UAE ENERGY MINISTER ON GUARDIAN INDUSTRIES AND

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 001927

SIPDIS

SIPDIS

DEPARTMENT FOR NEA/ARP, EEB/CBA - MERMOUD, EEB/ESC/IEC/EPS
NSC FOR HUTTO
ENERGY FOR SENIOR POLICY ADVISOR WILLIAMSON
6000/ITA/TD/AS/AC/CJAMES
3004/ITA/TD/AS/AC

E.O. 12958: DECL: 11/26/2017
TAGS: ENRG ECON EINV IR AE
SUBJECT: UAE ENERGY MINISTER ON GUARDIAN INDUSTRIES AND
ELECTRICITY SHORTAGES

REF: A. ABU DHABI 1922


B. NOV 2 MERMOUD SISON E-MAIL

C. ABU DHABI 1021

ABU DHABI 00001927 001.2 OF 003


Classified By: Ambassador Michele J. Sison for reasons 1.4 (b & d).


1. (SBU) Summary: On November 25, Ambassador pressed UAE
Energy Minister Mohammed bin Dha'en Al-Hamili to try and
resolve a critical lack of electricity for Michigan-based
Guardian Industry's USD 150 million investment in Ras
Al-Khaimah. Al-Hamili expressed his sympathy, but explained
that development in the northern emirates had outstripped the
Federal Electricity and Water Authority's (FEWA) power
generation capacity and that the UAE cabinet had instructed
FEWA to give priority to residential customers. He expressed
his belief that Guardian should work with the Emirate of Ras
Al-Khaimah to try and resolve the problem, suggesting that
Ras Al-Khaimah provide some of its (limited) natural gas
directly to a power plant for the factory. He noted that the
UAE electrical grid would be completed in April 2008, which
should help resolve some of the capacity problems. With
regard to the dispute between Iran and Crescent
Petroleum/Dana Gas, he pled ignorance. Embassy will continue
its efforts on behalf of Guardian, but the overall
electricity constraints will make this a hard sell. End
Summary.

Guardian Energy
--------------


2. (SBU) Ambassador, accompanied by Econchief, met with UAE
Energy Minister Al-Hamili (FEWA's Chairman of the Board) to
seek his assistance in resolving Guardian Industries problems
with obtaining electricity for its float glass plant in Ras
Al-Khaimah. Ambassador explained the situation to Al-Hamili,
stressing that problem sent a chilling message to potential
U.S. investors. The Ambassador noted the upcoming December 6
U.S. - UAE Business Council board meeting in Abu Dhabi and
the December 4 U.S. - GCC Investment Forum in Manama, which
UAE Economy Minster Sheikha Lubna Al-Qasimi will attend. The
Guardian issue would cast a pall on both events, Ambassador
suggested. Al-Hamili expressed his sympathy, but stated that
FEWA, which provided electricity to the northern emirates,
did not have the electricity to provide to the Guardian
plant. (Note: FEWA is responsible for providing power to
the northern emirates. The emirates of Abu Dhabi and Dubai
have their own power generation capacity and do not rely on
FEWA. The emirate of Sharjah also has its own generation
capacity, but also relies on FEWA-generated power. End
Note.)


3. (SBU) Guardian industries, along with Saudi joint venture
partners (National Company for Glass Industries and Al-Zamil
Group) invested $150 million in constructing a plant
producing 700 tons of glass per day and employing 300 people
in the Emirate of Ras Al-Khaimah. Guardian negotiated its
investment with the Crown Prince of Ras Al-Khaimah and began
construction early in 2006. The plant started operations in
September 2007, using back-up diesel generators. Guardian
believed that it had a commitment from FEWA to provide
electricity to the plant, but apparently did not have a
written FEWA commitment. It paid FEWA a guarantee/deposit of
USD 3.3 million in December 2006, when it filed its
application for electricity supply. On October 15, FEWA's
General Manager contacted Guardian to inform it that it would
not be able to meet Guardian's demand for power and only had
the power and water generation capacity to meet the demand
for "normal growth." (Note: Ras Al-Khaimah has the fourth
largest economy of the seven UAE emirates, about two percent
of the UAE's GDP. End Note.)


