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Viewing cable 04DJIBOUTI447, DJIBOUTIAN GOVERNMENT COMMITTED TO PURSUING

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Reference ID Created Released Classification Origin
04DJIBOUTI447 2004-03-28 06:16 2011-08-24 01:00 UNCLASSIFIED Embassy Djibouti
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 04 DJIBOUTI 000447 
 
SIPDIS 
 
STATE PASS TO DEPT OF ENERGY - FOR STEVE RICHARDS, FRANCIS 
HODSOLL, LINDSAY ROLAND, ALLAN JELACIC, ROY MINK, BOB 
DIXON, JOEL RENNER, GORDON BLOOMQUIST, TOM SPERL; 
STATE PASS TO USGS - FOR MIKE FOOSE AND BRENDA PIERCE; 
STATE PASS TO USAID - FOR GORDON WEYNAND, WALTER HALL, MARK 
SCHLAGENHAUF, MARK MURRAY, KEVIN WARR, SEAN MCCLURE, 
HERSCHELLE CHALLENOR; 
STATE PASS TO EPA - FOR MYRA FRAZIER; 
STATE PASS TO OPIC - FOR MARYSUE SHORE AND SAM SMOOTS; 
STATE PASS TO USTDA - FOR HENRY STEINGASS AND CARRIE 
WALCZAK; 
STATE PASS TO EX-IM - FOR JOHN RICHTER; 
STATE FOR BOB MANNING, JEFF HAENI, FERNANDO ECHAVARRIA, 
JULIA ROTTIER, GRIFF THOMPSON; 
DOC FOR AARON BRICKMAN AND JOSEPH AYOUB. 
 
E.O. 12958: N/A 
TAGS: EAID ECON EFIN ENRG SENV PREL DJ GM XW
SUBJECT: DJIBOUTIAN GOVERNMENT COMMITTED TO PURSUING 
GEOTHERMAL ENERGY 
 
REF: A. SECSTATE 347715 
     B. DJIBOUTI 00111 (NOTAL) 
 
1. (U) SUMMARY: Djibouti was the site of a kick-off 
conference for the African Rift Valley Geothermal 
Development Facility (ARGeo) March 17-20, 2004.  The 
conference focused on energy needs in Djibouti, next 
steps for the exploration and exploitation of 
geothermal resources in Djibouti and lessons learned 
by Kenya and other geothermal experts.  The ARGeo 
project is a collaborative effort of United Nations 
Environment Program (UNEP), Global Environment Fund 
(GEF), and the German Development Bank (KFW).  ARGeo 
is designed to aid the Rift Valley countries in 
developing their geothermal energy resources within 
the public and private sectors.  The project 
organizers see Djibouti as a prime take-off point 
for the ARGeo program, as there has already been 
research done on geothermal resources, a private 
investor identified, and donor interest in the 
project noted.  The Government of Djibouti 
(GODJ) publicly expressed its commitment to pursuing 
geothermal energy as an answer to the high cost of 
energy, which stymies business growth and exacerbates 
high unemployment. END SUMMARY. 
 
THE DJIBOUTIAN PERSPECTIVE 
-------------------------- 
2. (U) The African Rift Valley Geothermal Development 
Facility conference opened March 17 in Djibouti. 
Pol/Econ and Econ/Comm Assistant attended all sessions. 
Acting Djiboutian Minister of Energy, Saleban Omar 
Oudine, made opening remarks and also read a message 
from President Ismail Omar Guelleh. (Note: The current 
Minister of Energy, Mohamed Ali Mohamed, is 
convalescing in France.  Oudine currently holds the 
position of Minister of Commerce and Industry.)  The 
Government of Djibouti (GODJ) has placed importance on 
reduction of poverty in Djibouti.  Both Oudine and 
Guelleh named reduction of energy cost as essential 
for economic growth and the fight against poverty. 
GODJ sees the cost of fuel energy as a major 
inhibitor to economic growth and diversification of 
energy sources, including geothermal energy, as the 
solution.  President Guelleh's message emphasized the 
importance of ARGeo to Djibouti's geothermal development. 
He also implored all Rift Valley countries to consider 
seriously and take advantage of the ARGeo initiative. 
The acting Minister of Energy re-iterated President 
Guelleh's request to the international community to 
assist Djibouti in its efforts to develop its 
geothermal resource. 
 
3. (U) Electricite de Djibouti (EDD), the Ministry of 
Energy, the Agence National pour le Promotion de 
l'Investissement (ANPI) and experts from the Centre 
des Etudes et Recherche de Djibouti (CERD) presented 
the current state of energy needs and investment in 
Djibouti.  All electricity in Djibouti is currently 
generated by diesel fuel power plants.  EDD sells 
electricity at rates of 41 Djiboutian Francs (DF) for 
residential consumers, 51 DF for commercial users, and 
52 DF for bulk consumers (approx. 23, 29 and 29 cents 
US).  EDD quoted average total cost of production at 
around 20 cents.  Of that amount fuel costs are between 
seven and nine cents.  The bulk of the remaining cost of 
production is reportedly taxes on materials imported 
for production.  With the proposed geothermal power 
plant by Geothermal Development Associates (GDA), an 
American company based in Nevada, EDD could buy 
electricity at approximately half current costs and 
bypass the taxes on imported materials. 
 
