ERITREA'S PRECARIOUS ENERGY SITUATION

C O N F I D E N T I A L SECTION 01 OF 02 ASMARA 000558

SIPDIS

DEPARTMENT FOR AF/E; LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: DECL: 11/14/2018
TAGS: ECON ENRG PGOV ER
SUBJECT: ERITREA'S PRECARIOUS ENERGY SITUATION

REFS: A. A. ASMARA 000362

B. B. ASMARA 000300

ASMARA 00000558 001.2 OF 002


Classified By: Ambassador Ronald K. McMullen for reason 1.4(d)


1. (C) SUMMARY: Eritrea's electrical grid narrowly averted
a complete shutdown due to lack of generator lubricant in
October, according to Total Oil's country manager. The
Eritrean government is still in arrears on payments made for
fuel delivered in December 2007, and is now receiving all of
its fuel imports overland from Sudan. Foreign-owned fuel
companies are frustrated with doing business in Eritrea, and
are considering closing operations in 2009. END SUMMARY.

ELECTRICAL GRID ONE DAY FROM TOTAL SHUTDOWN
--------------


2. (C) Mohammed Gbepo, a Ghanian who is the country manager
for Total Oil in Eritrea, told Emboffs that Eritrea was only
one day from a complete shutdown of its electrical grid on an
unspecified day in October. Eritrea's four diesel-fired
electrical generators in Hirgigo (outside Massawa) burn ten
to fifteen barrels of specially formulated lubricant per day.
In October, the Eritrean Electrical Corporation (EEC)
informed Total that lubricant stocks had dropped to only a
ten days's supply, and requested an expensive emergency air
lift of 720 barrels from France to replenish their supplies.
Without these supplies, the EEC would be forced to shut down
Hirgigo's generators.


3. (C) Gbepo said said the GSE could not pay the high price
(approximately US$ 1,270 per barrel) up-front for the
airfreight. Within a few days, however, he did find a
div
r
ible source iQ Qhe region and had the lubricant shipped
to Eritrea's port of Massawa. Gbepo said had the shipment
arrived 24 hours later, Eritrea's entire electrical grid
would have shut down. The EEC experienced problems
maintaining necessary lubricant supplies throughout 2008 (Ref
A),but this situation was by far the most precarious. Gbepo
noted not a single Eritrean official thanked him for the
extra effort.


4. (C) Total will send 650 barrels of lubricant (about six
week's supply) to Eritrea on December 5, but the shipment
will not be delivered until Total receives advance payment.
Gbepo expects the GSE to make the payment, and for the
lubricant to be delivered on time.

THE DEADBEAT GSE & NEW SOURCES OF FUEL
--------------


5. (C) The GSE has yet to pay its Kuwaiti supplier for a
shipment of fuel received in December 2007 (Ref B),according
to Gbepo. He added that a fuel barge scheduled to resupply
Eritrea on July 21 (Ref A) never entered Massawa. While the
barge waited offshore outside Eritrean waters, the fuel
supplier demanded advance payment for the fuel. When the GSE
could not pay, the barge then diverted to another
(unspecified) destination.


6. (C) Since July, Eritrea has relied exclusively on overland
fuel imports from Sudan. Gbepo said the import operation is
run by Eritrean Defense Force (EDF) officers, who siphon off
a significant percentage of the fuel before it reaches its
final destination. The tanker trucks never unload their fuel
into a depot or other storage facility, but instead proceed
directly to their final customers for delivery.


7. (C) Gbepo also said that he didn't believe Sudan produced
the type of heavy fuel oil needed by the Hirgigo generators.
He said that the generators were probably converted to use
more expensive automotive diesel.

TOTAL MAY CLOSE OPERATIONS IN 2009
--------------


8. (C) Gbepo expressed frustration working in Eritrea, anda
aaid he may clisi Total's operations in 2009. For example,
the GSE ordered Total to remove (at Total's expense) a fuel
pipeline running from an inland bunker in the port of Assab
to the docks, supposedly to make way for a fresh water line.
Total also holds approximately $27 million dollars of

ASMARA 00000558 002.2 OF 002


worthless local currency that the GSE will not allow it to
convert or repatriate. Neither Gbepo nor his headquarters
supervisors believe the GSE will relax its arbitrary and
heavy-handed business practices in the near future. Gbepo
added that Libyan-owned Tamoil (the only other foreign-based
fuel company in Eritrea) is experiencing similar
frustrations, and may also close its operations in 2009.


9. (C) COMMENT: The GSE cannot rely indefinitely on the
goodwill of foreign companies to bail it out of difficult
situations. While the GSE has been able to keep some fuel
available in-country and the lights on, its fuel reserves at
the end of 2008 seem to be much lower than they were at the
beginning of the year. The GSE's forced reliance on
just-in-time fuel deliveries from Sudan indicates a lack of a
strategic reserve, leaving the country susceptible to a major
supply shock if deliveries from Sudan are interrupted.


10. MINIMIZE CONSIDERED.
MCMULLEN