VZCZCXRO5724
PP RUEHMA RUEHPA
DE RUEHDK #2245/01 2610917
ZNR UUUUU ZZH
P 180917Z SEP 06
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 6318
INFO RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/USDOC WASHDC
RUEHLMC/MCC WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 002245 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EB/IFD/ODF, EB/ESC/IEC, AF/EPS AND AF/W 
AID/W FOR AFR/WA AND AFR/SD 
TREASURY FOR OIASA/IDB 
DOE FOR OFFICE OF POLICY AND INTERNATIONAL AFFAIRS 
USDOC FOR 4510/OA/PMICHELINI, AROBINSON-MORGAN/KBOYD 
USDOC FOR 3131/CS/ANESA/OIO/DHARRIS/GLITMAN/MSTAUNTON 
 
E.O. 12958: N/A 
TAGS: ENRG EINV ECON EPET KMCA SG
SUBJECT: SENEGAL'S ENERGY CRISIS WORSENS 
 
REF: DAKAR 1746 AND PREVIOUS 
 
DAKAR 00002245  001.2 OF 002 
 
 
¶1.  (SBU) SUMMARY:  There seems to be no medium- or long-term 
strategy to Senegal's energy crisis.  After a year of rancor, the 
relationship between GE/GTi Dakar and Senelec has further 
deteriorated, and both's debts are mounting.  On September 16, GTi 
shut down because of a lack of fuel, and the company is again 
seeking U.S. assistance as it contemplates invoking "force majeure." 
 Senegal's only refinery has not operated since April, and the 
government's decision to requisition fuel for the electric utility 
sparked panic buying and hording by consumers.  Blackouts have 
become a daily occurrence; prices continue to rise at the pumps; and 
manufacturers are obliged to buy unsubsidized fuel to run their 
operations.  While the new 60 MW Wartsila Bel Air plant should be 
commissioned by the end of September, limited fuel supplies may 
result in continued severe energy disruptions.  END SUMMARY. 
 
GE/GTI LURCHES FROM SHUTDOWN TO SHUTDOWN 
---------------------------------------- 
¶2.  (SBU) On September 16, GE/GTi Dakar (GTi) shut down for the 
second time in two weeks because it ran out of fuel.  Suppliers 
Shell and Exxon-Mobil refused to deliver fuel because of unpaid 
bills.  GTi is two months overdue on its payments to its petroleum 
suppliers while no funds are immediately forthcoming from Senelec. 
According to GTi, Senelec owes the independent power producer (IPP) 
6 billion CFA francs (CFAF) (USD 12 million) of which 1 billion CFAF 
is contested by Senelec.  Petroleum supplier Shell is owed 2.8 
billion CFAF (USD 5.6 million) and Exxon-Mobil is owed 1.02 billion 
CFAF (USD 2 million). 
 
¶3.  (SBU) While Shell had buckled to pressure and continued to 
supply GTi with fuel, despite the overdue payments, Exxon-Mobil 
officials inform us that they cannot continue to supply GTi and cut 
off delivery to the IPP on September 11.  It now appears that Shell 
is arguing that they have supplied the "requisitioned" 1,000 cubic 
meters of fuel to GTi and will supply no more at this time. 
However, with the recent visit to Senegal of Shell's Vice President 
for Africa, industry insiders expect Shell may succumb again to GOS 
pressure to supply both Senelec and GTi with fuel. 
 
GOS FUEL REQUISITIONING -- WHAT DOES IT REALLY MEAN? 
--------------------------------------------- ------- 
¶4.  (SBU) While there was much press coverage about the GOS move to 
"requisition" fuel supplies from Shell, Total, and Exxon-Mobil, the 
power producers received no written communication from the GOS to 
explain the "requisitioning" process or what it means for them.  It 
was widely reported in the press that energy companies would have 60 
days to pay the fuel suppliers for their consumption.  However, the 
fuel suppliers are importing on 30-day credit terms and will have to 
essentially advance payments to their traders while awaiting payment 
from Senegal's energy producers namely, Senelec and GTi.  As one 
petroleum supplier observed, this GOS action counters sound business 
practice.  Likewise, Senegal's strategy of invoking a "national 
security" related law to justify the arbitrary "requisitioning" of 
products, the process for which is not clearly spelled out, does not 
bode well for Senegal's overall investment climate. 
 
¶5.  (U) The requisitioning resulted in panic buying and hording, 
with numerous gas stations running out of diesel on September 13. 
Tankers with additional diesel fuel arrived on September 14, and 
fuel tankers are now waiting at the port.  The perceived fuel 
shortage should, therefore, end by September 18.  Moreover, the 
Embassy has sufficient stocks of fuel on hand for generators and 
other embassy services at this time.  As with the frequent 
blackouts, fuel distribution problems have created secondary 
problems, such as shortages of flour for bread. 
 
