EGYPT EXCLUDES BECHTEL'S TENDER OFFER TO HELP

UNCLAS CAIRO 000862 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ENRG ECON ETRD PREL EG SUBJECT: EGYPT EXCLUDES BECHTEL'S TENDER OFFER TO HELP BUILD EGYPT'S FIRST NUCLEAR POWER PLANT REF: CAIRO 00025 SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY. ¶1. (SBU) KEY POINTS: --Bechtel's tender offer to provide consultancy in developing Egypt's first nuclear power plant has been excluded by the Ministry of Electricity and Energy (MoEE). --The Ambassador met with Bechtel and Minister of Electricity and Energy Hassan Younes to voice our concerns and to seek an explanation of the GOE's decision. Younes said Bechtel repeatedly refused to comply with the tender agreement. --Egypt's Nuclear Power Plant Administration (NPPA) has begun pre-contract negotiations with the Australian firm WorleyParsons. According to WorleyParsons' regional manager, WorleyParsons is traded on the Australian stock exchange but an acquisition of a U.S. firm made WorleyParsons over 40% U.S.-owned. NPPA expects negotiations to be completed within a few weeks. --It is unclear whether Bechtel will seek further USG advocacy on this issue. ¶2. (SBU) COMMENT: It appears to us that the GOE was genuinely interested in working with Bechtel on this project and was disappointed that an agreement could not be reached. During our discussions with Bechtel, it seems that Bechtel feels that they may have overplayed their hand during the pre-contract negotiation process and that their negotiating tactics were not as effective as they intended. In order to manage the fallout, Bechtel plans to write to the MoEE and NPPA to express Bechtel's regrets over the outcome and convey their strong desire to work with the GOE on future projects. The negative outcome of this case may prove costly in terms of future nuclear energy projects in the Middle East. U.S. businesses that might have otherwise been included in later phases of this project had Bechtel won, may now be excluded in favor of international firms. According to Rames Khalil, the Regional Power Manager at WorleyParsons responsible for Egypt and Africa, WorleyParsons plans to have large U.S. content in the project, including employing U.S. engineers to build local capacity and transfer technology to the Egyptian side. END COMMENT. ¶3. (SBU) BECHTEL UNABLE TO CLOSE THE DEAL: In December 2008, the Egyptian Nuclear Power Plants Authority (NPPA),part of the Ministry of Electricity and Energy, awarded Bechtel Power Corporation a 10-year contract worth $188 million to consult on and help design Egypt's first nuclear power plant (reftel). A committee formed from different government agencies selected Bechtel over seven other corporations. Bechtel would be charged with evaluating and selecting from different nuclear energy technologies on the international market, choosing sites for reactors, and applying international safety standards. Bechtel would also prepare the way for a separate tender for the construction of the power plant. Another American bidder, Sargent & Lundy (S&L), did not submit a formal advocacy form to the U.S. Department of Commerce requesting USG assistance. Consequently, Commerce's Advocacy Center elected to support Bechtel exclusively. ¶4. (SBU) During the negotiation phase, one of the main points of contention between Bechtel and the GOE was the issue of nuclear insurance liability. Bechtel originally wanted limited liability, whereas the GOE wanted no ceiling on liability. Both sides agreed on a "sub cap," which is a civil liability that would equal the total bid amount (in this case approximately $200 million). This issue was eventually resolved by Bechtel agreeing to NPPA's requests. Over the past months, during which repeated back and forth negotiations took place, Bechtel finalized the tender agreement with NPPA by meeting the requirements as set forth by NPPA. ¶5. (SBU) On April 29, Bechtel received a letter from the NPPA stating that their proposal was not compliant with the tender document and therefore excluded. In a letter in response to NPPA, Bechtel outlined their disappointment and disagreement with the NPPA's decision since Bechtel was ranked as the number one bidder in both technical and cost terms and was invited to begin contract negotiations. The letter states Bechtel's responses to five issues raised by the NPPA and notes Bechtel's agreement to NPPA's wishes. The Australian firm WorleyParsons (which has 24 offices with 6,000 personnel in the United States, with its U.S. headquarters in Houston) has been invited to begin contract negotiations with NPPA to provide the consulting services to help build Egypt's nuclear power plant. According to press reports, Parsons and the NPPA are expected to reach an agreement in the upcoming weeks. ¶6. (SBU) After the Ambassador raised the issue with National Democratic Party Assistant Secretary General and Presidential son Gamal Mubarak, Minister of Electricity and Energy Hassan Younes asked to meet the Ambassador on May 6. Minister Younes explained that throughout the four months of pre-contract negotiations, Bechtel had repeatedly refused to comply with the terms of the tender agreement. Bechtel was notified of the GOE's decision to exclude Bechtel on April 11 and was given until April 28 to appeal. Bechtel sent their appeal in a letter dated May 1, and did not seek USG assistance until April 29. By that point it appears that the GOE had firmly decided to move on with negotiations with the second place finisher, WorleyParsons. Parsons has been invited to enter tender negotiations and the GOE expects an agreement to be reached within the next few days. We will be in contact with Bechtel to see if they require further USG advocacy on this issue. SCOBEY