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C O N F I D E N T I A L AMMAN 000738 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 02/01/2016 
TAGS: ENRG PGOV ECON JO
SUBJECT: JORDAN ENERGY PLAN: DIVERSIFY, RELY ON PRIVATE 
SECTOR 
 
 
Classified By: CHARGE D,AFFAIRES DANIEL RUBINSTEIN FOR REASONS 1.4 (B) 
AND (D). 
 
(U) Contains proprietary information - please protect 
accordingly. 
 
¶1.  (C) SUMMARY: The GoJ plans to aggressively pursue 
policies to expand natural gas use, get the government out of 
the business of power generation, and end the oil refinery 
monopoly concession while bringing in three additional fuel 
distribution companies, according to the chairman of Jordan's 
National Agenda (NA) Infrastructure Committee.  Aside from 
reaffirming the GoJ decision to eliminate oil subsidies, the 
key NA recommendations are to increase energy supplies; 
encourage domestic exploration; shift from oil to gas; and 
expand oil refining capacity.  The GOJ's schedule of oil 
subsidy reductions is on target to end fuel supports by March 
¶2007.  Spurred on by King Abdullah's keen interest in 
reforming the energy sector, the GoJ is intent on deciding 
which is its best option for crude oil pipeline sources to 
connect to its soon-to-be-upgraded Zarqa refinery: lines 
could run to/from Aqaba port in Jordan, Iraq, or Saudi 
Arabia.  A major U.S.-funded feasibility study on oil shale 
is another initiative that could help determine Jordan's 
energy future.  As Jordan looks increasingly to the private 
sector to shape its energy matrix, the GoJ is aiming for a 
transparent and accountable system to attract the best 
infrastructure, either as independent power projects or on a 
build-operate-transfer basis.  The Red-Dead Water Conveyance 
System has an energy generation component, but Jordan is 
having problems funding a $15 million feasibility study.  END 
SUMMARY. 
 
¶2.  (C) Nasser al Lozi, chairman of Jordan's National Agenda 
(NA) Infrastructure Committee and a former Transport Minister 
and Information Minister in the late 1990s, hosted Econoffs 
on January 27 to discuss the results of the NA Infrastructure 
Committee whose work concluded in October.  Lozi reported 
there has been wide acceptance of its findings and 
recommendations, including those of the energy subcommittee. 
The broad-based membership on the infrastructure committee, 
including the presidents of two powerful professional 
associations -- engineers and contractors -- resulted in a 
report from which "every recommendation" would already have 
been adopted by the government were it not for the other, 
more politically difficult parts of the NA process and 
resulting document, according to Lozi. 
 
NA Energy Recommendations 
------------------------- 
 
¶3.  (SBU) The chief recommendations of the NA energy 
subcommittee fall under the rubric of increasing supply and 
managing demand: 
   -- establish a regulatory framework for a liberalized 
sector; 
   -- eliminate oil subsidies and consider fuel taxes to 
encourage efficient energy use; 
   -- increase energy supplies through consolidated projects 
with neighboring states; 
   -- encourage the exploration and development of indigenous 
reserves (gas and oil shale); 
   -- shift energy fuel mix from oil to gas (gas goes from 
25% to 38% share by 2010); 
   -- expand oil refining capacity and diversify sources by 
expanding the national refinery and opening up 
distributorships to three other companies; 
   -- establish an independent authority to promote and 
enforce demand-side management; 
   -- establish an organization responsible for renewable 
energy sources; and, 
   -- reformulate pricing policies and tariff structures. 
 
¶4.  (C) Aside from eliminating oil subsidies, the most 
significant of these recommendations is the plan to work with 
neighboring states.  The projects listed in the NA summary 
include alternate oil and gas transportation infrastructures 
-- the crude oil Trans-Arabia Pipeline (TAP line) from Saudi 
Arabia, reportedly still in good repair up to the Saudi side 
of the Saudi-Jordanian border, is mentioned by name.  Jordan 
 
will "continue the development of interconnections for the 
Arab Gas Pipeline", a reference to the continued extension 
through Syria of the Egyptian natural gas pipeline which now 
terminates at Jordan's northern city of Irbid.  According to 
Lozi, Jordan has made commitments to assist Egypt in moving 
the pipeline to and through Syria and on to Turkey.  Finally, 
completing the Red-Dead canal feasibility study is listed, 
noting the associated hydropower generation.  The NA calls 
for seeking the support of the international community for 
this study.  Thinking out loud, Lozi speculated these might 
be among the issues raised by King Abdullah during his 
Washington visit.  COMMENT:  Jordan is still about $5 million 
short of its $15 million goal for the Red-Dead feasibility 
study.  Given their international dimension, and the 
sensitivity of the initiatives related to Saudi Arabia and 
Syria, we tend to support Lozi's surmise that any of these 
issues may be raised at high levels by Jordanian officials. 
END COMMENT. 
 