STARTS AND STOPS 
---------------- 
¶6.  (SBU) Despite being directed to pay GTi in full during a recent 
meeting with the Ministry of Finance, Senelec failed to abide by the 
directive, which according to the Director of Hydrocarbons was 
supposed to have been met by September 8, 2006.  Instead of paying 
the undisputed amount of 3.4 billion CFAF (USD 6.8 million, which 
still would not cover the USD 7.6 million GTi owes to the petroleum 
suppliers), Senelec sent a notification of a wire transfer to GTi in 
the amount of 1 billion CFAF (USD 2 million), which GTi has yet to 
receive.  It is understood that last week the GOS transferred 9 
billion CFAF (USD 18 million) to Senelec to pay its suppliers -- an 
amount reported to be 31 billion CFAF (USD 62 million).  Thus, GTi 
is likely standing behind a long line of Senelec creditors awaiting 
 
DAKAR 00002245  002.2 OF 002 
 
 
longstanding payments.  As Senelec is GTi's sole source of revenue, 
unlike the petroleum suppliers, GE officials indicate that they 
cannot continue to stop and re-start operations every few weeks due 
to a lack of operating capital and will soon take the decision to 
invoke "force majeure" and place a call on the GOS guarantee. 
 
GE AND GTI ENGAGE THE SCOWCROFT GROUP ONCE AGAIN 
--------------------------------------------- --- 
¶7.  (SBU) GE officials have requested embassy assistance in 
bringing, once again, their concerns about Senelec and Senegal's 
energy situation to the attention of the Prime Minister.  GE 
officials indicate that they are already in consultation with the 
Scowcroft Group and anticipate orchestrating a more vigorous 
campaign against Senegal than that which was conducted last year, 
when GE lobbied against Senegal's proposed Millennium Challenge 
Account (MCA) Compact. 
 
REFINERY REMAINS CLOSED WHILE SENELEC IMPORTS OWN FUEL 
--------------------------------------------- --------- 
¶8.  (SBU) Senegal's sole petrochemical refinery, Societe Africaine 
de Rafinage (SAR) not been operating since April, 2006.  In an 
11-hour long board meeting held on September 7, it was decided that 
SAR will begin importing refined product and will develop a 
restructuring plan before importing unrefined crude.  According to a 
source who participated in the marathon meeting, the GOS has agreed 
to pay SAR 3 billion CFAF (USD 6 million) per month over the next 
six months to cover longstanding arrears and enable the company to 
import refined product. 
 
¶9.  (SBU) Under any restructuring plan, SAR's board indicated that 
the company would need to charge an additional 36 CFAF per liter of 
petroleum product that it refines if it is to consider operating in 
the future.  According to sources, the GOS is unwilling to fully 
commit to the increase.  Nonetheless, it was agreed that 
shareholders Shell and Total would work closely with Petrosen, the 
national petroleum parastatal, to develop a viable restructuring 
plan, which is to be unveiled sometime in October.  It is worth 
noting that SAR has lost USD 40 million each year over the past two 
years and owes creditors USD 240 million.  SAR has receivables that 
still need to be collected from Senelec, Shell, Total, and the GOS. 
The full amount owed by the GOS to SAR for butane gas subsidies 
remains undefined (reftel). 
 
¶10.  (SBU) As the GOS has essentially opened the market to the 
importation of refined product to anyone who has the financial means 
to allegedly counter the influence exerted on the fuel sector by the 
"big three" (Shell, Total and Exxon-Mobil), this strategy could 
jeopardize the refinery's longer term relevance.  According to 
Senegal's Director of Hydrocarbons, Senelec imported 20,000 tons of 
refined product this past weekend, which we understand is a ten-day 
supply.  Independent petroleum suppliers Touba Oil, Elton and other 
lack the storage facilities to import refined product-- though we 
understand that Exxon-Mobil has been asked by government officials 
to supply storage space to their Senegalese competitors. 
 
COMMENT 
------- 
¶11.  (SBU) Pursuant to our discussions with Ministry of Energy 
officials, there still seems to be no medium-or long-term solution 
to what they have termed Senegal's "dire" energy crisis where 
blackouts are a daily occurrence; prices continue to rise at the 
pumps; and large private sector manufacturers are forced to now buy 
unsubsidized fuel to run their operations.  By all accounts, the 
energy crisis is being managed on a month-to-month basis.  While the 
new 60 MW Wartsila Bel Air plant expected to be commissioned by the 
end of September, limited fuel supplies could put this plant in the 
same rudderless boat as GTi.  The overall lack of vision and 
leadership in the energy sector is having a profound impact on 
Senegal's hobbling industrial sector.  Senegal's biggest industries 
are suffering: ICS is barely operational, SONACOS is in disarray, 
SAR is not operational, and the U.S. IPP is threatening once again 
to shut down.  END COMMENT. 
 
JACOBS