JORDAN ONLY APPROACH TO RED-DEAD PROJECT GAINS

C O N F I D E N T I A L AMMAN 000860

NOFORN
SIPDIS

STATE FOR NEA/ELA, NEA/RA, AND OES
STATE PASS TO USAID

E.O. 12958: DECL: 04/12/2019
TAGS: SENV EAGR EAID PGOV PREL JO IS
SUBJECT: JORDAN ONLY APPROACH TO RED-DEAD PROJECT GAINS
TRACTION

REF: A. AMMAN 508

B. 08 AMMAN 3011

C. 08 AMMAN 1639

D. 08 AMMAN 409

E. 08 AMMAN 228

Classified By: Ambassador R. Stephen Beecroft for reasons 1.4 (b) and (
d)


1. (C/NF) SUMMARY: Many in Jordan view the Red Sea-Dead Sea
conveyance project (RDS) to carry water from the Gulf of
Aqaba to the Dead-Sea as a savior to Jordan's water woes.
The $15.5 million World Bank RDS feasibility study, which
includes a $1.5 million USG contribution, began in May 2008
with Israeli and Palestinian participation. The GOJ sees the
RDS as the only way forward, but frustrated by the World
Bank's slow pace has engaged Montgomery Watson Harza (MWH) to
plan a Jordan-only $10.5 billion RDS solution with a
seven-year implementation timeline. According to MWH, the
plan has the King's blessing and Israeli acknowledgement. It
includes a $1.5-$1.7 billion Phase 1 with an option for a
large Jordanian desalination facility to also supply southern
Israel with water. MWH believes, the GOJ is considering
requesting increased U.S. support through the redeployment of
MCC funds and additional financing through OPIC or EXIM bank.
In the GOJ calculations, Jordanian ability to supply
desalinated water to Israelis and Palestinians would give
Jordan more political clout in the regional architecture -
something the GOJ believes would be inherently attractive to
the U.S. and hence an option the King would raise during his
upcoming trip to the U.S. The Israeli Embassy in Amman,
however, notes that Israel has no plans to buy water from
Jordan and has instead offered to sell water to Jordan. END
SUMMARY.

Red Sea - Dead Sea Conveyance: The Savior?
--------------


2. (SBU) Jordan, one of the driest countries in the world,
has long suffered from an acute water crisis exacerbated by
decreasing rainfall, increased groundwater exploitation,
inefficient agricultural practices, and increasing population
and development stress. Many in Jordan view the Red Sea-Dead
Sea conveyance project(RDS) to convey ocean water from the
Gulf of Aqaba to the Dead Sea, first proposed in the 1990's,
as a savior to Jordan's water woes. While helping to restore
the receding water levels in the Dead-Sea, the RDS would also
generate hydropower to power a desalination plant and supply
Amman with much needed drinking water. In a region where
scarce water resources have often been a subject of
trans-boundary frictions, the RDS is also envisioned as a
means of bolstering regional cooperation between Israel,
Jordan, and the Palestinians.


3. (C/NF) The $15.5 million World Bank RDS feasibility
study, which includes a $1.5 million USG contribution, began
in May 2008. The World Bank maintains, however, that the
study which includes an environmental assessment as well as a
technical feasibility study, does not guarantee a final
project. Whether funded through the World Bank or not, the
GOJ sees the RDS as the only way forward. The GOJ
understands the inherent difficulties in a project based on
regional cooperation and is frustrated by the slow pace of
the World Bank study, believing the 2010 output will be a
useful study, but not lead to any follow on project.

Jordan-only Approach Gains Traction
--------------


4. (C/NF) After lengthy discussions initiated by Montgomery
Watson Harza (MWH) in 2007, the GOJ engaged MWH in October
2008, approving a $3.5 million study to devise a Jordan-only
RDS solution. According to Kenley Brunsdale who is leading
the MWH engagement, the Ministry of Water and Irrigation
(MOWI) has also chosen MWH as its RDS strategic partner for
the next 30 years. MWH has completed its initial study and

presented a "start-to-finish" financing and implementation
plan to the GOJ for a proposed seven-year, $10.5 billion
project. The plan includes a provision to sell 100 million
cubic meters (MCM) of desalinated water to Israel or the
Palestinians, provide Amman with an additional 500 MCM of
drinking water, and stabilize the Dead-Sea by raising the
water levels by 10-12 meters.


