LIBERIA: GOL SIGNS CONTRACT POWER PLANT FUELED BY

UNCLAS SECTION 01 OF 02 MONROVIA 000082

SENSITIVE
SIPDIS

E.O.12958: N/A
TAGS: ECON ENRG EINV ETRD OPIC LI
SUBJECT: LIBERIA: GOL SIGNS CONTRACT POWER PLANT FUELED BY
RUBBERWOOD

REF: 08 MONROVIA 649


1. (SBU) SUMMARY: Canadian firm Buchanan Renewables (Monrovia)
Power, Inc. (BRP) signed January 21 a concession agreement with the
Government of Liberia (GOL) and a power purchase agreement with the
Liberia Electricity Corporation (LEC) for the construction of a
35-megawatt power plant to provide electricity from renewable
sources to the Monrovia area. The agreements commit to over $200
million of investment and must be ratified by the national
legislature. The Overseas Private Investment Corporation (OPIC) has
approved a loan of up to US$112 million for the project with the
remaining amount funded by equity. BRP expects to begin producing
power by the end of 2010, but putting that power to use requires
speedy action by the GOL to reform LEC management and complete a
transmission grid. END SUMMARY.


2. (U) BRP hopes to begin construction of the power plant in
February. The power plant and transmission line linking the plant
to the Monrovia grid are estimated to cost $150 million. The power
plant will be fueled with woodchips from Liberian rubber trees that
are beyond their useful life (approximately 30 years). BRP has
pledged to re-plant new trees in even greater numbers in order to
ensure the project has a carbon neutral footprint. The use of
domestically available renewable sources of fuel is thought to be
the first of its kind in Africa.


3. (SBU) BRP says the power will be sold at about 25 U.S. cents per
kWh. Current diesel-generated power under the Emergency Power
Program costs about 50 cents per kWh. Long-term hydroelectric power
is expected to cost roughly 5-12 cents per kWh. Initial
transmission to the LEC grid is expected to begin in late 2010. BRP
expects to employ 100 Liberians at the plant and another 600 are
already employed by other subsidiaries. (Note: Buchanan Renewables
(Monrovia) Power, Inc. is a Liberian corporation, wholly owned by
Buchanan Renewables (BR) B.V. which in turn is owned over 90% by the
investment arm of the Canadian McCall MacBain Foundation, currently
the largest private donor in Liberia. The foundation has pledged to
give back any profits to health, education and development projects
in the country. End note.)


4. (SBU) The three agreements BRP and GOL signed all require
legislative ratification. The first is a concession agreement
authorizing BRP to build a 35-megawatt power plant that will provide
electricity to the Monrovia area. The second and third agreements
enable parent company Buchanan Renewables (BR) to bring in heavy
equipment and spare parts under favorable terms to cut and chipQnproductive rubber trees, both for domestic use in the power plant
and for export. The agreements also define the essential
construction, road repair and maintenance services associated with
the operation.


5. (SBU) Negotiations for the agreements were complex and
protracted. To minimize risk, BRP reportedly demanded a "lockbox"
arrangement in the Power Purchase Agreement (PPA) under which
revenues earned by the LEC are paid directly into an escrow account
from which BRP is paid first. Attorneys and advisors to the GOL
were concerned the arrangement would discourage other potential
investors in the power sector. The GOL was also concerned by the
"affordability" of the power compared to long-term hydroelectric
power. Ultimately, pressure to begin power generation pushed both
sides to reach an agreement on this and other outstanding issues.


6. (SBU) The project still faces considerable hurdles. The
national legislature does not have a record for speedy or
transparent consideration of concession agreements, and there is a
danger delays in the ratification process could jeopardize financing
and construction (Note: Ratification is required by Liberian law and
a condition precedent for the OPIC loan. End note.) Second,
although BRP will construct the 30 miles of power lines required to
get the electricity from the plant to Monrovia, completion of the
distribution and transmission lines inside Monrovia will require a
sizable and swift intervention by the GOL and its donor partners.
Finally, the LEC's ability to manage the distribution and billing
network remains in doubt; the GOL now supports a proposal from the
Government of Norway to outsource a management contract for the LEC.



7. (SBU) Parent company Buchanan Renewables (BR) announced January
15 that its subsidiary BR Fuels had completed the first export
shipment of 12,000 metric tons of woodchips to Italy for use in low
carbon energy production. The shipment, which was initially
scheduled for March 2008 but was repeatedly postponed, is believed
to be the first shipment of its kind from Africa to Europe. BR also
has a Technical Services subsidiary to handle roadbuilding and port
operations. BR signed an agreement in November with the National

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Port Authority under which BR will receive favorable berthing and
storage rights at the Port of Buchanan for its woodchip exports in
exchange for which BR would help renovate port facilities and dredge
shipping lanes in Buchanan, in addition to removing the Torm
Alexander ship currently blocking key berths at the Port of
Monrovia.


8. COMMENT: (SBU) BRP has demonstrated considerable vision and
determination in its efforts to make this project work in the face
of significant challenges, risks and uncertainties, many of which
remain unresolved. If successful, the 35MW BRP power plant will be
an important source of more affordable electricity and a positive
contribution to improving the investment climate in Liberia. The
plant would bridge the gap between the costly (40-50 cents per kWh),
donor-funded, fuel oil-powered 10MW Emergency Power Program and
cheaper (5-12 cents per kWh),high capacity hydroelectric sources in
the longer-term future. In addition, the BRP plant would be a model
for environmentally friendly generation of electricity - one of the
very few countries in the world to rely on renewable fuels as its
basis for power generation.

THOMAS-GREENFIELD