SENEGAL PLANS TO TACKLE ONGOING ENERGY CRISIS

C O N F I D E N T I A L SECTION 01 OF 03 DAKAR 001746

SIPDIS

SIPDIS

STATE FOR EB/IFD/ODF, EB/ESC/IEC, INR/AA, AF/EPS AND AF/W
DOE FOR OFFICE OF POLICY AND INTERNATIONAL AFFAIRS
USDOC FOR 4510/OA/PMICHELINI/AROBINSON-MORGAN/KBOYD
USDOC FOR 3131/CS/ANESA/OIO/DHARRIS/GLITMAN/MSTAUNTON

E.O. 12958: DECL: 07/20/2016
TAGS: ENRG EAID ECON EPET SG CH VE IR
SUBJECT: SENEGAL PLANS TO TACKLE ONGOING ENERGY CRISIS

REF: A. DAKAR 1740 (NOTAL)


B. DAKAR 1100 (NOTAL)

DAKAR 00001746 001.2 OF 003


Classified By: Ambassador Janice L. Jacobs for reasons 1.4 (b) and (d).


1. (C) SUMMARY: The Government of Senegal (GOS) recently
hosted a three-day workshop in the coastal town of Saly to
diagnose the current energy crisis in the wake of the ongoing
world market price increases that continue to negatively
affect the Senegalese economy. The workshop featured energy
experts, official presentations and panel discussions
covering price structure, supply, distribution, storage
capacity, and transportation of oil and oil products.
Participants recommended reevaluating Senegal,s oil price
structure, finding ways of strengthening supply and
distribution, liberalizing the Societe Africaine de Raffinage
(SAR,s) capital structure, as well as increasing its
production capacity, and expanding national storage capacity.
Participants appealed for greater cooperation among the
different actors in the sector, namely SAR, distributors,
retailers and consumers in order to create a credible and
functioning energy sector. GE/GTi may shut down again due to
fuel supply problems. Meanwhile, President Wade and Prime
Minister Sall have explored assistance from China, Iran and
Venezuela. END SUMMARY.


2. (U) The government-hosted workshop brought together
representatives from multinational oil suppliers (Total/Elf,
Exxon-Mobil and Shell,) consumer associations, other
non-governmental organizations, the donor community, and
officials from the Ministries of Finance, Agriculture and
Commerce, as well as from SAR (owned 54.4 percent by
Total/Elf, 23.8 percent by Shell, and 21.8 percent by
Petrosen). Minister of Energy and Mining Madicke Niang,
accompanied by Minister of Budget Hadjibou Soumare led the
government delegation.


3. (U) Although petroleum products represent 60 percent of
Senegal,s energy supply, the sector faces major challenges
in maintaining a consistent supply and efficient
distribution. SAR, unable to meet Senegalese consumption
demand of approximately 2 million metric tons annually, holds
the monopoly on Senegal,s annual imports and distribution of
1.1 million metric tons of crude oil and 650,000 metric tons
of refined oil products. SAR attributes its weak production
capacity to obsolete equipment. Three key oil players --
Total/Elf, Shell, and Exxon-Mobil -- own Senegal,s six
storage facilities, which have a combined storage capacity of
300,000 metric tons and are responsible for its distribution.
A local, independent company, Elton, also distributes
limited refined oil products.

GOS CALLS FOR WIDER SAR OWNERSHIP
--------------

4. (U) In his remarks, Junior Minister for Budget Soumare
indicated that Senegal spends more than 40 percent of its
export revenues on the importation of crude oil, and that its
refinery faces production capacity constraints because of the
lack of new investment to upgrade the plant. Energy Minister
Niang reviewed some of the major dilemmas in the energy
sector, including the control of the petroleum industry by
SAR and its shareholder oil oligarchs, and the negative
effects of world market oil price increases on the Senegalese
economy. He indicated that the time has come for GOS to end
the &dictatorship8 of SAR and its shareholders by
increasing the GOS,s shares and opening up the refinery,s
capital ownership to other African investors. He echoed
Soumare,s call for stronger government ownership of the
refinery,s capital. (NOTE: Petrosen, the national oil
entity, recently increased its share ownership of SAR from 10
percent to 21.8 percent by purchasing Exxon/Mobil,s 11.8
percent for USD 2.5 million. It is also planning to buy 11.8
percent of Total,s shares to further increase its influence
in the oil import sector. END NOTE.)

PROPOSED ACTIONS TO ADDRESS THE CRISIS
--------------

5. (U) With world-market oil price increases, Senegal has
been having difficulties meeting local demand for oil, butane
and electricity. To increase opportunities for oil market
access, experts and government officials proposed a series of
actions aimed at reorganizing the legal and regulatory

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framework of the sector, reinforcing the role of the National
Hydrocarbon Advisory Agency (&Conseil National des
Hydrocarbures8) in protecting the refinery, increasing
Senegal,s storage capacity beyond a 35-day supply, and
implementing the 1998 liberalization program to promote
greater inclusion of local and independent distributors.

