US embassy cable - 06TIRANA281

MAJOR LNG AND POWER PROJECT NEARER REALIZATION; WORLD BANK OPPOSITION POSSIBLE

Identifier: 06TIRANA281
Wikileaks: View 06TIRANA281 at Wikileaks.org
Origin: Embassy Tirana
Created: 2006-03-20 08:00:00
Classification: CONFIDENTIAL
Tags: EINV ENRG EPET AL
Redacted: This cable was not redacted by Wikileaks.
VZCZCXYZ0015
PP RUEHWEB

DE RUEHTI #0281/01 0790800
ZNY CCCCC ZZH
P 200800Z MAR 06
FM AMEMBASSY TIRANA
TO RUEHC/SECSTATE WASHDC PRIORITY 4003
INFO RUEHTH/AMEMBASSY ATHENS 2850
RUEHBW/AMEMBASSY BELGRADE 2665
RUEHRL/AMEMBASSY BERLIN 1104
RUEHSW/AMEMBASSY BERN 0339
RUEHLO/AMEMBASSY LONDON 1157
RUEHFR/AMEMBASSY PARIS 1047
RUEHRO/AMEMBASSY ROME 5199
RUEHVJ/AMEMBASSY SARAJEVO 0385
RUEHSQ/AMEMBASSY SKOPJE 4057
RUEHVB/AMEMBASSY ZAGREB 2889
RUFNPKB/COMUSNAVEUR NAPLES IT
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
RUEHBS/USEU BRUSSELS
RUEHPS/USOFFICE PRISTINA 3360
C O N F I D E N T I A L TIRANA 000281 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/SCE (MBENEDICT/DSAINZ/WILLIS) 
NSC FOR BRAUN 
TREASURY FOR ATUKORALA 
USDOC FOR 4233/ITA/MAC/OEERIA/CEED (MROGERS) 
USDOC FOR 30004/ITA/CS/ADVOCACY CENTER (PASS TO WILL CENTER) 
ROME PASS TO FCS (KWARE) 
 
E.O. 12958: DECL: 03/18/2016 
TAGS: EINV, ENRG, EPET, AL 
SUBJECT: MAJOR LNG AND POWER PROJECT NEARER REALIZATION; 
WORLD BANK OPPOSITION POSSIBLE 
 
REF: A. TIRANA 176 
 
     B. 04 TIRANA 194 
 
Classified By: DCM Steven E. Zate for 
reasons 1.4 (b) and (d). 
 
1.  (C)  SUMMARY:  ASG Power, a U.S.-Swiss consortium, 
received GoA permission on March 13 to undertake final 
feasibility and environmental studies to build a 1.9 billion 
LNG re-gasification facility and 1200 megawatt power plant 
near Fier.  Gas and electricity will mostly be exported to 
Italy, but a large part of Albania's energy needs could 
likely also be met.  A senior GoA official expressed concern, 
however, that the World Bank was overreaching on its request 
that the GoA cancel all concession negotiations based on 
unsolicited proposals, regardless of project merit or 
investor reliability and that such a request could be 
interpreted to apply to even green-field projects like ASG's. 
 This would lower investor confidence below current abysmal 
levels and cause unacceptable delays in the development of 
the energy sector.  End summary. 
 
 
Project History, Details, Justification 
 
2.  (SBU)  In late 2003, a Swiss-U.S consortium (now called 
ASG Power) approached the GoA with a proposal to build a 1200 
megawatt gas-fired power plant in southern Albania (ref B). 
ASG believed that most of the electricity generated could be 
supplied by undersea cable to Italy.  Over the next two 
years, ASG did more preliminary studies and it became 
apparent that gas supply issues would endanger the project's 
feasibility.  To remedy the situation, the scope of the 
project was expanded to include a port for LNG tankers to 
off-load, a re-gasification facility to handle 10 billion 
cubic meters of gas per year, and an undersea gas pipeline to 
Italian markets and the European gas network.  At the same 
time, ASG apparently secured commitments from Italian 
operators and the Italian government to make pipeline and 
energy cable connections in Italy and to purchase power and 
gas.  Gas suppliers in Qatar and Algeria have expressed 
interest in shipping LNG to the facility.  Swiss operator 
Azienda Elettrica Ticinese also agreed to extend credit to 
ASG for USD 15 million to conduct final feasibility and 
environmental studies. 
 
