KUWAIT SCRAMBLES TO AVOID WIDESPREAD POWER OUTAGES

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 004532

SIPDIS

NOFORN
SIPDIS

FOR NEA/ARP, EB/ESC/IEC

E.O. 12958: DECL: 11/28/2011
TAGS: ENRG ECON KU
SUBJECT: KUWAIT SCRAMBLES TO AVOID WIDESPREAD POWER OUTAGES
IN SUMMER 2007

REF: A. KUWAIT 3936


B. KUWAIT 3720

C. KUWAIT 3469

Classified By: Charge d'Affaires Matt Tueller for reasons 1.4 (b) and (
d).


1. (C/NF) Summary and comment: In an effort to avoid a
repetition of the rolling blackouts that Kuwait experienced
in July-August 2006 due to a growing gap between generating
capacity and peak demand (refs A and B),the Kuwait Ministry
of Energy is fast-tracking a tender to provide an additional
1300 MW of power before June 2007. Last summer's blackouts
have been politically damaging to the Government, spawning
multiple investigations and resulting in calls for the Energy
Minister to resign. In the words of the Ministry's Chief
Engineer for Power Projects, "This is no longer a technical
problem; it's a political problem." After about two months
of decision-making paralysis during which several senior
officials were suspended as the investigations ran their
course, the Energy Ministry now expects to award contracts to
multiple companies by December 15 to bring additional
generating capacity online by May 31, 2007. The Ministry
intends to repeat this exercise later in 2007 to install an
additional 1300 MW of capacity before June 2008. Meanwhile,
efforts are underway to expedite the re-tendering of a new
power plant at Al-Zour North (Ref C) and the expansion of an
existing plant at Sabiyya in order to address the long-term
need for increased electrical generating capacity beyond

2008. End Summary and comment.

Fast Track for Short-term Solutions before June 2007
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2. (C/NF) On 28 November, Econoff and Commercial Attache
met separately with Acting Under Secretary of Energy for
Electricity and Water Yousef Al-Hajeri, Chief Engineer for
Power Station Projects Ahmad Al-Jassar, and Brian Fullarton,
the lead consultant to the Ministry on power projects from
U.S.-based Parsons Brinckerhoff International. In an
unusually rapid and below-the-radar process, the Energy
Ministry quietly began contacting pre-qualified companies on
or about 14 November to solicit bids. The unpublished tender
calls for the delivery of generator sets to provide an
additional 1300 MW before 31 May 2007. The Energy Ministry,
in coordination with an inter-ministerial committee tasked
with addressing energy needs for 2007-8, obtained
exceptionally rapid and streamlined support from the Central
Tenders Committee and Audit Bureau and is now in the process
of reviewing bids from seven different bidders, including
American companies Pratt & Whitney, General Electric, and
BTEC. Al-Hajeri expects contracts to be awarded to multiple
bidders (most likely three - one for each of the plants in
which the generators are to be installed) by December 15. He
noted that power generation solutions only address half of
the equation and emphasized that, ultimately, the Government
needs to take more aggressive action to control the growth in
demand, currently estimated to be 7-8% per annum. Al-Hajeri
said that subsidized electricity, a lack of action against
the large proportion of consumers who don't pay their energy
bills, and the absence of a culture of conservation all
contribute to excessive power consumption. He did not,
however, outline any specific plans to reduce demand.

Electrical Problem has become a Political Problem
-------------- --------------


3. (C/NF) The unprecedented rolling blackouts of July and
August 2006 led to widespread criticism of the
newly-appointed Energy Minister and the Government in
general. As a response, the Energy Ministry and the Council
of Ministers initiated at least three different
investigations which, in turn, led to the suspension of
several senior officials in the Energy Ministry and the
firing of an Assistant Under Secretary. Chief Engineer
Al-Jassar, who is reviewing the bids, remarked that
preventing blackouts next summer is "no longer a technical
problem; it's a political problem." Al-Jassar implored the
Commercial Attache to communicate to all the American bidders
that the new units must be brought online before the
beginning of June in order to avoid a political crisis. He
indicated that price was less of a consideration than the
timeliness and reliability of the bidders. Both the Under
Secretary and Chief Engineer confirmed that the Council of

SIPDIS
Ministers just approved funding in the amount of 800 million
Kuwaiti Dinars (approximately 2.8 billion USD) to prevent a
2007-8 power shortage.

Still need to address Long-term Investment

KUWAIT 00004532 002 OF 002


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4. (C/NF) Separately, Econoff met with Brian Fullarton of
Parsons Brinckerhoff, the lead consultant to the Ministry on
power issues, to follow-up on the re-tendering of the $2.9
billion, 2500 MW Al-Zour North power plant. Fullarton said
the tender was being recrafted into two 1500 MW stages in
order to attract more bids by reducing the liability of
bidders. (Note: The project was last tendered in August,
but, by law, this tender had to be cancelled because only one
bid was received. Potential bidders complained to Econoff
and Commerical Attache of onerous terms and conditions. End
note.) The new tender will also stipulate that the turbines
should be combined cycle in accordance with Kuwait Oil
Company's plans to exploit a 35 trillion cu. ft. (est.) gas
field discovery announced in March 2006. The Al-Zour North
plant is expected to come online approximately two years
after the contract is awarded.


5. (C/NF) When Econoff asked about progress on a 1500 MW
expansion of the Sabiyya power station awarded to GE, the
Under Secretary said that GE notified the Ministry that it
would be unable to fulfill the terms of the contract due to
problems with its partner, Hyundai Heavy Industries. The
Under Secretary said the Ministry had referred the contract
to the Central Tenders Committee to ask that it be awarded to
the second-lowest bidder, Siemens. This was confirmed by
Brian Fullarton of Parsons Brinckerhoff, who added that GE
had submitted an alternative proposal which was rejected by
the Ministry. Chief Engineer Al-Jassar acknowledged that
expediting the investments in Al-Zour North and Sabiyya was
critical to solving Kuwait's long-term energy problems but
said that currently most of his efforts are focused on the
short-term solution for 2007-8.
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For more Embassy Kuwait reporting, see:
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Or Visit Embassy Kuwait's Classified Website:
http://www.state.sgov.gov/p/nea/kuwait/
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Tueller