocean Cay.


10. (U) At an April 20 meeting attended by visiting Caribbean
Affairs Director Brian Nichols and DCM, David Davis and
Ronald Thompson of the Office of the Prime Minister said on
the topic, without elaboration or explanation, that, in their
opinion, "LNG is dead." After being asked about this
comment, Foreign Minister Mitchell assured the Ambassador
that no decision has been made.


Tractabel/El Paso Proposal for Grand Bahama
--------------


11. (U) Tractabel North America (a subsidiary of a French
giant Suez) and El Paso in December 2004 united what had been
independent bids for the LNG project. The partnership is
expected to utilize El Paso's "Seafarer Pipeline" location at
South Riding Point in Eastern Grand Bahama, a site with fewer
environmental concerns than the facility in Freeport Harbour
that Tractabel (and the Grand Bahama Port Authority) had been
advocating. Neither Tractabel nor El Paso have yet received
Bahamian environmental approval for their project.


Impact on Economy
--------------


12. (U) Minister of Trade and Industry Leslie Miller, the
government's chief proponent of LNG, estimates the project
will generate approximately $40 million in average annual
revenues over the course of the next 25 years, for a total
contribution to the public treasury of nearly $1 billion.
The project is also expected to create about 450 jobs during
the construction phase and 25-35 permanent positions
thereafter.


Debate Gets Nasty
--------------


13. (U) Residents of Cat Cay, an island eight miles from
Ocean Cay, held a public forum to discuss LNG on April 3.
Minister Miller, present to represent the government, walked
out of the session during the showing of an anti-LNG video
commissioned by some of the residents. After returning to
the event, Minister Miller had a heated exchange with Manuel
Diaz, president of the Cat Cay Yacht Club and a staunch
opponent of LNG. The two shouted back and forth, with Mr.
Diaz referring to Minister Miller as "an idiot" who was
"behaving like a child."


14. (U) Local environmental group "Re-Earth" has loudly
advocated against LNG, focusing on the dangers posed by the
gas while in transit and while being processed, and the
potential damage to the air, oceans and marine life in the
vicinity of the terminal. Re-Earth launched a "Say No to
LNG" petition which has garnered approximately 1500
signatures as of May 2. Bahamian Ambassador for the
Environment Keod Smith has expressed his doubts that The
Bahamas has the regulatory oversight necessary to safely host
the LNG project. He also does not believe that The Bahamas
has the capability to protect the pipeline from potential
terrorist attack.


15. (U) Minister Miller alleged in a radio interview on May
1 that Re-Earth's opposition is getting more media attention
than it normally might because the group's leader, Ms. Sam
Duncombe, is white. Said Minister Miller, "Had this been a
regular Bahamian of a hue like you and I, it would not have
been tolerated or she would not have gotten the coverage that
she has certainly gotten." The opposition Free National
Movement (FNM) immediately issued a statement denouncing
Minister Miller's statement as "wicked and evil." Minister
Miller on May 2 said he was sorry if Ms. Duncombe was
offended by his remarks, which he said were not meant to be
derogatory.


16. (U) Both advocates and opponents of LNG have stepped up
their public relations campaigns in recent days, with ads now
appearing on a daily basis in the print media and throughout
the day on radio and television. The Ministry of Trade and
Industry and the BEST Commission are scheduled to hold a
public forum on LNG on Thursday, May 5.


Comment
--------------


17. (C) The consideration of the various LNG proposals
typifies the slow and opaque decision-making process of the
Christie government. Government ministers have been
promising a decision "in a few weeks" for nearly two years.


18. (C) Even for the consensus-driven society of The
Bahamas, the LNG debate has been long, protracted, and
increasingly bitter. Some insiders have insisted that
several members of the Cabinet have personal financial stakes
in the competing bids and are taking positions within Cabinet
based on how they will personally profit from the outcome.
In the end a cash-strapped Bahamian Government may be forced
to make a decision about an LNG facility so it can start
collecting the revenue the project will generate.

ROOD