4. (SBU) Guardian contacted the Embassy on October 22 after
receiving the letter from FEWA. On October 25, FCS arranged
for a meeting between Guardian officials and the Abu Dhabi
Water and Electricity Authority (ADWEA -the largest provider
of electricity in the UAE) to discus the issue. The ADWEA
official stated that he was aware of power problems in Ras
Al-Khaimah, but had no knowledge of the specific project. On
October 28, CG Dubai discussed the problem with Ras
Al-Khaimah Crown Prince Sheikh Saud bin Saqr Al-Qasimi.
Sheikh Saud stated his unhappiness with FEWA "changing its
commitment so late in the day." He expressed his interest in

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USG assistance in resolving the issue and noted that the
problems sent the wrong message to potential investors in the
UAE. He added that Ras Al-Khaimah had no choice but to
procure additional local generators to meet the needs of the
plant, but that this process would take at least three
months. Ambassador subsequently raised the issue with Abu
Dhabi Crown Prince Sheikh Mohammed bin Zayed Al-Nahyan and
requested a meeting with Minister of Energy Al-Hamili at the
Crown Prince's suggestion.


5. (SBU) Al-Hamili expressed his sympathy and his belief that
that the UAE should honor its commitments to investors, but
stressed that FEWA did not have the power available. He
noted that the emirate of Ras Al-Khaimah received natural gas
directly from the emirate of Umm Al-Qaiwain and suggested
that this might serve as an alternate source of gas. He said
that he would also speak directly with the CEO of FEWA, but
stated his reluctance to intervene. This was a problem that
needed to be worked out between FEWA, Ras Al-Khaimah, and
Guardian, he noted, adding that Ras Al-Khaimah also had a
representative on FEWA's board. Companies invested in the
UAE to take advantage of cheap sources of power.
Unfortunately, Ras Al-Khaimah did not have any power.

FEWA's Power Generation Problems
--------------


6. (SBU) FEWA generated 1,100 MW of power with its own plants
and received another 500 MW from Abu Dhabi, via a power plant
in the emirate of Fujairah. This was not enough to meet
demand. Al-Hamili explained that two weeks earlier the UAE
cabinet had responded to FEWA's power shortages by releasing
FEWA from any responsibility for providing power to the new
"mega projects." The cabinet stated that FEWA's first
responsibility was to individuals and housing. If it had
power remaining, it could provide it to individual apartment
developments, but not "colonies" (i.e., large scale
residential developments). FEWA would not be responsible for
providing electricity to companies.


7. (C) Al-Hamili complained that FEWA tried to project growth
in demand, but that the northern emirates (particularly Ras
Al-Khaimah and Sharjah) were not providing accurate
development data. FEWA had projected 8% electricity demand
growth, but this would not meet all the new projects being
planned and built. He noted that development in the northern
emirates was proceeding at a phenomenal rate, citing the
Emirate of Um Al-Qaiwain as an example. The population of
that emirate was 40,000 people, he noted, but Emaar (a
property developer) was building a 300,000 person housing
development. "Who will provide power?" he asked. He
asserted that Sheikh Saud was putting heavy pressure on the
electrical system with his development projects. Looking
forward, he said the UAE's electrical grid would be completed
in April 2008 and that FEWA would get an additional 350 MW
from Abu Dhabi and would bring a new 200 MW unit on line,
which would relieve some pressures.


8. (SBU) Al-Hamili further explained that he would prefer to
sell to commercial customers, because it would cut FEWA's
losses. It cost FEWA between 80-90 fils to produce a KW of
electricity (around 25 cents). It sold electricity to
corporate customers at 20 fills (5 cents) per KW and to local
residential customers at 7 fills (2 cents). It bought
subsidized electricity from Abu Dhabi at 18 fils per KW.


9. (C) In response to Ambassador's question about the
Crescent Petroleum/Dana Gas plan to purchase natural gas from
Iran, he pled ignorance. He noted that he was supposed to
get natural gas from Crescent Petroleum in 2006, but had not
received any. He stressed that his contract with Crescent
did not mention Iran as the source of gas and that how
Crescent got its gas was "none of my business" and that the
gas could be sourced from Sharjah's Mubarak field for all he
knew.


10. (C) Comment: As noted ref c, rapid development in the
UAE is outstripping power generation capacity. The lack of a
UAE-wide electrical grid exacerbates the problem. It also
means that the gas that Iran was supposed to provide to Dana
Gas remains potentially attractive to other emirates.
Embassy and Consulate General will continue our efforts on

ABU DHABI 00001927 003.2 OF 003


behalf of Guardian, but the overall electricity constraints
will make this a hard sell. Post has shared the information
gained during the call with Minister Al-Hamili with local
Guardian representative and with Guardian's Washington, D.C.
- based legal counsel (Akin Gump). End Comment.
SISON