Identifier
Created
Classification
Origin
09RIYADH829
2009-06-22 15:27:00
UNCLASSIFIED
Embassy Riyadh
Cable title:  

EX-IM SIGNS LANDMARK DEAL IN SAUDI ARABIA

Tags:  ECIN ECON EFIN ENRG SA 
pdf how-to read a cable
VZCZCXRO6356
PP RUEHDE RUEHDH RUEHDIR
DE RUEHRH #0829 1731527
ZNR UUUUU ZZH
P 221527Z JUN 09 ZDK
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC PRIORITY 1036
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEHOT/AMEMBASSY OTTAWA PRIORITY 0276
UNCLAS RIYADH 000829 

SIPDIS

DEPT FOR NEA/ARP AND EEB/CBA

E.O. 12958: N/A
TAGS: ECIN ECON EFIN ENRG SA
SUBJECT: EX-IM SIGNS LANDMARK DEAL IN SAUDI ARABIA

UNCLAS RIYADH 000829

SIPDIS

DEPT FOR NEA/ARP AND EEB/CBA

E.O. 12958: N/A
TAGS: ECIN ECON EFIN ENRG SA
SUBJECT: EX-IM SIGNS LANDMARK DEAL IN SAUDI ARABIA


1. (U) On June 22, U.S. Export-Import Bank Board of
Directors member Bijan R. Kian signed the final documents
for the financing of $912 million for the sale of 23
General Electric (GE) turbines to the Saudi Electricity
Company
(SEC). SEC will use the turbines to deliver power to Riyadh
and the cities of Qurrayah and Faras in the Eastern
Province. Other co-signers included William Brown, Finance
Group Director for Export Development Canada (EDC)--which
provided roughly
$200 million in direct financing--and SEC CEO Ali Saleh
Al-Barrak.
The GE turbines are manufactured in Schenectady, New York and
Greenville,
South Carolina by approximately 6,000 workers at two plants.
The 23 turbines
will produce nearly three gigawatts of electricity.


2. (U) At the signing ceremony, SEC CEO Al-Barrak told the
Charge (Ambassador Erdman) that the turbines are sorely
needed, since the
Kingdom's electricity consumption is increasing about eight
per cent per year. This heavy consumption stems in part from
the
fact that retail electricity prices are heavily subsidized,
with 60 percent of Saudi consumers paying on average only SR
100
(USD27) per month. "Saudis never turn off their air
conditioners, even when they are on travel or vacation,"
Al-Barrak
lamented. Seasonal usage varies greatly with winter charges
falling as low as SR 15 ($4)
per month.


3. (U) Saudi electricity charges, he added, are roughly half
the
average among Gulf Cooperation Council (GCC) members. Some
GCC states charge expats at commercial rates while a
subsidized price is reserved for nationals. Such a two-tier
system is impractical in the Kingdom where, unlike in other
GCC states, nationals form the large majority of the
population.


4. (U) Al-Barrak explained that electricity producers like
SEC
receive oil and natural gas at subsidized rates.
Consequently, Saudi Aramco has little incentive to prospect
for and develop environmentally friendly natural gas, which
is destined exclusively for domestic uses. Al-Barrak noted
wryly that given the burgeoning domestic consumption, the
Kingdom would eventually have no oil left for export.


5. (U) The Saudi government, however, is fully aware of the
gravity of the subsidies problem, which also affects water
consumption, Al-Barrak said. Asked if the government planned
to
phase out the subsidies, he said that the Kingdom has
developed a plan to gradually reduce electricity subsidies
over the coming years, but gave no indication when the plan
would
be put into effect.


6. (U) Comment: The highly inefficient system of subsidized
water, oil, and natural gas prices for domestic consumers and
industry are among the Kingdom's most intractable
structural economic problems. A reduction in the subsidies
is inevitable, but will demand deft political handling.
End Comment.



6. EX-IM Board of Directors member Bijan R. Kian has
cleared this cable.



ERDMAN