WESTERN OIL COMPANIES REDUCE HOLDINGS IN SENEGAL AS OTHER

UNCLAS SECTION 01 OF 02 DAKAR 002460 SIPDIS SIPDIS SENSITIVE STATE FOR EB/ESC/IEC, EB/IFD/OIA, 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/GLOOSE/GLITMAN/MSTAUNTON E.O. 12958: N/A TAGS: ENRG EINV ECON EPET KMCA CH IR LY MO SG SUBJECT: WESTERN OIL COMPANIES REDUCE HOLDINGS IN SENEGAL AS OTHER WESTERN COMPANIES GO UNPAID REF: A. YAOUNDE 1566 ¶B. DAKAR 2364 (NOTAL) ¶C. DAKAR 1746 (NOTAL) AND PREVIOUS DAKAR 00002460 001.2 OF 002 SUMMARY -------------- ¶1. (SBU) Citing poor returns on investments, Exxon-Mobil officials have announced publicly the sale of its 300 service stations in Senegal, Cote d'Ivoire, Gabon, Cameroon, Kenya, and the island of Reunion to the Libyan firm Tamoil. At the same time, Royal Dutch Shell is quietly selling off the remainder of its shares in Senegal's petroleum refinery, SAR, to government parastatal Petrosen. END SUMMARY. ¶2. (U) Exxon-Mobil (EM) officials met with EmbOffs to share news of its plans to sell off its downstream service stations in six African locations to Libyan company Tamoil. Citing a poor return on investment, EM is selling off its downstream operations in Senegal, Cote d'Ivoire, Gabon, Cameroon, Kenya, and the island of Reunion. While each country's requirements for the transfer of ownership differ, EM's Director of Finance for Africa expects Senegal's transfer to be the quickest of all six to implement. According to EM officials, once Tamoil declares its intention to buy EM operations the transaction can be finalized within 10 days of the declaration. EM does not expect employees to be affected by the transfer in ownership, and Tamoil will have the rights to retain the Exxon-Mobil name for up to one year. ¶3. (U) While EM has pulled out of downstream operations, officials maintain that the upstream oil exploration market is lucrative, and they intend to double their upstream investment in Africa by 2010. (NOTE: EM will continue to maintain its service stations in Nigeria, Morocco, Tunisia and Egypt. END NOTE.) EXXON MOBIL THANKS EMBASSY TEAM -------------- ¶4. (U) Following months of intensive advocacy in 2005 and 2006 by senior mission officers, last week EM finally received USD 1.29 million in GOS tax credits owed as a result of changes in Senegal's tax codes that caused Exxon-Mobil to pay taxes to both SAR and Customs on the same product, from 1999 to 2002. Over the past year, Exxon-Mobil faced the possible write-off of USD 2.8 million in tax overpayments if Senegal did not officially acknowledge the error and take steps to reimburse Exxon Mobil. The Ambassadors raised the issue multiple times with the Prime Minister and the Minister of Finance. EM officials credit the Minister of Finance with being proactive in seeking a resolution to the problem as a result of these meetings. EM expects to receive another credit in the amount of USD 290,000 before the end of the month. The remaining USD 800,000 is still under review. SHELL SELLING SHARES IN SAR -------------- ¶5. (SBU) Energy officials informed EmbOff that Petrosen (the state-owned oil company) is finalizing negotiations with Shell to buy its remaining shares in SAR. This move would give the GOS a 68.2 percent majority stake in the oil refinery. As the GOS has limited experience in the management of a refinery, it is expected that it will contract with France's Total Elf to run operations. As of October 11, SAR remains closed. EMERGENCY FUEL FUND -------------- ¶6. (SBU) The creation last month of the Emergency Fuel Fund (EFF) came in response to the country's severe energy crisis (Ref B). According to a draft government decree, the Fund aims to ensure a steady supply of fuel for the country, while officials grapple with the way forward to liberalize fuel prices. Margins obtained from lowered prices on the international oil market will replenish the Fund and savings will not be passed on to the consumer. (NOTE: Government officials have conceded that they might have to lower prices slightly at the pump to appease disgruntled consumer groups. END NOTE.) According to the draft government decree, additional DAKAR 00002460 002.2 OF 002 resources will come from friendly countries and development partners, reportedly including Morocco, Libya, Nigeria and Iran, and also from the sale of petroleum products given to Senegal at preferential rates by these petroleum supplying countries. ¶7. (SBU) The draft decree is short on specifics, but it outlines the use of the Fund to offset commercial losses linked to the importation of petroleum products, to support costs of refining activities, and to support costs related to the declassification of various petroleum products. ¶8. (SBU) The Fund's management committee, according to the draft decree will include a representative of the Ministry of Energy, two representatives of the Ministry of Finance and two from the Ministry of Commerce, as well as representatives from SAR and licensed fuel importers. The Fund's manager will be appointed based on a separate decree from the Ministry of Finance. COMMENT -------------- ¶9. (SBU) It is clear that Senegal will see a couple of new entrants (Tamoil and oil suppliers from Iran and other "friends of Senegal") in its energy sector over the next several months. Perhaps they will be able to help Senegal muddle through its energy crisis. With power shortages continuing unabated during the peak demand season, SAR inoperable, and U.S. IPP GTi mothballed due to lack of full payment and a reliable fuel supply stemming from the delayed payments by power utility Senelec, it is highly likely that President Wade's proclamation to end power outages by October 15, 2006 will prove to be empty. ¶10. (SBU) At the same time, we remain concerned about an overall lack of transparency in the management of the energy sector by the GOS and the electricity parastatal/monopoly SENELEC. The draft decree on the EFF does not provide adequate information on oversight and accountability for such a potentially large fund. Further, recent GOS steps, including the reacquisition of shares of SAR, are a clear retreat from the Wade administration's commitment (via a 2003 policy paper presented to major donors) to take steps to enhance private-sector participation in Senegal's long-troubled energy sector. As a result, the World Bank, reportedly in response to on-going management and policy concerns related to SENELEC, has stopped funding energy-related projects in Senegal. END COMMENT. Jackson