US embassy cable - 04AMMAN4310

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 004310 
 
SIPDIS 
 
USDOC4520/ITA/MAC/ONE/GLOUSTANNAU 
PASS TO TDA FOR FOR CYBIL SIGLER/HENRY STEINGASS 
 
E.O. 12958: DECL: 05/25/2009 
TAGS: EPET, ENRG, EINV, JO 
SUBJECT: ENERGY MINISTER ADDRESSES TRANSPARENCY CONCERNS, 
ONGOING PROJECTS 
 
REF: A. AMMAN 830 
 
     B. AMMAN 3293 
 
Classified By: AMBASSADOR EDWARD W. GNEHM FOR REASONS 1.5 (B) 
AND (D) 
 
1. (SBU) SUMMARY: According to Energy Minister Khreisat, the 
al-Samra power plant construction tender has been and will 
remain transparent, despite complaints by U.S. contractor 
Black & Veatch (B&V).  In a May 24 meeting, Khreisat also 
shared the Energy Ministry,s plans for modernization of the 
Zarqa refinery and the second phase of the Arab Gas Pipeline, 
reiterated his interest in connecting the Jordanian and Iraqi 
power grids, and touched on several other energy-related 
projects in which U.S. companies have some level of 
involvement.  END SUMMARY. 
 
2. (SBU) Ambassador Gnehm met with Minister of Energy Azmi 
Khreisat on May 24 to discuss ongoing energy issues and to 
register American concern about the treatment faced by B&V in 
an ongoing tender for construction of the al-Samra power 
plant.  Also present at the meeting were Econ/C, SCO, and 
Abdel Fattah Al-Nsour, the managing director of the Central 
Electricity Generation Corporation (CEGCO, the state-owned 
power generation monopoly). 
 
------------------------ 
AQABA-RIHAB GAS PIPELINE 
------------------------ 
 
3. (SBU) According to Khreisat, Phase II (Aqaba-Rihab) of the 
&Arab Gas Pipeline8 (see reftel A) appears to be well under 
way.  The Egyptian consortium constructing the project has 
finalized the financing of the project, and loan agreements 
will be signed next month.  The Egyptian Minister of Energy 
has promised that the line will be finished by the end of 
2005 or the beginning of 2006.  No final decision has been 
reached regarding an extension of the pipeline to Syria and 
Lebanon, though Khreisat deemed the episodic bilateral and 
multilateral discussions on the topic to be &positive.8 
 
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IRAQI-JORDANIAN GRID CONNECTION 
------------------------------- 
 
4. (U) Khreisat noted his continued interest in a connection 
between the Jordanian and Iraqi power grids, reiterating his 
ministry,s plan to install a 400 kV line to the nearest 
Iraqi power substation (see reftel B).  He said that the 
eventual commercial structure of Iraq,s purchases of extra 
power from the grid would be a swap deal, in which Jordan 
would take extra power from Egypt and sell extra power to 
Iraq.  When the project is completed, Jordan will be able to 
deliver 150-200 MW to western Iraq, enough power to supply 
meet the needs of an area that would include Fallujah. 
 
---------------- 
KHIRBET AL-SAMRA 
---------------- 
 
5. (SBU) Khreisat detailed the progress of several of the 
GOJ's ongoing power sector projects.  He noted that U.S. 
contractor B&V is a strong competitor in the tender for the 
construction of the al-Samra power plant.  The Ambassador 
agreed that B&V had many natural advantages in the tender, 
among which was its proposed use in the project of GE 
turbines, which are common in Jordanian power plants and 
would save on training and maintenance costs for the GOJ. 
The GE turbines would also be able to run on both gas and 
diesel, a capability that the new plant would require.  The 
Ambassador expressed concern, however, about B&V,s charge 
that the Ministry and CEGCO had first determined that B&V had 
the most competitive bid, but had also invited the 
second-ranked bidder to negotiate, contrary to standard CEGCO 
procedure.  The Ambassador reiterated the U.S. concern that 
all GOJ tenders be conducted transparently.  He also 
expressed his concern that Alstom, the second-ranked bidder 
in the tender, was under threat of bankruptcy and might be 
unable to fulfill the terms of a contract even if one were 
awarded to it. 
 
