LIBERIA: ENERGY FROM RUBBER WOOD CHIPS?

UNCLAS SECTION 01 OF 03 MONROVIA 000139 SIPDIS SENSITIVE SIPDIS DEPARTMENT FOR AF/W OPIC FOR JOHN SIMON E.O. 12598: N/A TAGS: ENRG EAGR EAID EINV SENV ECON OPIC LI SUBJECT: LIBERIA: ENERGY FROM RUBBER WOOD CHIPS? REF: 07 MONROVIA 1190 ¶1. (SBU) Summary: The GOL continues to pursue medium-term power sources but is stymied by indecision. Buchanan Renewable Energy (BRE, a Canadian firm) has proposed using chips from rubber trees to provide 17-34 MW of energy in Monrovia, with the possibility of similar smaller scale biomass power generation in rural areas. This project could open exciting new options, but depends on donor-funded transmission and distribution lines, a well-managed national electricity regulator, and GOL commitment with regard to securing an appropriate site and legislative approval. End summary. ¶2. (SBU) Buchanan Renewable Energy made a high-profile entry to Liberia last year with a multi-million dollar proposal to ship rubber wood chips to Europe as biofuel. This month, BRE returned with OPIC consultant James Steele and Canadian investor John MacBain (of the MacCall MacBain Foundation) to pitch a proposal to provide rubber chip-fueled power generation in Liberia. The delegation held extensive meetings with all players in the electricity sector, including the Liberia Electricity Corporation (LEC),major consumers, USAID electricity experts, the International Finance Corporation (IFC, which is advising the GOL on power),and GOL officials. Before leaving, they met with President Sirleaf and top officials including the Minister of Lands, Mines and Energy Eugene Shannon, head of the National Investment Commission Richard Tolbert, National Coordinator of the Liberia Reconstruction and Development Committee Natty B. Davis, and GOL advisor on economic issues Steven Radelet. Environmentally sound power generation -------------- ¶3. (SBU) The proposal calls for a 17-34 MW biomass plant using chips from 1,000 acres of past-productive-age rubber trees a year. The plant would need to be located near the transmission line that will link to Monrovia's largest consumers and would require a site with adequate space for extensive chip storage that would be accessible to an anticipated 25 truckloads a day of wood chips. The target completion date is June 2010, and a firm deadline to make that target is OPIC's July 20 board meeting -- the last scheduled meeting of the Bush administration. In addition to providing power and an estimated 15,000 jobs, the project is more environmentally friendly than most alternatives. The fuel is a by-product of clearing obsolete rubber trees, and eliminates the need to import heavy fuel oil. Once the price is established, it should be relatively steady, in comparison to petroleum prices. BRE said they want Liberia to be a pilot project, and that "biomass generation is going to explode in Africa." In addition to the proposed power plant for Monrovia, BRE is working on design for smaller 250-500kw plants that could be used in rural areas. ¶4. (SBU) The EC-funded transmission ring that will circle Monrovia is critical to the viability of BRE's proposal. The EC representative informed them he had just signed a contract with a Swedish company to construct the transmission lines. The EC also has another 20 million Euros that could be spent on developing either water or power. If invested in the electric transmission system, that money could support rehabilitation of most of the distribution lines within Monrovia. An EC team will assess next steps in April. A couple of loose ends remain -------------- ¶5. (SBU) The financing is still not firm. OPIC is enthusiastic about the project, but the American participation that would make the proposal eligible for OPIC support had not, at the time of the visit to Monrovia, been nailed down. BRE said they are not requesting specific investment incentives, but would welcome something like accelerated depreciation. ¶6. (SBU) OPIC needs a firm legal framework, perhaps a concession agreement ratified by the legislature, to proceed with the project. They also need to have the permitting and regulatory issues settled. BRE noted that to meet the unusually tight deadlines, they would need to order $10 million in equipment within the next 90 days (by early May),in order to have it on hand by the proposed start date. The GOL's perspective: cautious but encouraging -------------- --- ¶7. (SBU) In the meeting with President Sirleaf, GOL officials made it clear they appreciated the benefits of the proposal but said they could not proceed without knowing the price BRE would charge for power. (MacBain and BRE would not commit during the meeting, but told Econoff separately they are aiming for 18-22 cents/kwh, well MONROVIA 00000139 002 OF 003 below the estimated 55 cents/kwh for self-generation or the 40 cents/kwh currently charged by LEC, but probably above the eventual cost of hydroelectricity.) There was discussion