LIBERIA: GRAPPLING WITH THE ELECTRICITY SECTOR

UNCLAS SECTION 01 OF 03 MONROVIA 001190

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS OPIC FOR JOHN SIMON, ROBERT DRUMHELLER, DULCE
ZAHNISER
TREASURY FOR JOHN RALYEA AND RICHARD HALL
DEPARTMENT FOR AF/W AND
INR/AA FOR BERNADETTE GRAVES

E.O.12958: N/A
TAGS: ENRG EINV EAID LI
SUBJECT: LIBERIA: GRAPPLING WITH THE ELECTRICITY SECTOR


1. SUMMARY: Easing the dire shortage and addressing the cost of
electricity is a top priority of Liberian President Ellen Johnson
Sirleaf's government but balancing speed with a prudent strategy is
a challenge. The GOL believes the best solution is developing
Liberia's abundant hydroelectric potential, but that will take 5-10
years. Currently Monrovia, with a population estimated at 1.5
million people, receives 2.7 megawatts of power from diesel
generators under the Emergency Power Project (EPP) supported by the
USG and other international partners. The EPP is a stopgap measure
designed to meet the political imperative of restoring some light to
Monrovia quickly. While there is consensus on the need for
private-sector participation in the power sector, the role of the
crippled Liberia Electricity Corporation (LEC) needs to be
clarified.


2. The GOL has appointed the International Finance Corporation
(IFC) as advisor on developing a strategy to address Liberia's
long-term power needs. The IFC/GOL recently sought expressions of
interest for a vertically integrated utility concession, and
received eight responses. However, splitting the sector by having
an independent power provider (IPP) handle generation, while donors
concentrate on less commercially attractive aspects such as
transmission, distribution and rebuilding the LEC, may be a more
attractive option. There are no quick solutions, but the lack of
reliable, sustainable power is a major constraint on Liberia's
economic recovery. Although the Emergency Power Project is a
commendable first step, Liberians will judge the success of this
government in large part by its ability to provide broad-based
access to affordable electricity. END SUMMARY

REBUILDING FROM SCRATCH
--------------


3. Prior to the civil war, the state-owned LEC produced 209 MW of
electricity, with 64 MW generated at the Mount Coffee hydroelectric
dam near Monrovia, and the rest at turbine powered stations around
the country. LEC served over 35,000 customers with a distribution
system comprising 420 km of 64 kV lines and 800 km of overhead and
underground 12.6 kV lines. Although many rural areas were never
electrified, the pre-war grid included 10 manned and six unmanned 69
kV transmission substations plus stand-alone generators in nine
major population centers. LEC was the only power utility in West
Africa using American standard 120/208/380 volts - 60Hz. (Liberia
has since moved to the 220-240v 50Hz European standard.) Major
companies produced an estimated additional 197 MW of electricity
prior to 1990. Power production facilities were completely looted
and destroyed during the 14-year civil conflict and, except for the
Emergency Power Program in parts of Monrovia, all electricity is now
produced by point-of-use generators. A recent OPIC survey estimates
current demand in Monrovia by the largest private consumers at over
12 MW. That does not include residential, non-profit or government
consumption.

EXPENSIVE, LIMITED, AND POORLY MANAGED
--------------


4. The LEC generates 2.7 MW under phase one of the donor-funded
Emergency Power Project (EPP I) and expects to implement EPP II in
February 2008 when additional diesel generators procured through a
US$9,000,000 grant provided by Norway will be delivered. EPP II
will increase power generation in Monrovia by 7 MW. The current LEC
transmission and distribution system consists of 12 km of
medium-voltage and 18 km of low-voltage network around Monrovia.
The system follows major roads, serving 580 customers with a focus
on schools and hospitals. The European Commission has funded
rehabilitation of three transmission substations and agreed to
rebuild the high/medium voltage transmission line around Monrovia,
although that project has been delayed.


5. The cost of diesel-powered electricity under the EPP is US $.34
per Kilowatt-hour, a prohibitive price for many consumers. A study
by USAID-funded International Resource Group (IRG),which provides
policy, legal and regulatory assistance to the GOL, found that
people actually spend more on electricity substitutes (candles,
batteries, kerosene) than they would for even relatively expensive
electricity from the grid. IRG is implementing an innovative
metering system that allows consumers to purchase small amounts of
electricity as needed using pre-paid cards. Assuming private
investment in power generation, donors could channel funds to
rebuilding LEC's management and technical capability and
refurbishing the transmission and distribution system.


