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Cablegate: Djibouti's Quest for New Energy Sources

VZCZCXRO1116
RR RUEHDE RUEHROV RUEHTRO
DE RUEHDJ #0859/01 3071109
ZNR UUUUU ZZH
R 021109Z NOV 08
FM AMEMBASSY DJIBOUTI
TO RUEHC/SECSTATE WASHDC 9652
INFO RUCNIAD/IGAD COLLECTIVE
RUCNSOM/SOMALIA COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC
RHMFIUU/CJTF HOA

UNCLAS SECTION 01 OF 02 DJIBOUTI 000859


DEPARTMENT FOR AF/E
LONDON, PARIS FOR AFRICA WATCHER
CJTF-HOA FOR POLAD
ADDIS ABABA FOR REGIONAL ENVIRONMENT OFFICER

SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON EINV SENV PGOV PREL ET DJ
SUBJECT: DJIBOUTI'S QUEST FOR NEW ENERGY SOURCES

REF: DJIBOUTI 596

DJIBOUTI 00000859 001.2 OF 002


1. SUMMARY: Djibouti is completely dependent on expensive
diesel-generated power, and its nascent service economy is fast
outstripping modest domestic production capacity. Faced with trying
to maintain and expand electricity access for a populace already
strapped by high food prices, while answering the new energy demands
of large-scale foreign investment projects, the GODJ has begun in
earnest to look to the development of its considerable renewable
energy resources. In the short term, an interconnection with
Ethiopia's hydropower grid promises the most rapid relief. In the
longer term, Djibouti would be prudent to accelerate its efforts to
develop the country's long-neglected natural resources: abundant
geothermal, wind, and solar power. END SUMMARY.

-----------------------
EXPLODING ENERGY DEMAND
-----------------------

2. In an October 4 meeting, Djama Ali Guelleh, the Director General
of Djibouti's national utility company Electricite de Djibouti
(EDD), told EconOff that his company was struggling to meet
Djibouti's ever-increasing demands for electricity. Whereas in the
past, EDD could anticipate a one or two percent annual growth in
energy demand, he said, the recent sudden increase in foreign direct
investment (FDI) has disrupted this pattern. This year and next,
EDD is preparing for a 10-15 percent increase in demand. Guelleh
cited the newly opened and now expanding luxury Kempinksi hotel,
built by the Nakheel Group arm of Dubai Ports World (DP World), as
an example of a single customer demanding unprecedented levels of
energy supply. Guelleh said that he only expected an increase in
this kind of energy-intensive development in the near future, noting
current projects such as the GODJ-DP World Doraleh Container
Terminal slated to open in December, U.S.-led investment in salt
mining at Lac Assal, and hundreds of planned housing units in the
works.

---------------------
FOR NOW: HOOK INTO
ETHIOPIA'S HYDROPOWER
---------------------

3. Guelleh said that the project to construct a power
interconnection between Djibouti and Ethiopia is making "good
progress," and as of now seems to be the most promising source of
additional energy capacity. The African Development Fund (ADF)
recently approved additional funding to cover inflationary cost
increases for materials, as well as an upgrade from a single circuit
to a double circuit transmission line, bringing total project costs
to over $100 million. The two primary companies selected for the
project, Italian Siemens and Indian Kalpataru, are aiming for an
operation start date in 2010, with a transmission of up to 160
MW--in comparison with EDD's current 100 MW maximum production
capacity. Ethiopia will provide its surplus of electricity during
the summer when hydropower from rains is abundant, and Djibouti will
in turn deliver fuel energy to Ethiopia during the winter when
Ethiopia does not get much rainfall, Guelleh said. (NOTE: While
equipment breakdowns and other technical problems often
significantly reduce EDD's theoretical 100 MW production capacity,
Djibouti's peak summer season demand of 50 MW dips to 20-30 MW in
the cooler winter season, leaving some potential for surplus
capacity delivery to Ethiopia. END NOTE).

---------------------------
DOWN THE ROAD: DJIBOUTI'S
RENEWABLE ENERGY GOLDMINES?
---------------------------

4. Looking beyond the hookup into Ethiopia's power grid, Guelleh
said that the GODJ was continuing to pursue its geothermal, solar,
and wind power options. Following the signature of agreements
between Iceland and the GODJ in 2007 and early 2008, the company
Reykjavik Energy Invest (REI) is planning to drill three geothermal
test wells in the next few months. In July, REI signed the first
agreement with the International Finance Corporation's new
InfraVentures fund. InfraVentures will cover 35% of the Djibouti
project's exploration costs, with a contribution ceiling of $4
million. The success of the three test wells, to be located in
Djibouti's active geothermal area near the salt lake Assal and the
beginning of the Rift Valley, will be crucial in determining the
overall feasibility of the Iceland-Djibouti project.