LESSONS LEARNED AND ADVICE 
-------------------------- 
4. (U) The conference brought together major geothermal 
developers from all over the world to discuss the ARGeo 
program and offer insights to the GODJ on how to progress 
with geothermal energy.  Kenya was the most effective 
delegation as one of the first African countries to 
develop geothermal energy with private investment and a 
long history of government run development.  The Kenyan 
perspective promoted continuous but staged development, 
with the government bearing a significant portion of the 
exploratory risk.  Kenya emphasized the benefits of 
geothermal energy as a green resource and offered its 
assistance in the development process. The experts from 
Kenya commented that the best way to develop geothermal 
industry was to start with a small plant (5MW), train 
locally, learn early how the process works, and later 
move to a larger plant (30 MW and up).  However, the 
Kenyans and other visiting experts highlighted the 
point several times that a larger plant is always more 
economical. 
 
5. (U) Among the most salient pieces of advice offered 
by the Kenyans, was the admonition to provide an 
enabling environment for private investment by providing 
solid fiscal and legal regimes, as well as charging 
private investors low customs duties and taxes.  Kenya 
also emphasized the advantage of having private 
companies run power generating facilities, keeping 
government money free to fund other programs. 
 
6. (U) Closing session debates were contentious over 
the best way to develop geothermal resources in 
Djibouti.  One camp, which included the Djiboutians, 
promoted the "start small and learn as you progress" 
method to mitigate the risk of investment to the 
government.  The other side of the table, urged 
Djibouti to take the opportunity that was presented 
with the 30 MW plant proposed by GDA.  GDA countered 
that it would not have come back after 5 years of 
negotiation if it were not sure that the project 
would succeed.  GDA also assured GODJ that the full 
brunt of the risk of investing in Djibouti would be 
shouldered by GDA and its investing partners. 
 
HOW ARGEO WILL WORK 
------------------- 
7. (U) ARGeo is designed to provide access to 
information, experience, technical and material 
assistance; identify obstacles to development and 
propose solutions; identify financial mechanisms to 
manage risks; eliminate technical barriers; and 
reduce overall risk.  GEF, KfW and Italy have made 
US$ 1 million available for the preparation phase 
of ARGeo.  The program is expected to be active by 
early next year.  The project organizers stated that 
a team of experts would be visiting each of the 
eligible countries to assist them in preparing 
their proposals.  GEF requests that the countries 
then submit the proposals to them to be considered 
for funding and assistance. 
 
8. (U) Within the framework of ARGeo there are two 
funds that will assist countries in the development 
process.  The risk coverage fund will help reduce 
the direct cost to governments associated with 
exploratory and production drilling.  The transaction 
counsel fund will provide resources for governments 
to get the necessary technical and financial advice 
throughout the PPA and contract negotiations.  These 
funds will contribute a portion, not fully fund the 
projects proposed.  GEF emphasized that private 
companies chosen for projects should be able to prove 
that they have adequate financing at their disposal 
for all stages of the project. 
 
9. (U) Ambassador and Pol/Econ met twice at the 
Embassy with Martin Booth, President of GDA, and 
Stephen Hirsch, UNEP Geothermal Consultant, to 
discuss outcomes of the conference and private 
meetings to explore their vision of next steps in 
GDA's quest of a contract to develop geothermal 
energy in Djibouti.  Booth stated his belief in 
the continued interest of his company in pursuing 
the project, but that project financing remains his 
company's single greatest hurdle.  Ambassador 
suggested possible interlocutors for GDA in terms 
of financing possibilities, including some of the 
development funds of Gulf countries.  She also urged 
that opportunities with Overseas Private Investment 
Corporation (OPIC) be explored.  Booth pledged to 
pursue both options.  Ambassador also conveyed to 
Booth the willingness of the Embassy to do all that 
it could to support and eventual contract proposal 
from GDA to the Government of Djibouti. 
 
10. (U) COMMENT: At the beginning of the conference, 
the GODJ seemed unconvinced of the practicality of 
geothermal energy.  At the end of the conference, 
however, it appeared more convinced.  The GODJ stated 
at the end of the conference that it wanted ARGeo to 
be the framework it worked through to develop 
geothermal energy with private sector involvement. 
The GODJ also mentioned its interest in developing 
small-scale/ off-grid applications, such as small 
local plants that serve a specific area not reached 
by the main power grid. 
 
11. (U) COMMENT CONTINUED: There was contention 
between the GODJ and GDA on output capacity of a 
proposed geothermal facility.  The GODJ focused on 
perhaps a small initial plant generating only 5 MW 
of power.  GDA made clear, however, that it would 
not be interested in building a facility that would 
provide less than 30 MW of power.  The general 
consensus at the end of the conference was that the 
ball is in ARGeo's court, and that the Djiboutians 
are waiting for the first move to come in the form 
of an ARGeo funding and assistance package. 
END COMMENT. 
RAGSDALE