6. As with its infrastructure, LEC's human resources were devastated
by the war. For example, LEC management is concerned about the gap
in electrical engineers as the pre-war generation retires. IRG is

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working with the utility company to institute effective management
and engineering capability. The initial focus was on boosting
collections and countering the culture of impunity regarding
electricity theft ("it's from the government; it's free"). With
collections now approaching 90%( up from 67% in April),IRG and the
LEC are working to counter theft, currently at around 10% (down from
17% in June). Improving collection ratios and reducing theft will
prove to private power providers that Liberia could be a viable
market. Eventually, as the system expands and collections increase,
LEC would become a viable institution.

BRIDGING THE GAP FROM DIESEL TO HYDRO
--------------


7. The EPP is a stopgap measure; the long-term answer lies with
Liberia's abundant hydroelectric potential. Rehabilitating the
Mount Coffee hydroelectric power station near Monrovia is the
obvious first step but requires major investment and at least 5-10
years. Chinese investors have expressed interest in rebuilding
Mount Coffee through a build operate and transfer (BOT) program.
However, the GOL has decided to await results from the U.S.
TDA-sponsored feasibility study before making a decision. Japanese
investors have also expressed interest in providing 10 MW of power
generation equipment. In the medium term, a thermal plant built by
an independent power producer is the most viable option. This
approach is complicated by the fact that there is, on average, an
18-month lead time for Heavy Fuel Oil (HFO) power plants in the open
market.


8. The government has appointed the IFC as its advisor to implement
a private sector-led solution to develop the power sector. On
August 31, the IFC in collaboration with the Ministry of Lands,
Mines and Energy received eight Expressions of Interest (EOI) to
develop and manage the power sector of Monrovia (construction of a
new power plant, new distribution lines within the city of Monrovia,
connecting new customers, hiring and training of staff and metering
and collection of electricity sold). The initial suggestion for the
tenure of the vertically integrated utility concession ranged from
eight to thirteen years.


9. On September 20-21, the GOL/IFC held a meeting in Liberia for all
companies who responded to the EOI that seven of the eight companies
attended. The consensus from the majority of participants was that
the proposed duration of the concession would be insufficient for
the recovery of their investment and suggestions of 15-20 years were
received. Only one of the companies expressed an interest in the
IFC's fully vertically-integrated IPP approach. The IFC will take
the feedback from this investor's forum and refine its suggested
structure for the concession.


10. Sustaining an IPP relies on commitments from creditworthy
consumers. One proposal, by OPIC, is to separate power generation
from power transmission and distribution. ArcelorMittal's $100
million mining investment will require a total of 75 MW of power at
the port of Buchanan and at the mine site in the interior. Building
a plant at Buchanan with heavy fuel oil offloading and storage
facilities at the port and transmission lines to Monrovia and the
Mittal mine site in Yekepa would leverage Mittal's power
requirements to provide power for other credit-worthy consumers
(such as factories and embassies). The economies of scale of the
larger plant would offset the cost of transmission and lessen costs
associated with building separate plants in Monrovia and at the two
Mittal sites. (Note: The port in Buchanan and the HFO facilities
would need to be rehabilitated. End note.) A power generation
project of that scale, without the requirement to provide
transmission and distribution or manage the LEC, might well be more
likely to attract private investment by an IPP.


11. All large consumers surveyed (including Mittal, the cement
company, the brewery, the soft-drink bottling plant, and the U.S.
Embassy) anticipate increased electricity consumption by 2010/11.
All would embrace the opportunity to stop self-generating power and
purchase from an IPP. OPIC has developed a creative strategy to
guarantee payments from the large credit-worthy consumers to an IPP
that could be leveraged to provide more affordable energy to a wider
customer base. Although the cost of converting from 60Hz to 50 Hz
is a factor, most consumers thought it would be cost-effective.

WEST AFRICA POWER POOL: NOT YET AN OPTION
--------------


12. Liberia is a member of the West Africa Power Pool (WAPP),and
has embarked on a joint US$9.5 million project, sponsored by the EU,
to share power with the Ivory Coast along the common border.
Participation in WAPP drove the decision to convert from American

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(120-127 v 60 Hz) to European (220-240v 50 Hz) generation.
Eventually, Liberia could feed hydroelectric power into the WAPP
grid, but it is not a short-medium term solution.


13. COMMENT: There are no quick solutions, but the lack of
reliable, sustainable power is a major constraint on Liberia's
economic recovery. Although the Emergency Power Project is a
commendable first step, Liberians will judge the success of this
government in large part by its ability to provide broad-based
access to affordable electricity. END COMMENT.

BOOTH