FATE OF BUCHANAN RENEWABLES REMAINS UNCERTAIN AS GOL WAVERS

UNCLAS SECTION 01 OF 02 MONROVIA 000894

SENSITIVE
SIPDIS

E.O.12958: N/A
TAGS: ECON EINV EGAR ENRG LI
SUBJECT: FATE OF BUCHANAN RENEWABLES REMAINS UNCERTAIN AS GOL WAVERS
OVER SUSTAINABILITY ISSUES

REF: MONROVIA 725


1. (SBU) SUMMARY: While President Sirleaf feels tremendous
political pressure to expand electric services in Monrovia,
fulfilling public promises to secure 10 megawatts of power in the
capital by the end of 2010, her energy advisors have been unable to
proffer the definitive guidance that would enable the GOL to
construct a coherent energy plan to move forward. The President
summoned donors to a November 27 "emergency" meeting to make a final
decision on whether to proceed with Buchanan Renewables' plan for a
35 megawatt power plant for greater Monrovia. However, the Cabinet
shrank from any decision,Qggesting that they could not evaluate
the deal until BR produces a feasibility study. The chronic
postponement underlines the paucity of GOL capacity to deal
effectively with policy issues and its tendency to focus on
short-term politically-motivated thinking that has stymied progress
toward power generation since 2006. END SUMMARY.


2. (SBU) The President called key donors, including the Ambassador,
World Bank Country Director Ohene Nyanin, European Commission Chief
of Operations Martin Jenner, and Counselor to the Norwegian Embassy
Thorvald Boye, to an emergency meeting November 27 to decide whether
to move forward with BR's plans for a Overseas Private Investment
Corporation (OPIC)-funded 35-megawatt power plant fueled by rubber
wood chips. The majority of the President's economic management
team was present, including Minister of Finance Augustine Ngafuan,
Chairman of the National Investment Commission Richard Tolbert,
Minister of Lands, Mines and Energy Eugene Shannon, Presidential
Energy Advisor Chris Neyor, Acting Chairman of the Liberia
Electricity Corporation Joseph Mayah, and Minister without Portfolio
Natty B. Davis.


3. (SBU) The President thanked donors for their ongoing support to
the energy sector, and explained that she hoped to clarify the GOL's
progress toward electrification of Monrovia before she appeared
before the opening session of the National Legislature in late
January to give her State of the Union speech. She emphasized her
wish to fulfill a public commitment to secure 10 to 12 MW of power
for the greater Monrovia area before the end of 2010, and asked her
energy advisors to work strategically toward that goal.


4. (SBU) In October, at the behest of the GOL, a USAID-funded
analyst reviewed in detail the terms of the BR power agreement.
Following negotiations, BR agreed to reduce the cost of its power
from 23 to 19 cents per kilowatt-hour. The GOL insisted its final
offer entails a tariff of 18 cents and a change in the mechanism by
which BR is paid from the escrow account, eliminating a right of
priority payment that would disadvantage
future competing Independent Power Providers. The GOL also warned
that BR should expect no further tax breaks. The President called
upon donors and her Cabinet to evaluate these terms and proffer
definitive guidance on whether proceeding with the deal was in
Liberia's long-term economic interests.


5. (SBU) Despite the meeting's stated agenda, an increasingly
exasperated President indulged Neyor and Shannon in a discursive,
two-hour discussion of long-term plans for rural electrification,
hydroelectric energy and the rehabilitation of the Mt. Coffee
hydroelectric facility, and the prospects for solar power. Neyor
assured the President that numerous investors and donors, including
the Japan International Cooperation Agency, Contour Global and
Ormeco International have independently expressed interest in
constructing a 10 MW heavy-fuel oil generator on Bushrod Island in
Monrovia, and that the GOL could fulfill its end-2010 timeline.
[Note: Both investors have privately told Econoffs that they
continue to watch the BR deal carefully, and if Liberia breaches its
contract, they may be loath to pursue further investment. End
Note.]


6. (SBU) When discussion did turn to BR, the President asked the
donors to share their frank opinions. Both the Ambassador and World
Bank Country Director Nyanin declined to comment specifically on the
BR deal, referring instead to the independent report sponsored by
the International Finance Corporation and the Government of Norway,
which outlined some shortcomings and areas for further consideration
(reftel). The Ambassador emphasized that ultimate decision-making
authority rested with the GOL, and donors would not presume to
interfere with negotiations between the government and a private
company. She noted that while donors are committed to supporting
the GOL goal of securing 10 MW of power for Monrovia by the end of
next year, she urged the GOL to devise a long-term energy policy,
warning that politically-motivated quick fixes are unlikely to
engender comprehensive electrification.


7. (SBU) To the surprise of other donors, who had agreed to convey a

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unified message to the President, Boye said the GON would require
further scrutiny of the BR deal before it could commit a promised
USD 30 million over five years to support the LEC management
contract and the expansion of the Monrovia distribution network. He
urged the GOL to demand a feasibility study that would explore the
viability of the LEC if it were to purchase power primarily from BR,
and assess the project's impact on both the rubber sector and the
environment.


8. (SBU) The President's advisors immediately seized upon the
perceived need for a feasibility study and urged the donors to send
a technical consultant immediately who could review it and advise.
The President, alarmed by the suggestion that the sole-source BR
deal might not comply with Liberia's procurement laws, acceded to
the delay, but urged her team to ensure BR produced the feasibility
study as soon as possible so she could make a final decision.


9. (SBU) In a subsequent meeting that day, the Ambassador and Nyanin
worried the feasibility study may constitute a delay tactic, and
agreed that it was unlikely to produce any revelations not already
contained in the fifty-page IFC/GON report or unearthed by the USAID
analyst. Nyanin offered to fund a short-term technical consultant
to produce the feasibility study in early 2010, but noted that to
satisfy Liberia's need for a coherent energy generation plan, donors
must consider funding an energy task force composed of a lawyer, an
engineer and an economist who would work with the GOL to create the
institutional structure upon which a sound long-term strategy could
be founded.


10. (SBU) COMMENT: Neither political pressure nor urgent social and
economic need for electrification could compel the Cabinet to make a
decision without recourse to donor guidance. Liberian energy
policy, without the animating force of an assertive personality or
strong policy-making institutions, lacks strategic direction; it has
evolved little since 2006. The current predicament arose because of
the GOL's desperation to quickly expand generation capacity, its
weak negotiating skills and insufficient due diligence. The
President herself confessed they accepted OPIC's financial support
for BRE as a substitute for their own independent assessment.
Whatever the merits or shortcomings of the BR deal, the GOL cannot
use the lack of a feasibility study to once again abdicate
responsibility for decision-making. The GON has pressed for a
feasibility study since the release of its joint IFC report in
September, so Boye's intervention was intellectually consistent, if
perhaps tactically unwise. His advocacy may permit the GOL to use
the GON as a scapegoat for its own delayed verdict.


11. (SBU) COMMENT CONTINUED: If the GOL ultimately abandons the BR
power project, it needs to think carefully about a default public
relations strategy. Given the project's novelty and scope, foreign
investors in various sectors have been eyeing BR's challenges as an
augur of the setbacks and unforeseen expenses they could expect to
confront in their own negotiations with the GOL. BR is a savvy
manager of its own public image. If the GOL is to check the exodus
of anxious foreign investors, it must cautiously rationalize why an
OPIC-funded, legislatively ratified deal was not in the best
interests of Liberia, how its demise did not constitute a breach of
contract, and why other investors need not fear a similar fate.

THOMAS-GREENFIELD