5. According to Dr. Jalludin Mohamed, a geologist and the Director
General of the Djibouti Research and Study Center (CERD), REI has

DJIBOUTI 00000859 002.2 OF 002


contracted Iceland GeoSurvey (ISOR) to drill the first three wells,
although one or more specialty subcontractors may also be chosen.
An environmental impact study has already been completed, and the
project is expected to have minimal negative environmental
consequences. Given the extremely specialized nature of the needed
equipment and expertise, Dr. Jalludin estimated that a realistic
start date for the drilling of the test wells would be early 2009.
Much will hinge, according to Dr. Jalludin, on the level of total
dissolved solids (TDS) discovered in the test wells. During the
1970s, modest geothermal attempts in Djibouti were abandoned because
of too-high salinity; and this time, Dr. Jalludin said that the
location had been carefully chosen for the highest probability of a
TDS level "close to seawater." Depending on the success of the test
wells and the ability of Iceland and Djibouti to pull together a
projected $350 million in financing, construction of a geothermal
plant could begin as early as 2011 or 2012, with a potential
production capacity of 50-100 MW. (NOTE: In 1999, the United States
Trade and Development Agency (USTDA) co-financed a geothermal
feasibility study with the U.S. firm Geothermal Development
Associates. The GODJ's MOU with the Icelanders was thus a
disappointment. Post will renew efforts to explore opportunities
for U.S. firms in the geothermal sector. END NOTE).

6. In addition to geothermal potential, Djibouti has considerable
untapped solar, wind, and tidal power resources. While still modest
in scale, Djibouti's efforts to utilize its near-constant sunshine
are increasing. The Ministry of Education has already equipped at
least twenty-three schools and several rural health clinics with
solar panels, and has contracted with a young Djiboutian company,
the Societe d'Ingenierie Electrique, to equip an additional
seventeen schools. Several of Djibouti's small-scale experiments in
rural agriculture are also outfitted with solar water pumps, and a
local bank is offering loans for households interested in purchasing
small solar panels for domestic use. Anecdotally, rural communities
have reported great success with solar panels, although provision of
maintenance for hard-to-repair solar equipment remains a challenge.


7. Building on these efforts to install small-scale solar projects
for localized needs, the GODJ has begun looking for partners to
exploit solar energy on a more commercial scale. Guelleh reported
that several companies have approached EDD to discuss solar project
possibilities, including at least one U.S. firm. Guelleh said that
EDD hopes to reach an agreement with the U.S. company Solar Power
Ltd. for the production of 20 MW of solar power. Another American
firm, Maple Ridge, is interested in developing wind energy in
Djibouti and has signed a memorandum of understanding with EDD for
the potential production of 20 MW to 50 MW of wind power.
Currently, Guelleh said, EDD is awaiting Maple Ridge's response to
EDD's proposed Power Purchase Agreement (PPA) terms.

----------------------------
ENERGY: THE LIMITING FACTOR
----------------------------

8. COMMENT: The former head of Djibouti's National Investment
Promotion Agency--now serving as Minister of Transport--recently
told EmbOffs that energy was the "number one, two, and three" issue
on his list of potential impediments to continued foreign direct
investment (FDI). Many businesspeople and government officials have
echoed his assessment. To continue its success in growing FDI--and
especially to begin encouraging local small-scale industry--Djibouti
must aggressively continue to seek out cleaner, cheaper, and more
reliable energy sources.

9. Djibouti's decision to investigate several potential renewable
energy sources while simultaneously pursuing an interconnection with
Ethiopia is wise. In the long term, renewable energy sources may
prove to be Djibouti's great undiscovered natural resource.
However, for the practical present, most of Djibouti's energy
projects remain in the experimental stages, while immediate demand
continues to grow. Post agrees with CERD and EDD that Djibouti
needs a coherent strategic policy to coordinate the development and
use of disparate energy sources. Post has submitted a proposal for
an Embassy Science Fellow (reftel) to support the Ministry of Energy
in developing this kind of framework policy, and will continue to
urge all of the GODJ players to amplify their individual efforts
through an emphasis on interagency coordination. END COMMENT.

SWAN

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