Oil Pipelines 
------------- 
 
¶5.  (C) Lozi said that a crude oil pipeline from Iraq to the 
Zarqa refinery made sense on paper, but he wondered if the 
situation in Iraq would permit its implementation any time 
soon.  He said that a Zarqa-Aqaba pipeline could work going 
both ways: it would be an alternate source of crude oil for 
the refinery and could also serve to transfer refined Iraqi 
crude to Aqaba port.  Lozi said the Saudi TAP-line was still 
on Jordanian minds, but wondered aloud if this made political 
sense. 
 
Oil Shale 
--------- 
 
¶6.  (C) Oil shale was deemed to be feasible when crude oil 
prices hit $30-40/bbl, said Lozi.  Now that that oil was over 
$60 per barrel, some progress should be made on determining 
the feasibility of different techniques and processes to 
extract the oil.  Prior feasibility studies in Jordan had 
been conducted by private companies under contract; now the 
government would play a leading role to determine what 
technical options were available and to tackle financial 
aspects such as funding and profit sharing. 
 
¶7.  (U) NOTE: On January 22, the Ambassador signed on behalf 
of the U.S. Trade Development Agency a $300,000 technical 
assistance grant agreement with Jordan's Minister of Planning 
and International Cooperation to conduct a feasibility study 
on the development of Jordan's oil shale resources.  The 
objective of the study is to analyze the current state of 
shale oil extraction and recovery technologies and to apply 
the best international expertise to the development of the 
shale oil industry in Jordan.  END NOTE. 
 
Gas Pipeline 
------------ 
 
¶8.  (SBU) The NA report states that natural gas use in Jordan 
will expand from 25 percent of all energy use now to about 38 
percent of all use in 2010.  The Egyptian gas pipeline from 
Aqaba to Irbid is the main source of natural gas.  After 
completing the gas hook-up to a power generation plant in 
Rehab in the North, the government has plans to retro-fit 
gas-burning turbines to other plants.  A big IPP project is 
Al Manakher, for which a contract should be signed no later 
than June, according to Lozi.  The port area of Aqaba was 
already being hooked into a gas pipeline grid for delivery to 
businesses and residences, he said.  NOTE:  The contract for 
this system was given to the Egyptian Al Fajr consortium 
without bidding.  END NOTE.  Big contracts to hook up 
networks in Zarqa and Amman would go out for bids, he 
averred.  Although under its concession with Egypt, the GOJ 
had given Egyptian firms right of first refusal on novel uses 
of gas, this special provision did not apply to the basic 
supply of gas.  He noted that in all energy infrastructure 
projects, in order to have the best most efficient systems, 
Jordan would promote transparent, open and accountable 
systems of requests-for-proposals (RFPs).  Jordan wanted 
these bids to go smoothly.  COMMENT: To date, the Al Manakher 
 
IPP bid process -- which includes U.S.-based AES among the 
three finalists -- has been a credible if slow process. 
However, the line-up of new energy RFPs has not come in any 
predictable or transparent fashion, perhaps because each new 
government takes a new look at its list of proposed 
infrastructure projects.  It appears that Jordan, still new 
at the game of international bids for private-sector 
investments in infrastructure projects, may not be offering 
the most realistic terms to potential private partners. END 
COMMENT. 
 
Jo-Petrol to See Competition 
---------------------------- 
 
¶9.  (SBU) Jordanian Petroleum Refinery Company (JPRC) is 
definitely losing its monopoly concession, said Al Lozi, but 
not until 2008, just as its contract stipulates.  NOTE: Some 
official sources, including the Minister of Energy, have 
claimed they are trying to accelerate the end of this 
concession.  END NOTE.  In the meantime, the publicly held 
JPRC has already opted to refurbish and expand at the cost of 
about $750 million.  He confirmed that CitiGroup has been 
selected as the financial strategic partner to oversee the 
financing of the JPRC facelift, which should commence in 
¶2006.  By next year, at least three other fuel distributors 
would be selected to offer Jordanians more choice and better 
prices at the retail level. 
 
COMMENT: 
-------- 
 
¶10.  (C) Jordan's energy reform agenda is ambitious but 
grounded in the GoJ,s overall goal of a liberalized economy. 
 As is often the case, we may hear from Jordanian officials 
about the need for more technical assistance to make the plan 
a reality.  Probably the biggest hurdle to putting a 
well-prepared plan into action, however, will be overcoming 
internal resistance from among those whose rice bowls will be 
broken. 
Rubinstein