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Cablegate: Africa Electricity Congress - Lighting the Dark

VZCZCXRO1702
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHSA #0906/01 1210916
ZNR UUUUU ZZH
R 300916Z APR 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 4294
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 0203
RUEHBJ/AMEMBASSY BEIJING 0791
RUEHBY/AMEMBASSY CANBERRA 0663
RUEHLO/AMEMBASSY LONDON 1505
RUEHMO/AMEMBASSY MOSCOW 0793
RUEHNE/AMEMBASSY NEW DELHI 0485
RUEHOT/AMEMBASSY OTTAWA 0623
RUEHFR/AMEMBASSY PARIS 1343
RUEHSG/AMEMBASSY SANTIAGO 0192
RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 03 PRETORIA 000906

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR AF/S, EEB/ESC AND CBA
STATE PLEASE PASS USAID
STATE PLEASE PASS USGS
DOE FOR SPERL AND PERSON
DOC FOR ITA/DIEMOND

E.O. 12958: N/A
TAGS: ENRG EPET EMIN EINV SF
SUBJECT: AFRICA ELECTRICITY CONGRESS - LIGHTING THE DARK
CONTINENT

REF: A. PRETORIA 758
B. PRETORIA 726
C. PRETORIA 565
D. PRETORIA 315
E. PRETORIA 214 AND PREVIOUS

1. (SBU) SUMMARY: State power supplier Eskom and the South
African Energy Minister used the recent Africa Power &
Electricity Congress as yet another opportunity to highlight
plans to augment demand side management and increase energy
efficiency as short term methods to address the South African
power crisis. Delegates noted the failure of South Africa
and other countries to secure significant private sector
participation in the power sector, citing that power tariffs
are too low. There was recognition that there are limits to
how much and how quickly South Africa and other countries can
raise tariffs, given governments' fear of inflation and
hurting business and the poor. Delegates also cited the role
of regional cooperation. The SAG announced its intent to
convene a high-level energy summit to coordinate its response
to its power crisis and to grapple with getting the tariff
right. END SUMMARY.

-------------------
Power to the People
-------------------

2. (SBU) The Africa Power & Electricity Congress and
Exhibition April 15-17, 2008 in Johannesburg drew government
and private leaders from throughout the continent to debate
challenges in the sector. This was set against the backdrop
of power shortages in South Africa and other countries
(Reftels). The power was cut off twice during the
proceedings, including while the South African Minister of
Minerals and Energy held the stage. Fortunately, the
convention center's generators kicked in each time with only
a few seconds delay. Building on its recent India-Africa
summit in New Delhi, India had a high profile at the
congress, including a ten-company India exhibit at the
accompanying exhibition, a special breakfast, and
sponsors/speakers in a number of sessions. The U.S. presence
at the exhibition was primarily as a provider of alternative
power solutions, such as Cummins, Detroit Diesel, and
Caterpillar. Westinghouse was a speaker at the nuclear
session of the congress. Areva and EDF, Westinghouse's
competition for nuclear new build in South Africa, had
substantial exhibits and also spoke at the nuclear session.
The congress organizers played "Power to the People" over and
over again during breaks on day one, but recognized that they
needed to change the repetitive tune for the balance of the
congress. The Minister admitted that she said a special
prayer each morning: "let there be no power outages", and
only some of her prayers were heard.

------------------------------------
Engaging Private IPPs - Tariff Angst
------------------------------------

3. (SBU) There was broad consensus that power tariffs in
South Africa and other countries are too low to entice
private sector participation in the power sector. Energy
Minister Buyelwa Sonjica said in her opening speech that
current low tariffs and "cheapness" of South Africa's
Qcurrent low tariffs and "cheapness" of South Africa's
electricity were deterring private sector investment in power
generation projects. Sonjica said AES decided to pull out of
the Independent Power Producer (IPP) deal for two peaking
power plants totaling 1000 MW (Ref B) because the project
"was not lucrative enough" in terms of profit for AES. A
National Energy Regulator of SA (NERSA) senior official also
said the introduction of IPPs failed because the private
sector viewed electricity prices as too low. The CEO of one
of the few IPPs implemented in South Africa, Darling Wind

PRETORIA 00000906 002 OF 003


Power, urged the government to revisit or reverse its
decision to maintain state power utility Eskom as the single
buyer in the government's plans to seek up to 30 percent
participation by IPPs in the South African power sector.
Sonjica replied that her department was discussing the
matter. Sonjica noted that Namibia was ahead of other
African countries in restructuring electricity distribution,
another critical need in assuring power supply to consumers.