of whether the proposal needs the same full legislative approval as a concession, but agreement that legislative approval would offer the most legal comfort. The President assured the delegation "we can work with the legislature." ¶8. (SBU) There was concern by the GOL officials about integrating this into other power proposals. BRE pointed out that it is integrated with (and relies on) the EC transmission line and does not rule out any other options. They are not asking for exclusivity. LEC, they stressed, will need strengthening and they raised the possibility of a management contract for LEC that would extend into the implementation of their project. The President responded "we would not have a problem with that." (Note: BRE had previously asked USAID about the likelihood of extending USG support for the LEC past 2010. End note.) ¶9. (SBU) In a subsequent meeting with the Ambassador, President Sirleaf's energy advisor Christopher Neyor confirmed the GOL's interest in BRE's proposal but noted the cabinet had felt pressured to respond without full cabinet vetting of the project. He said the GOL is still trying to get an accurate estimate of total demand. (Note: The IFC has estimated it at 19 MW in Monrovia in 2010, growing to 40 MW in 2020. End Note.) Regarding the longer-term hydro prospects, he confirmed the optimistic USTDA-funded feasibility study's finding that Liberia's Mt. Coffee hydroelectric plant could be refurbished within 18-24 months from contract signing and producing electricity within three years. Next steps -------------- ¶10. (SBU) During the February 1 meeting, the GOL and the MacBain/BRE delegation initialed a non-binding MOU and agreed on the following next steps. -- The GOL will consult interagency and respond within 10 days. (Note: According to BRE on February 18, the GOL response is "imminent" and they understand the proposal is circulating actively for comments. End note) -- The investors will provide a more concrete response with price and site data within 60-90 days. BRE planned to hire someone that week and get "the best team possible" on the ground in Liberia within two weeks to do the assessment. -- The GOL will provide a legally solid decree or concession agreement. ¶11. (SBU) In his meeting with Neyor, the Ambassador asked about the GOL's decision-making process on energy policy. Neyor said the GOL considers the United States and Norway the prime donors in the energy sector. The Ambassador encouraged the GOL to select a policy and then put out a tender for what it needs, rather than trying to select among possibly conflicting proposals made by potential investors. Neyor noted that they want to make a decision within weeks. He added that they are looking at making carbon neutrality part of the national energy policy. The Ambassador warned not to get so caught up in the perfect environmental policy that they do not generate needed electricity. (Note: We have heard that the GOL may be considering issuing a Request for Proposal for 20-30 MW for Monrovia. The RFP would request price of electricity and timing of the project, but be open to all sources of fuel. There are other groups that might be interested in investing in power generation projects on those terms. End note.) Update on BRE fuel project -------------- ¶12. (SBU) Progress continues on the biomass fuel project BRE initiated in June, 2007. BRE has accumulated 25,000 tons of rubber wood chips in Buchanan (Liberia's second largest port) and plans to start exporting to Europe or Turkey this month a full two months later than initially projected. BRE management believes that successfully exporting the initial cargo should give lenders more comfort. As a sanitary and phytosanitary measure, the exported chips are fumigated in the hold of the ship during transport. BRE said they are using a Liberian transport company affiliated with the OPIC-funded Liberian Enterprise Development Financing Corporation for about 30% of their hauling. ¶13. (SBU) Comment: BRE has garnered extensive positive press since announcing its initial investment last year, and has imported heavy machinery, concluded contracts with supplier rubber plantations, and is chipping up old rubber trees. However, there is still skepticism in some circles about the viability of the biomass proposal. As one MONROVIA 00000139 003 OF 003 player in the rubber sector noted, "If there were money in sending wood chips to Europe for fuel, we'd have done it." There is also concern that small plantations may find it more economically feasible to sell for biomass rubber trees that are still producing, lowering Liberia's rubber and latex production. Although BRE said they are replanting a tree for each one cut, some Liberian rubber farm owners are just selling their trees to BRE and pocketing the money, not replanting. This leaves increasingly large areas of barren land that will soon blow or wash away. This is the environmental downside of the BRE project. End Comment. Booth