OIL PRICE STRUCTURE
--------------

6. (U) The import-parity principal continues to be a major
source of contention between the GOS and the oil suppliers:
Shell, Total and Exxon-Mobil (Ref B). The import-parity
price is currently aligned with the Mediterranean market but
the Northwest Europe market price is set higher. While SAR
and the distributors encouraged alignment with the Northwest
European price reference to help SAR meet its financial
commitments, secure supplies and modernize its facilities,
consumer organizations and government experts rejected the
proposal on the grounds that it would significantly raise the
prices of oil, butane, and electricity. According to oil
retailers, the current price structure and government price
fixing, aimed at protecting consumers at the pump, are
artificial and they hamper the development of the retail
petroleum sector.

OIL PRODUCTION CAPACITY
--------------

7. (U) To help SAR meet its local and foreign demands,
participants called for the modernization and extension of
refinery production capacity to increase from 1.2 to 2
million metric tons per year in the short term. They
suggested the establishment of an import-parity price that
would guarantee the company,s profitability. Experts also
recommended the restructuring of SAR,s capital to increase
GOS shares and to diversify its shareholders to include
private investors from Senegal and from neighboring West
African countries. Formal studies on the cost of
modernization have not yet been undertaken, although energy
experts think the cost would be too high for either GOS or
SAR to absorb.

INCREASING STORAGE CAPACITY
--------------

8. (SBU) Some experts called for the establishment of a more
robust storage capacity program. They urged the GOS to
commit itself to securing land for a new facility as well as
building a new sea pipeline for butane gas. Experts also
highlighted the need for a crude oil import committee that
would include all oil distributors and GOS representatives.
The committee, under the supervision of the Ministry of
Energy, would monitor the status of imports and the stock
capacity levels. Currently, Senegal's total storage capacity
is approximately a 20-day supply of 200,000 metric tons of
refined fuel. In addition, there is storage capacity at
Dakar port for 100,000 metric tons of diesel fuel. Cheikh
Tidiane Ly, Total,s Logistics Director, told us that
complying with a 35-day reserve capacity requirement, as
established by GOS, would be impossible due the lack of
storage space and decrepit state of existing storage
facilities.

TRANSPORT OF REFINED PRODUCTS
--------------

9. (U) Oil distributor representatives recommended an annual
revision of the transport price structure to take into
account the world market price increases and the cost of
trucks and parts. They urged the GOS to monitor and
implement the transportation agreement between Senegal and
Mali which provides for free movement of goods between the
two countries and the West African Economic and Monetary
Union (WAEMU) free-trade zone. (COMMENT: The lack of
implementation of the transport agreement between Senegal and
Mali has resulted in the latter illegally levying a 17
percent tax on any Senegalese trucks transporting petroleum
products into Mali. Mali is one of SAR,s most important
consumers of butane gas and refined petroleum products, and
SAR is concerned that if it complained directly to Malian
authorities, Mali would go to a different supplier, i.e. Cote
D,Ivoire. END COMMENT.)


10. (U) In an effort to implement the 1998 liberalization
program to promote greater inclusion of local and independent

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distributors, the Ministry of Energy has been issuing import
licenses to anyone who is willing to import refined oil and
oil products. While this might appear as a good move on the
part of GOS, private sector experts believe that the licenses
will not result in an increased supply of refined oil and oil
products, but rather, the number of issued licenses will be
used as a measuring stick of GOS,s &progress8 in
liberalizing the market.

GE/GTi AGAIN EXPERIENCES SUPPLY PROBLEMS
--------------

11. (SBU) GE/GTi, which supplies 20-25 percent of Senegal,s
electricity, is again experiencing supply problems. For
once, these are not due to Senelec being in arrears.

GOS SEEKS EXTERNAL AID
--------------

12. (C) To address Senegal,s energy needs, when Prime
Minister Macky Sall visited China in June, he discussed
Chinese construction of a coal-fired plant in Senegal. When
the Ambassador met with President Abdoulaye Wade on July 4,
Wade confirmed that Iran has agreed to construct a new
petroleum refinery to refine five million tons of crude oil
annually. Wade also said that Venezuelan President Hugo
Chavez had offered to explore a joint project with Iran to
build a fuel storage facility in Dakar, but Wade reported
that he preferred to keep the Iranian and Venezuelan projects
separate.

COMMENT
--------------

13. (SBU) The Saly workshop was a necessary step in
acknowledging the urgent energy challenges facing the
country. Generally, the GOS was pleased with the proceedings
and encouraged by the enthusiasm of participants to heal
energy sector wounds. The workshop made clear the GOS,
intention to increase its ownership of SAR,s capital and to
play a key role in SAR,s future. However, private sector
representatives remain skeptical of the GOS, financial
ability to see the necessary overhaul and maintenance of the
refining sector through. It remains to be seen whether
workshop recommendations will be implemented as opposed to
collecting dust at the Ministry of Energy. At a time when
the economy is experiencing slower than predicted GDP growth,
and oil and gas price liberalization of the sector are
crucial to address the long-term energy sector needs, to
everyone,s surprise, the GOS is expanding its ownership of
the sector. Much needed oil price liberalization would be
very painful economically and politically, but according to
industry experts, it would provide the long-term solution to
Senegal,s ongoing energy crisis. END COMMENT.
JACOBS