3.  (C) As it currently is envisioned, the project would cost 
roughly USD 1.9 billion and would represent one of the 
largest private investments in the Balkans.  Originally 
proposed to be located at Vlore, ASG agreed to move it north 
several kilometers to the district of Fier in order to 
respond to GoA political concerns about the opposition of 
Vlore's residents to large energy projects.  The proposed 
location is completely undeveloped and not suitable for other 
development -- roads, a port terminal, electrical grid 
connections, etc. would all have to be constructed. 
Companies which have expressed interest in the construction 
of the project include U.S. based firms Black & Vietch, 
General Electric, and Chicago Iron.  Ex-Im Bank has also 
provided letters of interest in support of financing the 
project or providing political risk insurance. 
 
4.  (C)  ASG believes the project is feasible because Italy's 
gas and electrical demands are so great that this project, 
and others on the table, cannot by themselves satisfy demand. 
 ASG seems certain of this principle -- they obligingly gave 
up a request for exclusivity within Albania for the project 
concept -- another proposal for the same concept is under 
consideration by the GoA and its proponents do not believe 
that exclusivity is needed.  The location of the project in 
Albania appears largely due to NIMBY-type concerns and slow 
licensing procedures in Italy. 
 
Tough Negotiation 
 
5.  (C)  On March 13, after several weeks of notably serious 
negotiations, ASG obtained a "Memorandum of Understanding" 
from the GoA which will allow ASG to move forward to conduct 
final studies and obligated the GoA to expeditiously process 
ASG's licensing and land-lease applications.  Ministry of 
Energy Deputy Minister Bojaxhi led the team of GoA officials 
who negotiated the deal.  Although Bojaxhi has expressed 
reservations to us about ASG's abilities to pull off a 
project of such magnitude, he told us that the GoA would not 
be the one who stood in the way of such an investment. 
ASG will have nine months to complete the studies and propose 
a final agreement with the GoA.  Such an agreement would 
address what amounts of power and gas could be diverted to 
the Albanian market and at what price.  Potentially, the 
project could go far in addressing Albania's severe energy 
shortages. 
 
World Bank Interference Possible 
 
6.  (C)  On March 14, Bojaxhi told us that he was concerned 
that the World Bank was taking a particularly hard line on 
the issue of concessions, demanding that all future 
concessions, including those in advanced stages of 
negotiation, should be issued by the GoA only through 
competitive bidding processes.  Bojaxhi said the Bank's 
position might even apply to this project -- even though it 
is not a concession (no valuable or strategic resource is 
being used) -- because the Bank was claiming that all energy 
projects were concessions.  If the GoA adopted the Bank's 
view on this, according to Bojaxhi, this project, 
approximately 25 small hydropower concessions, and the larger 
Bratile hydropower project (in which General Electric has 
invested; see ref A) would be in danger of cancellation, and 
future badly-needed investments delayed for years. 
 
Comment: Good News 
 
7.  (C)  The GoA's shaky start with foreign investors (see 
ref A) may be smoothing out.  The seriousness, degree and 
depth of the GoA's involvement in the negotiations with ASG 
the last few weeks was unprecedented in Embassy's experience. 
 
 
Comment: Bad News 
 
8.  (C)  Bojaxhi's concerns about the World Bank seem 
legitimate.  The Bank's overly mechanistic, blinkered view 
provides no greater guarantee of transparency in dealings -- 
competitive tenders here have a particularly poor track 
record and reputable investors who have put in substantial 
time and energy in fully transparent dealings to improve 
infrastructure here will be driven away.  And, it is certain 
that development, especially in the critical energy sector, 
will be unnecessarily delayed.  Similar criticisms from the 
Bank in the GE railway procurement contract case may have 
carried more weight -- the Bank could then arguably contend 
that the GoA was indirectly using other Bank financing in a 
way the Bank did not like. 
 
9.  (C)  With concessions, however, the GoA is not spending 
anyone's money, rather earning money from private investment 
to develop strategic resources.  It is difficult enough to 
get reputable companies to come to Albania to make proposals. 
 Potentially kicking out major companies who have already 
undertaken the risk to come here on their own is not likely 
to result in more investment through Bank-recommended tender 
procedures.  Moreover, no GoA money exists to conduct 
feasibility studies for development of strategic resources, 
making competitive tenders even more unlikely to occur for 
several years.  More worrisome, if the Bank takes the 
position that all energy projects, including green-field 
projects like ASG's, are considered concessions, then private 
investment in the energy sector will very likely come to a 
crashing halt when energy-starved Albania can least afford it. 
RIES 

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