US embassy cable - 02AMMAN3622

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 003622 
 
SIPDIS 
 
E.O. 12958: DECL: 07/01/2012 
TAGS: ENRG, ETRD, JO 
SUBJECT: JORDAN'S ENERGY MINISTER DISCUSSES PIPELINE ISSUES 
 
REF: CAIRO 5992 
 
Classified By: Ambassador Edward W. Gnehm, Reasons 1.5 (b,d) 
 
------- 
SUMMARY 
------- 
 
1.  (u)  Jordanian Energy Minister Mohammed Bataineh briefed 
DCM and econoff on recent developments on the Egypt-Jordan 
gas pipeline and the Iraq-Zarqa oil pipeline.  The projects 
could save Jordan a combined $50 million per year on their 
current energy bill.  Meanwhile, Jordan is moving closer to 
privatizing the power generation and distribution sectors, 
with the expectation of privatization revenues by June of 
2003.  End summary. 
 
--------------------------------- 
EGYPT GAS PIPELINE MOVING FORWARD 
--------------------------------- 
 
2.  (c)  In a June 24 meeting, Jordanian Energy Minister 
Mohammed Bataineh downplayed an announcement that a 
joint-venture company had been formed by Syrian, Lebanese, 
Jordanian and Egyptian interests to develop the Al Arish gas 
pipeline (reftel).  According to Bataineh, the JV is a Syrian 
government-backed scheme to try to secure soft loans from 
regional development funds like the Kuwaiti fund to support 
the project.  The JV concept, Bataineh said, has never been 
popular with the GOJ or with Egypt, both of whom prefer to 
develop their sections of the line through private sector 
means (in Jordan, through a BOOT tender).  As the arrangement 
now stands, Egypt and Jordan will go ahead with their 
original plans to develop their sections independently, with 
each of the four JV partner countries having the option to 
participate in development of the line from the Jordan/Syria 
border northward through the JV.  Bataineh said development 
of the Arish-Aqaba segment is proceeding apace, and predicted 
gas would be flowing in Aqaba by April 2003. 
 
3.  (u)  Bataineh expressed relief that this issue had been 
settled, since progress on the pipeline deal is a necessary 
precondition for Belgian energy giant Tractebel to move 
forward with its own plans to build an independent power 
production (IPP) facility north of Amman.  Bataineh noted 
that the pipeline would probably save Jordan at least $30 
million per year at the outset as the Aqaba power station 
switched from fuel oil (1.5 million tons/year) to gas 
turbines.  It would also reduce Jordan's energy dependence on 
Iraq by reducing its oil imports. 
 
4.  (c)  Bataineh noted with some humor that there are still 
a number of questions about the future of the pipeline from 
the Syrian border northward.  First, there is still 
disagreement about whether the line will go through Lebanon 
to ports in northern Syria, or straight through Syria with a 
spur to Lebanon.  In addition, it is unclear how much gas 
will be available north of the border.  There is still some 
debate whether to use a 30-inch or 36-inch diameter pipe to 
convey the gas, with the group leaning toward the 30-inch 
pipe.  Such a pipe, Bataineh said, has a capacity of around 7 
bcm/year.  Jordan's consumption will be 2.5-3.0 bcm, and 
Lebanon's about the same.  This would leave about 1 bcm for 
delivery to Syria or other customers.  Cyprus has already 
voiced interest in receiving the gas, with a current need of 
1 bcm/year and 3-4 bmc/year by 2006.  Bataineh said Syria had 
assured Cyprus it would have excess gas to export, but said 
he has seen no evidence of such Syrian reserves. 
 
---------------------- 
ZARQA PIPELINE STALLED 
---------------------- 
 
5.  (c)  Bataineh confirmed that a closing date for bids on 
the proposed crude pipeline to Zarqa has been postponed at 
the request of bidders, who are seeking more time to study 
the technical merits of the project.  He said financing is a 
major issue, as commercial lenders for many bidders have 
serious questions about political risk for the project. 
Bataineh clarified that the project has no/no Iraqi 
component.  Instead, the plan is to build an initial pumping 
station on the Jordanian side of the border, with oil 
crossing the border by truck from Iraq and off-loading at the 
pumping station.  From there, a pipeline will convey crude to 
the Zarqa refinery.  Bataineh said the current transportation 
system costs around $50 million per year, versus a 5-6 year 
buyback period on a BOOT project of $150 million, for a cost 
savings of $20 million per year over that period.  In 
addition to this project, Bataineh said the Zarqa refinery's 
Board of Directors is discussing refinery upgrades that could 
cost as much as $900 million. 
 
-------------------------------------------- 
ELECTRICITY PRIVATIZATIONS - IN THE PIPELINE 
-------------------------------------------- 
6.  (u)  Bataineh said the GOJ is eager to move forward with 
long-planned privatizations of the kingdom's electricity 
generation and distribution facilities.  Further progress 
must wait, he said, for changes to the current electricity 
law that are currently before the cabinet.  Bataineh 
expressed confidence that the changes will be approved soon. 
Once the legal framework is in place, RFP's will be issued 
and bidders confirmed.  Bataineh guessed that privatization 
revenues from the sector would begin entering government 
coffers by June 2003, helping to finance year two of the 
GOJ's Program for Social and Economic Transformation (PSET). 
 
------- 
COMMENT 
------- 
 
7.  (c)  Jordan's commitment to diversifying its energy 
sources and to rationalizing the power sector remains strong, 
driven in large part by a desire to reduce its dependency on 
Iraq as an energy source.  Tractebel's unwillingness to move 
forward on its IPP until the gas pipeline issue was sorted 
out gives a strong indication that the new plant will likely 
be gas-fired.  This, coupled with the switch to gas in Aqaba 
and privatization of power generation, would virtually free 
Jordan's electricity supply from dependence on Iraqi oil. 
Nevertheless, even with these welcome changes, Jordan will 
remain reliant on Iraq for its other oil needs (crude and 
refined products like kerosene and gasoline) - a $300 
million-plus Iraqi energy subsidy. 
Gnehm