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Cablegate: Electricity Demand Overwhelms Supply, Leads To

VZCZCXRO5990
PP RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHEG #2055/01 2621504
ZNR UUUUU ZZH
P 181504Z SEP 08
FM AMEMBASSY CAIRO
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 0508
INFO RUEHEE/ARAB LEAGUE COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 CAIRO 002055

SENSITIVE
SIPDIS

STATE FOR NEA/ELA CANEDO
ENERGY FOR ERICKSON AND SPERLE

E.O. 12958: N/A
TAGS: ENRG ECON EG
SUBJECT: ELECTRICITY DEMAND OVERWHELMS SUPPLY, LEADS TO
POWER CUTS

REF: A. CAIRO 1146
B. CAIRO 1359
C. CAIRO 1855

Sensitive but unclassified. Please handle accordingly.

1. (SBU) SUMMARY: The independent press reports that power
cuts and brownouts have made life uncomfortable in villages
and towns across the Delta region since early August and
railed against the government for failing to meet electricity
demand outside of major cities. Minister of Electricity and
Energy Hassan Younes admitted that the government did not
expect the rapid growth in consumption since late summer and
confirmed that several short power interruptions had occurred
across several governorates. Embassy contacts note that the
power cuts were organized by the Ministry of Electricity in
advance but not publicized. END SUMMARY.


DEMAND HIGHER THAN EXPECTED
----------------------------

2. (SBU) Minister of Electricity and Energy Hassan Younes
admitted September 14 that interruptions in electricity
supply had affected several governorates across the Delta.
Younes said that unusually warm weather had pushed
consumption of electricity up by 12% year-on-year over August
and September 2007, significantly higher than energy
analysts' prediction of 6-7% growth and said that the
government had not anticipated this.

3. (SBU) Mohamed Omran, first undersecretary at the Ministry
of Electricity, told econoff that the ministry was addressing
the gap between consumption and supply by cutting electricity
to rural governorates outside of Cairo on a rotating basis,
for two hours at a time, in order to fully meet demand in
major cities and industrial areas. He stated that press
reports of day-long power cuts affecting hundreds of
thousands in Gharbia, Suez and Damietta governorates were
exaggerated but did not say whether the Ministry would
announce power cuts in advance to affected communities. The
embassy's contacts in Gharbia confirmed that electricity
supply was only interrupted for several hours and said this
was due to an accident involving the main transformer in the
area.

MEETING FUTURE GROWTH
----------------------

4. (SBU) The general manager of PGESCo, a major player in
power plant construction and electricity generation in Egypt,
which is partly owned by Bechtel, told econoff that
electricity producers need 65 million British Thermal Units
(MMBTU) per day of natural gas to generate enough power to
meet current demand. PGESCo estimates that demand will
continue to grow by at least 6.5% a year for the next five
years and electricity generation will require approximately
93 MMBTU by 2012. PGESCo said that the state-owned Egyptian
Gas Holding Company (EGAS) has not provided electricity
producers with enough natural gas to meet their requirements
for the last six months. EGAS made up the difference by
giving producers imported fuel oil.


CONSUMPTION PATTERNS AND CONSERVATION
--------------------------------------

5. (SBU) Omran noted that the consumption of electricity grew
exponentially amongst the poor and middle classes as the
price of air conditioning units fell in the local market in
recent years. The price of electricity per kilowatt is low
for most residential users, despite annual increases of 7%
over the last three years, but prices vary substantially
depending on whether the consumer is a residential,
industrial or commercial user. (NOTE: Only residential users
who consume less than 200 kilowatts per month are eligible
for subidized rates. END NOTE.) The ministry and the Worl
Bank are reviewing the price structure for electricity and
considering different tariffs for peak vs. off-peak hours and
for different seasons. Minister Younes announced on
September 14 that the GOE planned to establish an agency and
a national strategy to rationalize the use of energy and
devise conservation strategies. The agency will report to
the cabinet.

6. (SBU) COMMENT: Although gas production is expected to

CAIRO 00002055 002 OF 002


grow over the next decade with the advent of new on- and
off-shore fields, it is likely that the GOE will need to
import natural gas or more refined petroleum products like
fuel oil within the next five years, in order to ensure
sufficient electricity generation. (See refs A, B and C.)
The use of imported gas or fuel will drive up production
costs substantially if the GOE passes on these costs to
electricity generators and distributors. Demand is expected
to keep growing in Egypt as the population grows and economic
growth remains high. Also contributing to the growth in
demand is an increase in consumer credit for items such as
air conditioning units.
SCOBEY

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