4. (SBU) Congress moderator and private power consultant Jan
de Beer observed that South Africa possesses artificially low
tariffs at 1-2 U.S. cents per Kwh. When he pressed a forum
of regulators from other countries, they would not quantify
the "right" amount, but they uniformly said it should be
higher. De Beer noted that tariffs had to be commercial but
electricity service was recognized as a social good, so
governments had to balance commerciality and affordability.
Finance sector speakers also observed the SAG's failure to
secure IPP's, despite its long-standing objective, perhaps
because investors perceived too much payment and fuel risk.

--------------------------------------------- -
Eskom's Way Forward - MEGAWATTS NOT MEGA-WORDS
--------------------------------------------- -

5. (SBU) State power company Eskom presented its vision of
increasing power tariffs and capacity and implementing
demand-side management and efficiency as its action plan for
resolving power woes in South Africa. Eskom General Manager
Andrew Etzinger cited the importance of ramping up its
existing demand-side management program, noting that this was
one of the identified uses of funds from the proposed 60
percent nominal tariff increase. Eskom Financial Director
Bongani Nqwababa said South Africans would face more power
cuts without the tariff hike. NERSA Chair Mbulelo Ncetezo
said we need "megawatts, not mega-words!" National Energy
Efficency Agency acting Operations Manager Barry Bredankamp
stressed the need to augment and implement energy efficiency
programs in South Africa and other countries in Africa. He
noted that progress on the continent had been fragmented and
episodic, calling for better sharing of best practices and
success stories. Bredenkamp recommended creation of a
depository of information on African energy efficiency
projects and initiatives.

-------------------
Regional Approaches
-------------------

6. (SBU) Eskom Chief Officer for Networks and Customer
Service Erica Johnson cited the importance of regional
electricity options to meet the target of adding 40,000 MW of
capacity to the South African grid by 2025, in addition to
diversification to include greater reliance on nuclear power.
She highlighted possibilities of importing coal-generated
power from Botswana and Mozambique, natural gas-generated
power from Namibia and Mozambique, and hydroelectric power
from Mozambique and the Democratic Republic of Congo. CIC
Energy Corporation COO Tore Horvei told the Congress that his
QEnergy Corporation COO Tore Horvei told the Congress that his
company was at the final discussions stage of finalizing
power purchase agreements with Eskom and the Botswana Power
Corporation for the 2,500 MW first phase of the coal-fired
Mmamabula power project in Botswana, near the South African
border. Another theme of the Congress was the importance and
still unrealized potential of cooperative regional
electricity pools like the Southern African Power Pool
(SAPP). Note: SAPP's members are the major utilities of
South Africa, Mozambique, Botswana, Malawi, Angola, Lesotho,
Namibia, DRC, Swaziland, Tanzania, Zambia, and Zimbabwe. End
Note.


PRETORIA 00000906 003 OF 003


------------
Power Summit
------------

7. (SBU) Soon after the close of the African Power Congress,
the SAG and the ANC decided to convene an energy summit to
coordinate responses to the power crisis, organize the myriad
task teams and efforts underway, and seek broader consensus
on the way forward, possibly including discussion of power
tariffs. The Department of Minerals and Energy has
spear-headed a National Electricity Response Team, but
higher-level leadership and coordination are needed. The
SAG-ANC energy summit date has yet to be scheduled. Eskom
CEO Jacob Maroga welcomed the summit proposal, saying there
was a definite need for a "national conversation" both on the
handling of the crisis, as well as the utility's application
for a 60 percent nominal tariff increase. The application is
under expedited public comment-taking and consideration by
the regulator. Eskom says the tariff increase will cover
increased coal/fuel costs and demand-side management
measures, while significant capital expenditure needs for new
supply will be financed by other means.

8. (SBU) General Electric representatives told Energy
Officer on the congress margins that the SAG had not
responded to the company's offer to quickly provide 3,000 MW
of new gas-fired turbine capacity, cited in President Thabo
Mbeki's State of the Nation speech in January (Ref E). They
conjectured that the SAG's and Eskom's short-term response
will be focused on demand, rather than supply.

--------------------------------------------- ---------
How High a Tariff is Right - or Politically Palatable?
--------------------------------------------- ---------

9. (SBU) COMMENT: The consensus at the power congress was
clear on the need to raise power tariffs to assure adequate
returns for potential private investors, reduce demand, and
establish the framework for making pricing incentives work.
The potential inflationary effect on businesses and consumers
- especially the poor - raises a steep challenge. The ANC,
labor federation COSATU, and business umbrella group Business
Unity SA are criticizing the Mbeki government's support for
the power price hike, so Eskom may not obtain its full 60
percent nominal tariff increase. The government has long
espoused securing a significant portion of generation from
IPP's, but has failed in creating the necessary investment
environment to make this happen. It is still not clear how
well the government can manage the power crisis, while
balancing needs of consumers, the mining sector, and the
power utility, as well as assuring infrastructure and power
for the 2010 World Cup.
BALL

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