SENEGAL'S ENERGY CRISIS WORSENS

UNCLAS SECTION 01 OF 02 DAKAR 002245

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EB/IFD/ODF, EB/ESC/IEC, AF/EPS AND AF/W
AID/W FOR AFR/WA AND AFR/SD
TREASURY FOR OIASA/IDB
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: N/A
TAGS: ENRG EINV ECON EPET KMCA SG
SUBJECT: SENEGAL'S ENERGY CRISIS WORSENS

REF: DAKAR 1746 AND PREVIOUS

DAKAR 00002245 001.2 OF 002



1. (SBU) SUMMARY: There seems to be no medium- or long-term
strategy to Senegal's energy crisis. After a year of rancor, the
relationship between GE/GTi Dakar and Senelec has further
deteriorated, and both's debts are mounting. On September 16, GTi
shut down because of a lack of fuel, and the company is again
seeking U.S. assistance as it contemplates invoking "force majeure."
Senegal's only refinery has not operated since April, and the
government's decision to requisition fuel for the electric utility
sparked panic buying and hording by consumers. Blackouts have
become a daily occurrence; prices continue to rise at the pumps; and
manufacturers are obliged to buy unsubsidized fuel to run their
operations. While the new 60 MW Wartsila Bel Air plant should be
commissioned by the end of September, limited fuel supplies may
result in continued severe energy disruptions. END SUMMARY.

GE/GTI LURCHES FROM SHUTDOWN TO SHUTDOWN
--------------

2. (SBU) On September 16, GE/GTi Dakar (GTi) shut down for the
second time in two weeks because it ran out of fuel. Suppliers
Shell and Exxon-Mobil refused to deliver fuel because of unpaid
bills. GTi is two months overdue on its payments to its petroleum
suppliers while no funds are immediately forthcoming from Senelec.
According to GTi, Senelec owes the independent power producer (IPP)
6 billion CFA francs (CFAF) (USD 12 million) of which 1 billion CFAF
is contested by Senelec. Petroleum supplier Shell is owed 2.8
billion CFAF (USD 5.6 million) and Exxon-Mobil is owed 1.02 billion
CFAF (USD 2 million).


3. (SBU) While Shell had buckled to pressure and continued to
supply GTi with fuel, despite the overdue payments, Exxon-Mobil
officials inform us that they cannot continue to supply GTi and cut
off delivery to the IPP on September 11. It now appears that Shell
is arguing that they have supplied the "requisitioned" 1,000 cubic
meters of fuel to GTi and will supply no more at this time.
However, with the recent visit to Senegal of Shell's Vice President
for Africa, industry insiders expect Shell may succumb again to GOS
pressure to supply both Senelec and GTi with fuel.

GOS FUEL REQUISITIONING -- WHAT DOES IT REALLY MEAN?
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4. (SBU) While there was much press coverage about the GOS move to
"requisition" fuel supplies from Shell, Total, and Exxon-Mobil, the
power producers received no written communication from the GOS to
explain the "requisitioning" process or what it means for them. It
was widely reported in the press that energy companies would have 60
days to pay the fuel suppliers for their consumption. However, the
fuel suppliers are importing on 30-day credit terms and will have to
essentially advance payments to their traders while awaiting payment
from Senegal's energy producers namely, Senelec and GTi. As one
petroleum supplier observed, this GOS action counters sound business
practice. Likewise, Senegal's strategy of invoking a "national
security" related law to justify the arbitrary "requisitioning" of
products, the process for which is not clearly spelled out, does not
bode well for Senegal's overall investment climate.


5. (U) The requisitioning resulted in panic buying and hording,
with numerous gas stations running out of diesel on September 13.
Tankers with additional diesel fuel arrived on September 14, and
fuel tankers are now waiting at the port. The perceived fuel
shortage should, therefore, end by September 18. Moreover, the
Embassy has sufficient stocks of fuel on hand for generators and
other embassy services at this time. As with the frequent
blackouts, fuel distribution problems have created secondary
problems, such as shortages of flour for bread.

