KUWAIT AVOIDS SUMMER 2008 BLACKOUTS; INVESTMENT

C O N F I D E N T I A L KUWAIT 001030 NOFORN SIPDIS DEPT FOR NEA/ARP, EEB; ENERGY FOR ERICKSON E.O. 12958: DECL: 10/05/2018 TAGS: ENRG PINR KU SUBJECT: KUWAIT AVOIDS SUMMER 2008 BLACKOUTS; INVESTMENT NEEDED TO AVERT MEDIUM TERM CAPACITY SHORTFALL Classified By: Ambassador Deborah Jones for reasons 1.4(b) and (d). ¶1. (C) Summary. Kuwait Ministry of Electricity and Water (MEW) official Suhaila Marafi said that while Kuwait has successfully survived this year,s peak electricity demand period without significant electrical outages, it still must contemplate how to deal with projected power shortages in the coming decade as growth in electricity demand outstrips construction of new power generating facilities. Marafi said, based on current supply and demand projections, Kuwait's capacity will stay narrowly ahead of peak demand until 2015, when it would face sustained shortfalls of electricity during summer months. The MEW is looking at how to increase generating capacity, and is especially interested in exploring the feasibility of wind and solar generating facilities to deal with the burgeoning demand. However the GOK has failed to effectively address the long-term problem of electricity shortfalls in 2015 given that it takes 5-7 years to move new power station projects from tender to operation. End summary. Heightened Risk of Electricity Shortages in Coming Years -------------- -------------- ¶2. (C) Suhaila Marafi, Director of the Studies and Research Department at the Ministry of Electricity and Water (MEW) stated, during a recent meeting with Econoff, that the projected expansion of Kuwait,s electricity generation capacity will stay slightly ahead of peak summer demand until 2015 based on a projected annual 6% demand increase. According to Marafi, Kuwait will face the threat of sustained periods of electricity shortfalls during the summer months beginning in 2015. Marafi,s projections assume both that planned housing/industrial projects are built on schedule and that planned/proposed electrical generation facilities also come on line when scheduled. She cautioned Ecouns in a subsequent meeting, however, that given the lengthy tendering process, this was not a sure thing. Based on Marafi,s projections, Kuwait has a relatively narrow buffer between production capacity and peak demand for 2009, 2010 and 2014, but will have a comfortable buffer from 2011 to 2013. (Comment: The upshot of operating this close to capacity is that if any one of Kuwait's six largest power stations completely fails, there would be immediate electricity shortages during peak summer operations. End Comment.) ¶3. (C) In any event, in 2015 continuing to 2020 (the end of the projected period) peak demand is projected to exceed operating capacity by between 1000MW and 2600MW. Given the lengthy timeline (5-7 years) for moving power stations from tender to construction to operation, Kuwait needs to immediately identify additional sources of electricity generation and commit to specific projects and begin their implementation. Marafi said the GOK has not fully grasped the urgency of the current situation which is one that needs immediate attention in order to avoid a future crisis. She explained that she had put these projections into a report for the Amir, but that senior ministry officials had asked her to revise the assumptions so that demand never exceeded capacity. ¶4. (U) Concern has been raised about the MEW postponing maintenance in order to continue high operating capacity. Marafi rejected this contention, noting that major maintenance procedures were undertaken during winter 2007-2008 and routine maintenance continues to be performed during low-demand weekend hours. Conservation Campaigns -------------- ¶5. (SBU) Kuwait responded to projected energy shortages in summer 2007 by implementing a highly publicized conservation campaign which was surprisingly effective in lowering demand. In summer 2008, Kuwait again ran another conservation campaign but a much lower profile one. Marafi noted that her team at the ministry had shut off electricity to schools and other unused public buildings during peak demand times. In addition, the GOK acquired additional &emergency8 generating capacity in 2007, which added 500 MW in generating capacity. Causes of Continued Electricity Demand Growth -------------- - ¶6. (SBU) Marafi said that much of the increased demand for electricity comes from new housing construction. She said while increased conservation measures and mandated use of energy efficient building materials were possible approaches to the future imbalance between electricity demand and generating capacity, the likely GOK response would be to simply further expand generating capacity. Marafi added that extremely cheap electricity is also a significant part of the problem because it inhibits conservation efforts. She said that MEW purchases fuel oil from KNPC at the world market price while selling it to local consumers at 2 Fils(3/4 of a cent) per Kilowatt hour. While this steep price differential is subsidized by the Government of Kuwait(GOK),MEW remains interested in additional and alternate sources of electricity generation including wind and solar systems, particularly with oil prices projected to continue at high levels. Marafi said that MEW is currently interested in acquiring six 5 megawatt wind power generators for Al-Abdaly in the north and Al-Wafra in the south. ¶7. (SBU) Underscoring the barriers to conservation posed by the extremely low price of electricity, Marafi said that a few years back she had proposed government-financed international leaves from work for Kuwaiti public employees during the summer months as a way to deal with the high demand for electricity. The package included roundtrip airfare and payment of the employee,s salary for three months while outside Kuwait. Marafi said the proposal would have saved the GOK money, since the grant costs were less than the electricity subsidies paid by the GOK. (Note: Per capita consumption of electricity in Kuwait is 15,000 KwH per year, sixth highest in the world. The U.S. ranks End note.) ¶8. (SBU) Kuwait,s recent construction boom and the shortage of electrical generating capacity have led to some perverse circumstances. According to Marafi, five high-rise buildings now stand empty in central Kuwait City after being constructed with city building permits but without MEW approval for power connection. This means no power substations exist to relay electricity to the buildings nor have right-of-ways for cables to carry the electricity to the buildings been identified, approved or constructed. Thus the buildings stand empty with no means to operate. Marafi said another 70,000 unit residence/commercial project in Sabah Al-Nasser was suspended for the same reason. ¶9. (C) Comment. Additional capacity and action by the ministry allowed Kuwait to avoid widespread blackouts this summer. Peak demand still exceeded Kuwait,s regular generating capacity, although it was comfortably under the total capacity (counting the expensive &emergency8 generators). Although Kuwait is not building as quickly as some of its Gulf neighbors, it is still facing a situation where construction is outpacing infrastructure. The problem is exacerbated, because no one wants to say no or pass on bad news. Parliamentary suspicion of the government adds another dimension of difficulty. Witness the fourth refinery project, which is designed to provide much needed low sulphur fuel oil for Kuwaiti power plants. It is, however, bogged down in disputes with some very vocal opposition from a few members of the National Assembly. End comment. ¶10. (C) Biographic note. Marafi has worked for the MEW for more than 10 years and has also worked for the Council of Ministers during her tenure at the MEW. During the post-liberation reconstruction she worked for the Army Corps of Engineers. She is smart, outspoken, willing to challenge authority and pro-American. She is Shia and a member of the Marafi merchant family. Her sister is still listed among the missing from the Iraqi invasion. End biographic note. *************************** ****************************** For more reporting from Embassy Kuwait, visit: http://www.state.sgov.gov/p/nea/kuwait/cables Visit Kuwait,s Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ **************************** ****************************** JONES ********************************************* * For more reporting from Embassy Kuwait, visit: http://www.state.sgov.gov/p/nea/kuwait/?cable s Visit Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ ********************************************* * JONES