DJIBOUTI: MIXED PROGRESS TOWARD RENEWABLE SOLUTIONS FOR

UNCLAS SECTION 01 OF 03 DJIBOUTI 000655 SENSITIVE SIPDIS DEPARTMENT FOR AF/E AND OES ADDIS ABABA FOR REO E.O. 12958: N/A TAGS: ENRG ECON PREL SENV SOCI IC ET DJ SUBJECT: DJIBOUTI: MIXED PROGRESS TOWARD RENEWABLE SOLUTIONS FOR INCREASING ENERGY NEEDS REF: 08 DJIBOUTI 859; 09 DJIBOUTI 337; 09 DJIBOUTI 164 ¶1. (SBU) SUMMARY. Djibouti continues to struggle with a widening gap between electricity demand from consumers, and a constrained supply of expensive, diesel-generated electricity provided by the national electricity company. Realizing that improved supplies of lower-cost energy are imperative to maintain economic momentum and meet the basic needs of ordinary Djiboutians, the GODJ has partnered with a variety of bilateral and corporate partners (including at least one U.S. company) to begin developing Djibouti's considerable renewable energy resources. Senior GODJ energy officials recently expressed optimism about Djibouti's future potential as an energy producer, but some frustration about possible financing gaps and bilateral misunderstandings impacting the largest renewable project currently on tap: a planned 50-100 megawatt Djibouti-Iceland geothermal plant at Lac Assal. END SUMMARY. -------------- -------------- -------------- SUMMER SHORTAGES CONTINUE; OVERALL DEMAND GROWS -------------- -------------- -------------- ¶2. (SBU) In a May 27 meeting with Ambassador, Minister of Energy Moussa Bouh Odowa and his Secretary-General Farah Ali Ainan stressed the urgency of finding solutions to Djibouti's current and projected energy shortfalls. Djibouti's parastatal electricity monopoly EDD (Electricity of Djibouti) has an installed capacity of 100 megawatts (MW),Secretary-General Ainan said. However, EDD's realistic production capacity is much lower-closer to 47 MW. EDD is capable of sustaining a short-term "surge" in production to 60-70 MW, but not for prolonged periods. Current summertime demand (when Djibouti's hot season leads to greater air conditioner use and a peak in energy demand) is now at 87 MW, leaving a significant gap between production and consumption needs. Furthermore, Ainan underlined, the Ministry of Energy projects that by 2010, Djibouti's energy needs will reach 125 MW--or even higher if Djibouti continues to attract large-scale foreign direct investment projects. ¶3. (SBU) Before tackling these large, long-term projected needs, Ainan said, the Ministry first needed to address Djibouti's immediate shortfall, which he estimated at 25 MW. (NOTE. For several weeks in late May, Djibouti City experienced multiple, prolonged power cuts of up to 9 hours a day. EDD had announced the unusually severe cuts in advance, after one of its main generators failed. By the end of May, one faulty generator had reportedly been repaired, and power supply improved throughout the city. However, as in every summer, Djiboutians still grapple with frequent power cuts. END NOTE.) While Djibouti had been hoping that the planned Djibouti-Ethiopia electricity interconnection (ref A) would be part of the solution to Djibouti's energy woes, Minister Odowa said that recent delays in the project construction, along with reports of drought-related power shortages in Ethiopia, were worrisome to Djibouti. -------------- -------------- ICELAND-DJIBOUTI GEOTHERMAL PROJECT -------------- -------------- ¶4. (SBU) In 2008, the GODJ signed several agreements with Iceland to begin feasibility studies for Djibouti's most ambitious planned renewable energy project to date, a projected 50-100 MW geothermal plant at Lac Assal (ref A). During the financial crisis, Iceland had reportedly assured Djibouti that the money set aside for the Lac Assal project had been safely sequestered. Recently, however, Minister Odowa said that he was not as confident that Iceland had DJIBOUTI 00000655 002 OF 003 the full USD 25-30 million available to fund the project feasibility phase. (NOTE. Reykjavik Energy Invest (REI) signed agreements in 2008 with the International Finance Corporation's InfraVentures fund, which agreed to cover 35% of the Djibouti project's exploration costs, up to a contribution ceiling of USD 4 million. END NOTE.) ¶5. (SBU) The GODJ still remains committed to the Lac Assal project, Minister Odowa told Regional Environmental Officer (REO) during a June 4 meeting, and would potentially be able to finance any funding gap for the feasibility phase from its own resources. If this happened, Odowa said that the GODJ would then want to adjust the terms of the Iceland-Djibouti agreements accordingly, to reflect the GODJ's greater initial investment. Beyond questions of finance, Odowa told Ambassador that Iceland-which currently has no permanent representation on the ground in Djibouti-had somewhat irritated the bilateral relationship through a few errors of protocol and communication. Nevertheless, Odowa said that the feasibility phase was on track to begin this autumn, with Reykjavik Energy Invest (REI) working "this week" on the bidding process for companies competing to drill the three planned test wells. ¶6. (SBU) In addition to its collaboration with Iceland, Odowa said that Djibouti remained interested in working with a wide variety of partners. (NOTE. The GODJ recently signed an agreement with the U.S. firm Maple Indian Ocean Resources (ref B) to develop wind and solar resources, and is reportedly working with an Indian firm interested in exploiting geothermal energy at Lac Abbe, on Djibouti's border with Ethiopia. END NOTE.) Ambassador noted that other American firms-including Geothermal Development Associates (GDA),which worked with the U.S. Trade and Development Agency (USTDA) in 1999 on a geothermal feasibility study at Lac Assal-might well be interested in geothermal and other energy projects in Djibouti. -------------- GODJ CITES CAPACITY CHALLENGES -------------- ¶7. (SBU) Now that Djibouti has several energy projects on the horizon, Secretary-General Ainan told REO, the next major challenge will be developing an effective regulatory framework to respond to Djibouti's new, diversified energy environment. (NOTE. Post has previously submitted a proposal to host an Embassy Science Fellow (ref C) with expertise in energy policy. END NOTE). Minister Odowa said that now, oil and gas companies interested in Djibouti's offshore and onshore potential were "pushing" the GODJ to allow exploration. Before negotiating with such companies, he said, the GODJ would like to have much better baseline data on Djibouti's realistic potential, and eventually, assistance in negotiation. Without proper baseline data, Odowa said that the GODJ feared that it would not be able to negotiate fair deals, and asked whether the USG might be able to fund assistance for such data studies. ¶8. (SBU) COMMENT. Djibouti's basic diplomatic strategy leans toward welcoming all comers and skillfully balancing a range of friends and allies. It is therefore no surprise that in the field of renewable energy development, Djibouti has encouraged courtship from a full range of potential partners. As one long-time GODJ energy official told EmbOffs, Djibouti wants to "keep a lot of options on the shelf," ready to implement when the time is right. Ideally, Djibouti would also like prospective investors to foot much or most of the bill for costly-and relatively risky-feasibility studies to evaluate potential projects. As Djibouti's renewable resources look more and more lucrative, the GODJ may well succeed in negotiating these kinds of arrangements. However, as its own energy needs become daily more acute, the GODJ may also become more willing to put up what capital it can-alongside its contribution of the raw resource-in order to assure that projects come to timely fruition. Post will continue to monitor the status of renewable energy projects in Djibouti, especially in light of potential opportunities for U.S. business DJIBOUTI 00000655 003 OF 003 involvement. END COMMENT. SWAN