STARTS AND STOPS
--------------

6. (SBU) Despite being directed to pay GTi in full during a recent
meeting with the Ministry of Finance, Senelec failed to abide by the
directive, which according to the Director of Hydrocarbons was
supposed to have been met by September 8, 2006. Instead of paying
the undisputed amount of 3.4 billion CFAF (USD 6.8 million, which
still would not cover the USD 7.6 million GTi owes to the petroleum
suppliers),Senelec sent a notification of a wire transfer to GTi in
the amount of 1 billion CFAF (USD 2 million),which GTi has yet to
receive. It is understood that last week the GOS transferred 9
billion CFAF (USD 18 million) to Senelec to pay its suppliers -- an
amount reported to be 31 billion CFAF (USD 62 million). Thus, GTi
is likely standing behind a long line of Senelec creditors awaiting

DAKAR 00002245 002.2 OF 002


longstanding payments. As Senelec is GTi's sole source of revenue,
unlike the petroleum suppliers, GE officials indicate that they
cannot continue to stop and re-start operations every few weeks due
to a lack of operating capital and will soon take the decision to
invoke "force majeure" and place a call on the GOS guarantee.

GE AND GTI ENGAGE THE SCOWCROFT GROUP ONCE AGAIN
-------------- ---

7. (SBU) GE officials have requested embassy assistance in
bringing, once again, their concerns about Senelec and Senegal's
energy situation to the attention of the Prime Minister. GE
officials indicate that they are already in consultation with the
Scowcroft Group and anticipate orchestrating a more vigorous
campaign against Senegal than that which was conducted last year,
when GE lobbied against Senegal's proposed Millennium Challenge
Account (MCA) Compact.

REFINERY REMAINS CLOSED WHILE SENELEC IMPORTS OWN FUEL
-------------- --------------

8. (SBU) Senegal's sole petrochemical refinery, Societe Africaine
de Rafinage (SAR) not been operating since April, 2006. In an
11-hour long board meeting held on September 7, it was decided that
SAR will begin importing refined product and will develop a
restructuring plan before importing unrefined crude. According to a
source who participated in the marathon meeting, the GOS has agreed
to pay SAR 3 billion CFAF (USD 6 million) per month over the next
six months to cover longstanding arrears and enable the company to
import refined product.


9. (SBU) Under any restructuring plan, SAR's board indicated that
the company would need to charge an additional 36 CFAF per liter of
petroleum product that it refines if it is to consider operating in
the future. According to sources, the GOS is unwilling to fully
commit to the increase. Nonetheless, it was agreed that
shareholders Shell and Total would work closely with Petrosen, the
national petroleum parastatal, to develop a viable restructuring
plan, which is to be unveiled sometime in October. It is worth
noting that SAR has lost USD 40 million each year over the past two
years and owes creditors USD 240 million. SAR has receivables that
still need to be collected from Senelec, Shell, Total, and the GOS.
The full amount owed by the GOS to SAR for butane gas subsidies
remains undefined (reftel).


10. (SBU) As the GOS has essentially opened the market to the
importation of refined product to anyone who has the financial means
to allegedly counter the influence exerted on the fuel sector by the
"big three" (Shell, Total and Exxon-Mobil),this strategy could
jeopardize the refinery's longer term relevance. According to
Senegal's Director of Hydrocarbons, Senelec imported 20,000 tons of
refined product this past weekend, which we understand is a ten-day
supply. Independent petroleum suppliers Touba Oil, Elton and other
lack the storage facilities to import refined product-- though we
understand that Exxon-Mobil has been asked by government officials
to supply storage space to their Senegalese competitors.

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

11. (SBU) Pursuant to our discussions with Ministry of Energy
officials, there still seems to be no medium-or long-term solution
to what they have termed Senegal's "dire" energy crisis where
blackouts are a daily occurrence; prices continue to rise at the
pumps; and large private sector manufacturers are forced to now buy
unsubsidized fuel to run their operations. By all accounts, the
energy crisis is being managed on a month-to-month basis. While the
new 60 MW Wartsila Bel Air plant expected to be commissioned by the
end of September, limited fuel supplies could put this plant in the
same rudderless boat as GTi. The overall lack of vision and
leadership in the energy sector is having a profound impact on
Senegal's hobbling industrial sector. Senegal's biggest industries
are suffering: ICS is barely operational, SONACOS is in disarray,
SAR is not operational, and the U.S. IPP is threatening once again
to shut down. END COMMENT.

JACOBS