5. (C/NF) MWH participated in a March 2009 meeting with the
King who approved the unilateral approach but also instructed
the Prime Minister to ensure closer coordination between the
RDS and proposed nuclear power plants which would also
consume large quantities of water. MWH recounted that the
GOJ has discussed the Jordan-only approach with the Israelis
who have agreed to be "neutral, if not supportive," but asked
Jordan to ensure all environmental issues are properly
addressed to ensure the Israeli public does not object.
NOTE: The Israeli Ambassador in Amman told Emboffs that
Israel opposes the RDS and believes Jordan is making a
mistake, but recognizes that it can not stop Jordan. END
NOTE.


6. (C/NF) Phase 1 of the MWH approach, estimated at
$1.5-$1.7 billion over a three-four year timeline, would
consolidate the many proposed intakes from the Gulf of Aqaba
for the RDS, proposed nuclear power plants, a planned
desalination plant by the Aqaba Water Company and intakes for
the Araya development project into one master intake. A
nearby economic development zone would house a large
desalination facility to supply customers with water. MWH
believes Phase 1 could be a self-sustaining project even if
the subsequent connection to the Dead-Sea does not proceed.


7. (C/NF) The GOJ has also proposed selling the desalinated
water to Israel for use in southern Israel, eliminating the
need for Israel to build its own desalination plant in the
region. According to MWH, the GOJ is considering several
options for requesting increased U.S. support such as the
redeployment of MCC funds and additional financing through
OPIC or EXIM bank. MWH believes the GOJ is preparing to have
the King raise these requests in his upcoming meetings with
the President in Washington. In the GOJ calculations,
Jordanian ability to supply desalinated water to Israelis and
Palestinians would give Jordan more political clout in the
regional architecture - something the GOJ believes would be
inherently attractive to the U.S. NOTE: The Israeli Embassy
in Amman, however, has shared that Israel has no plans to buy
water from Jordan and has instead offered to sell water to
Jordan at a price likely to be more competitive than what
Jordan could offer. END NOTE.

Implementation Issues Yet to be Resolved
--------------


8. (C/NF) The MWH plans call for special legislation with 20
policy decisions such as the creation of a new autonomous
authority (akin to the Aqaba Special Economic Zone) to be
responsible for the RDS management, a special surcharge on
water tariffs, and increased water connection fees. The
special legislation to support the RDS has been drafted but
would need to be expedited to meet the optimistic GOJ targets
of announcing the project in the summer of 2009 and starting
project implementation in 2010.


9. (C/NF) The financing plan projects that 65-70% of the RDS
operational costs could be supported from water revenues, 20%
from the economic development zones that would be established
along the conveyance route, and 10% from new taxes. Several
elements of the financing plan are tied to private sector
participation. The RDS would require the largest pumping
stations in the world which according to MWH can only be
built by 2 Japanese companies - which could get Japanese
supplier financing for the estimated $1.9 billion. Similarly
a projected $2 billion of steel would be required and MWH
expects China might provide supplier financing to support
Chinese participation, including the potential to build a

pipe manufacturing facility in Jordan. The financial plan
would also include elements of private investor participation
as well as commercial paper. MWH expects that a master
financier would be appointed to lead and coordinate the RDS
financing elements.


10. (C/NF) Another thorny issue for the GOJ to consider will
be launching a Jordan-only project before the World Bank led
study is concluded. While the GOJ finesses this point by
noting that the results of the World Bank study will provide
valuable data for the unilateral approach, there exists a
strong potential backlash from civil society in the region
and the donor community that has financed the World Bank
study.


Visit Amman's Classified Website at:
http://www.state.sgov.gov/p/nea/amman
Beecroft