US embassy cable - 04KINSHASA1270

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 001270 
 
SIPDIS 
 
E.O. 12958: DECL: 07/08/2009 
TAGS: ECON, ENRG, PGOV, CG 
SUBJECT: DRC ENERGY SECTOR UPDATE 
 
Classified By: Econoff Peter Newman for reasons 1.5 b/d 
 
1. (C) SUMMARY. Activity in the DRC energy sector picked up 
during the first half of 2004. Chevron-Texaco is in the 
process of selling its offshore drilling operation to 
European junior firm Perenco but intends to stay active in 
the DRC through exploration and pipelines. Cobil continues to 
function as a parastatal despite some discontent within the 
government over the purchase of former Mobil Oil Congo 
assets. Construction has begun on two hydroelectric plants in 
Kasai Occidental and Bandundu while progress is made in 
financing a third in North Kivu. END SUMMARY 
 
CHEVRON-TEXACO CHANGING ITS DRC OPERATIONS 
 
2. (C) Chevron-Texaco representative Tim Magner called on 
Ambassador on June 8 to inform him of Chevron-Texaco's 
forthcoming sale of its offshore operations to European 
junior petroleum company, Perenco. Perenco operates onshore 
concessions near Muanda, DRC, formerly owned by 
Total-Fina-Elf. It has offered to Chevron double the present 
value of the offshore concession. Chevron had planned for 
7-12 more years of life in the concession (which covers 390 
square miles and produces 19,000 barrels per day), but were 
willing to negotiate on the terms offered by Perenco. The 
deal is scheduled to be finalized in early July upon which a 
press release will be made. Magner stated that Chevron 
preferred for the potential sale to remain quiet until 
completed because of political difficulties that might be 
encountered due to certain alleged shadow investors in 
Perenco. He alluded to President Sassou of Congo-Brazzaville 
and President Bongo of Gabon. 
 
3. (C) The GDRC acceded to the deal based on Chevron's 
continuing presence in the DRC. (COMMENT. It is important to 
give the perception that Chevron is staying in the DRC. Some 
economic and political actors consistently comment to Post 
that the USA continues to "disinvest" from the DRC, citing 
long past examples of General Motors and a recent possibility 
of withdrawal by Citibank. This creates a negative ambiance 
for discussions of economics and of US presence in general. 
END COMMENT.) The Ministry of Energy has been searching for a 
senior petroleum exploration and production company to 
continue exploration in the Central Congo Basin (essentially 
where the provinces of Equateur, Bandundu and Oriental meet) 
that was started in 1981 by Exxon. Exxon's research was 
somewhat promising, but most oil finds were heavily laden 
with sediment. Recent exploration has been performed by small 
firms such as King and King of Poland. Chevron has 
tentatively agreed to participate in exploration activities 
and will continue to maintain an office in Kinshasa. (POC: 
Legal and Government Relations Director Koni Mukoka. Phone: 
 243 81 700 8005) 
 
4. (C) Chevron also has continued interest in developing a 
pipeline from Cabinda to Luanda, Angola as well as 
development of processing facilities in Cabinda. The pipeline 
would have to traverse DRC territory (land or maritime) and 
processing facilities would necessitate a high load of 
electricity, most likely provided by a line from Inga Dam. 
Chevron intends to coordinate with the Reynolds Group which 
would like to run a line from Inga to Pointe Noire. The 
linchpin to this deal would be financing by Chevron and 
Reynolds to rehabilitate and upgrade some of the turbines in 
the Inga system. 
 
REPAIRS TO INGA 
 
5. (SBU) In the first quarter of CY 2004, Congo-Brazzaville 
made a USD 32 million payment to the DRC for an overdue 
electricity bill. The Ministry of Energy plans to use these 
funds to rehabilitate one turbine in either Inga I or II. The 
engineering firm to be contracted for the rehabilitation is 
Alstom-France. 
 
COBIL OIL - MINISTRY OF ENERGY REBUTS ACCUSATIONS OF 
WRONGDOING 
 
6. (SBU) Some actors within the GDRC and the private sector 
have grumbled that the purchase of Mobil Oil Congo (now 
Cobil) by the GDRC is not good business for the country 
because it now competes with the other petroleum parastatal, 
Cohydro. Furthermore, they claim that the quality of gasoline 
and diesel fuel is uncertain. Ministry of Energy Chief of 
Staff Guillaume Bolenga offered the following justification. 
(Note. Bolenga is also on the board of directors of Cobil. 
End Note.) The GDRC needed to purchase Mobil's assets in the 
DRC to prevent a duopoly of Shell and Total/Fina/Elf. Total 
holds 50 percent of the petroleum product market, while Shell 
holds 30 percent and Mobil held 15 percent. Both Total Group 
and Shell made offers for Mobil's DRC operations. The GDRC 
paid bargain basement prices for Mobil's assets, according to 
Bolenga, because Mobil Oil Congo had USD 2 million in debt 
and had not updated its infrastructure (e.g. replacing 
station pumps) in 15 years. Furthermore, the lubricant 
factory Mobil built in the DRC does not function and is 
dilapidated to the point of having little value. On 
competition with Cohydro, Bolenga explained that Cohydro only 
held 4 percent of the retail market and was primarily 
interested in transportation and distribution. (COMMENT. To a 
certain extent, Bolenga's logic makes sense. However, Shell's 
market share is largely dependent upon its sales to Monuc. If 
Monuc were taken out of the equation, other suppliers such as 
Sonangol and X-Oil would have much larger market shares. END 
COMMENT.) 
PLANS FOR PREPAID ELECTRICITY IN KINSHASA 
 
7. (SBU) The Ministry of Energy is currently in negotiations 
with ESKOM of South Africa to rehabilitate and extend the 
electricity distribution system in Kinshasa. In return, ESKOM 
will convert the payment system to prepaid cards until its 
investment plus profit is recuperated. The contract is purely 
notional at the moment. 
 
RURAL ELECTRIFICATION - CLACKSON POWER AND SEGELEC PROJECTS 
 
8. (SBU) Clackson Power of South Africa is currently building 
three hydroelectric power plants in the DRC on 
build-own-operate-transfer contracts. These dams are in 
Butembo (North Kivu), Katende (Kasai Occidental) and Kakabola 
(Bandundu). In Butembo, the main problem has been financing, 
in response to which the Ministry of Energy has negotiated 
for USD 200,000 of money liberated by debt reduction 
agreements (and earmarked for poverty reduction) to be 
directed to Butembo and in part to this project. (COMMENT. 
These funds are not sufficient for a several million dollar 
project. However, it is a proactive measure by the Ministry, 
in light of the small amount of the national budget directed 
toward infrastructure rehabilitation and development. END 
COMMENT.) Financing for the dams at Katende and Kakabola are 
largely resolved and construction has begun. However, there 
was a small problem with the local community at Kakabola 
which was withholding signing the project contract unless 
greater "social programs" were presented. The Ministry 
settled the issue by reminding the local community that the 
site for the project could be changed as there are many 
waterfalls and rapids nearby. To facilitate these projects, 
the Ministry of Energy is also negotiating preferential 
shipping rates on the national freight railway company (SNCC) 
to reduce material costs. 
 
9. (U) The Ministry of Energy is also negotiating a contract 
with Cegelec-France to develop another hydroelectric plant 
60Km from Kananga (Kasai Occidental). This dam would be 
larger than the one being built by Clackson and would likely 
be connected to the Clackson system as well as to the Mbuji 
Mayi grid. 
 
HOOKS