6. (SBU) Khreisat replied that while B&V is to this point the 
leading tender candidate, nothing in the structure of the 
tender prevented CEGCO from negotiating with the top two 
bidders rather than the single top bidder.  He assured the 
Ambassador, however, that he saw his own role in the process 
as safeguarding the tender,s fairness and transparency. 
Al-Nsour added that CEGCO had structured the tender so that 
all bidders had to pass a technical qualification (which four 
of six original bidders had passed) and then a commercial 
qualification, which B&V and Alstom, who had been very close 
in price, had both passed.  While CEGCO was also worried 
about the state of Alstom,s finances (about which it had 
requested information from Alstom in writing and as yet 
received no reply), it saw no harm in pursuing two tracks of 
negotiations at once.  Al-Nsour said that in any case, 
everything would be clear by the first week of June. 
 
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ZARQA REFINERY 
-------------- 
 
7. (SBU) Khreisat turned to the refinery at Zarqa, managed by 
the Jordan Petroleum Refinery Company (JPRC), which he said 
is a bottleneck for the entire energy sector.  The Ministry 
of Energy has hired a consultant who is currently studying 
the future of the company over the next 10-15 years.  The 
Ministry expects this consultant to give recommendations on 
how the sector should be opened, whether JPRC should be split 
up into its component parts, and whether any of those 
component parts should be privatized.  Khreisat noted that 
for the refinery to compete, it would have to improve the 
quality of its products, and that it would have to expand and 
modernize in order to do so, at an estimated cost of $700 
million.  An expansion of this magnitude would require 
government support or a financing strategy.  In the near 
term, JPRC plans to expand its storage capacity, adding 2 new 
45 kiloton gas tanks and another diesel tank, and converting 
3 tanks at Aqaba to crude oil.  It is also planning to build 
another berth at the port for tankers ) perhaps through a 
BOT ) but is working through the associated security issues. 
 Phase II of the Arab Gas Pipeline will include a gas line to 
the refinery, cutting down on production costs.  Khreisat 
said he was also beginning once again to consider the idea of 
building an oil pipeline from Aqaba north to the refinery, to 
cut down on transportation costs. 
 
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OTHER PROJECTS 
-------------- 
 
8. (SBU) Khreisat concluded the meeting by reemphasizing his 
continuing interest in several other planned projects, 
including Washington Group International,s oil shale 
refining proposal and its plan to build a power plant at the 
Dead Sea.  He expressed his appreciation for TDA,s ongoing 
study of a wind power project, which will also use GE 
generators.  He noted that oil exploration in Jordan,s 
eastern desert is currently being carried out by American 
independent Trans-Global Petroleum, and said that Jordan 
plans to open all unexplored blocks to international 
companies wishing to prospect for oil.  Khreisat noted, 
however, that out of 18 bidders in the tender for the 
upcoming privatization of CEGCO, only one company was 
American. 
 
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COMMENT 
------- 
 
9. (C) Khreisat,s and Al-Nsour,s protestations to the 
contrary notwithstanding, CEGCO,s decision to negotiate 
simultaneously with the top two bidders in the al-Samra 
tender is a substantial departure from its normal tendering 
procedures.  This fact, taken in isolation, does not 
necessarily imply wrongdoing on anyone,s part.  The Embassy 
has, however, recently received allegations of corruption, 
not necessarily directly involving CEGCO or the Ministry of 
Energy, in the process of this tender.  At a time when the 
Ministry of Energy is looking for a strategic partner to buy 
its share of CEGCO, the company would do well to remain above 
any hint of such scandal, and the Embassy plans to follow up 
these allegations in the near future.  END COMMENT. 
 
GNEHM