US embassy cable - 05TUNIS1048

C O N F I D E N T I A L SECTION 01 OF 02 TUNIS 001048 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, L/EB, AND NEA/MAG (LAWRENCE) 
STATE (LAWRENCE) PLEASE PASS TO COMMERCE FOR ITA/MAC/ONE 
(DAVID ROTH) AND ADVOCACY CENTER (CHRIS JAMES) AND TO USTR 
(DOUG BELL) 
CASABLANCA FOR FCS (GAIL DEL ROSAL) 
 
E.O. 12958: DECL: 05/16/2015 
TAGS: ECON, ENRG, KIDE, EINV, TS 
SUBJECT: TUNISIA'S ENERGY CZAR EXPLAINS POSITION ON U.S. 
INVESTOR FOR RENEWABLE ENERGY 
 
REF: A. TUNIS 776 
 
     B. TUNIS 867 
 
Classified By: Ambassador William J. Hudson; Reasons: 1.4(b),(d) 
 
1. (C) Summary.  Econoff's meeting with the head of Tunisia's 
electricity monopoly reveals that a U.S. investor, EnerCiel, 
will likely need to seek relief through the court system or 
reach a compromise given the hardening of legal positions and 
the difficulties EnerCiel is facing with moving forward with 
its development project.  EnerCiel is not likely to go down 
without a fight and is seeking further intervention, 
including from Senator Kerry's (D-MA) offices.  End summary. 
 
Background: U.S. Investor's Lease Canceled 
------------------------------------------- 
2. (C) May 11, Econoff met with President and General Manager 
of Tunisia's state-owned electricity monopoly (STEG), Othman 
Ben Arfa, to discuss renewable energy development in Tunisia, 
particularly wind energy and the investment of a U.S.-owned 
company, EnerCiel.  EnerCiel has been working in Tunisia 
since 1998 to study wind energy development and has spent a 
claimed USD 2 million to date.  As part of its efforts, 
EnerCiel entered into a 30-year lease in 2002 with the 
Ministry of Agriculture for land located on the north-west 
peninsula of Tunisia.  The Ministry of Agriculture 
subsequently canceled that lease in late 2004.  Reftels 
detail Embassy Tunis' ongoing efforts to facilitate a 
resolution in this case. 
 
3. (C) Ben Arfa stated that the GOT has canceled the lease 
because Tunisian law prohibits the granting of private 
concessional agreements without an open bidding process, and 
thus EnerCiel is effectively precluded from developing the 
site.  Nonetheless, Ben Arfa stated that the site 
should/should be developed because it is the best site 
available and STEG could do so cost-effectively as STEG will 
have access to soft loans and other subsidies to make 
production cost feasible.  (EnerCiel representatives have 
countered that there are numerous other sites of equal 
potential and they believe the cancellation to be based on a 
specious justification to enable STEG to use EnerCiel's 
research data that was previously voluntarily shared.) 
 
4. (C) Given the lease cancellation, Ben Arfa expects that 
STEG will receive the right to produce 80 megawatts through a 
division of half the EnerCiel site, with a public tender for 
the remaining 80 megawatts from the rest of the parcel. 
According to Ben Arfa, EnerCiel could bid competitively on 
the public tender, though he cautioned that any private 
sector production of wind energy could not be done at an 
affordable cost.  Ben Arfa could not explain why the GOT 
would seek to promote private-sector energy production if 
cost-effectiveness is questionable. 
 
Comment/Analysis: Tunisians Lining up their Legal Ducks 
--------------------------------------------- --------- 
5. (C) The fact that the private sector may not be able to 
produce energy at market bearing prices should be left to 
private sector decision makers.  Given, however, the legal 
position the GOT and STEG are taking arguing that EnerCiel is 
effectively precluded from further development of the site, 
we believe EnerCiel may be obliged to seek redress and/or 
compensation through the Tunisian judicial system or via 
international arbitration if a compromise solution cannot be 
reached. 
 
6. (C) Our efforts to resolve this impasse have resulted in 
overtures from the GOT seeking EnerCiel's suggestions for 
resolution.  Nonetheless, EnerCiel feels aggrieved about its 
possible loss of investment and has sent a request to Senator 
Kerry's (D-MA) offices for intervention as constituent 
representative of EnerCiel's parent company, UPC Wind. 
(Econoff detailed Post's history of this case for Kerry 
staffer, Tyke Crowley, in a telcon May 13.  Crowley and Kerry 
advisors are currently considering the case.)  Even with such 
an intervention, we are not optimistic that the GOT will 
alter its current position.  Significant Embassy efforts to 
date, including Ambassador's letters to the Ministers of 
Energy and Agriculture, as well as discussion with 
Presidential special advisors, have clarified the GOT and 
STEG position.  Communication between the GOT and EnerCiel 
has also emerged, but so far has not altered the situation. 
STEG appears capable of absorbing political pressure from 
very high levels with minimal impact, at least up to this 
point. 
 
Biographical Note: STEG President Othman Ben Arfa 
--------------------------------------------- ---- 
6. (C) Ben Arfa studied for four years in California at the 
now defunct Northrup University in Inglewood.  He also played 
a role in Tunisia's first wind energy development project in 
Sidi Daoud (near the site subject to EnerCiel's lease) for 20 
megawatts at a time when France's total production was a mere 
two wegawatts.  Moreover, Ben Arfa evinces a fondness for his 
previous dealings with the U.S. Embassy here, amiably 
recounting his prior association with former U.S. 
Ambassadors.  Ben Arfa also enjoys noting past positive 
engagements with U.S. companies like General Electric, 
Tunisia's largest supplier of turbine engines. 
 
7. (C) Ben Arfa strives to present a non-threatening face for 
STEG and does not possess overt animus toward foreign 
investment (including U.S. investment), nor toward renewable 
energy per se.  Tunisia is, however, a country with huge 
European foreign investment and insinuations of partiality 
are not uncommon.  Ben Arfa is protective of STEG's empire 
and is resistant to dilution by private sector entrants as he 
is attempting to reform STEG from a lumbering 
state-controlled apparatus to a more modern, efficient 
enterprise. 
HUDSON