VZCZCXYZ0016
RR RUEHWEB

DE RUEHLGB #0193 0581544
ZNR UUUUU ZZH
R 271544Z FEB 07
FM AMEMBASSY KIGALI
TO SECSTATE WASHDC 3819

UNCLAS KIGALI 000193 
 
SIPDIS 
 
DEPARTMENT FOR AF/C 
DEPARTMENT FOR AF/EPS: JEFF BURNHAM 
DEPARTMENT PASS USTDA: NED CABOT 
DEPT OF COMMERCE WASHDC 
DEPT OF ENERGY WASHDC 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: EINV ENRG ETRD EPET BTIO RW CG
SUBJECT: Methane Development: Commercial Dispute Roils Lake Kivu 
Waters 
 
REF:  04 KIGALI 218 
 
¶1. SUMMARY.  Hopes of resolving Rwanda's acute energy crisis through 
the development of methane gas in Lake Kivu continues to be 
frustrated; this time by disputes between the GOR and Dane 
Associates.  Accusations fly from both sides, but the result is that 
a solution to the unreliable, inadequate, and expensive supply of 
energy that impedes future economic development is potentially 
jeopardized.  END SUMMARY. 
 
¶2. The GOR signed a memorandum of understanding (MOU) with Dane 
Associates (a special purpose company formed by several engineering 
and equity firms) in July 2002 to extract methane gas from Lake 
Kivu, and a shareholders agreement in August 2005 to define the 
roles and responsibilities for each party in the joint venture, 
Kibuye Power 1 (KP1).  Dane holds 70% ownership in KP1, while the 
GOR maintains 30%.  The project was initially designed as a pilot 
proof-of-concept, to be dismantled after 1-2 months.  By October 
2005, Dane and the GOR agreed it made more sense to commercialize 
the plant to supply much-needed electricity after the test, so the 
Gisenyi-KP1 plant was re-budgeted to produce 5 MW of energy.  The 
follow-on plans for a 35MW plant in Kibuye remained unchanged. 
 
¶3.  Tension has risen between the two sides, as the project, 
initially scheduled to be completed mid-2006, has been delayed many 
times over.  The current impasse results from the GOR refusing to 
grant KP1 a promised soft loan of RwandanFrancs10 million 
(approximately USD 18,500) for the 35MW project. 
 
¶4.  The GOR accuses Dane Associates of incompetence and dishonesty, 
and seeks to dissolve KP1.  The case was first heard in court on 
February 14, after an unsuccessful February 8 mediation.  Most of 
the dispute surrounds Dane's use of the funds made available for the 
project.  Minister of Energy, Albert Butare, claims that two audits 
have shown that funds have not been accounted for properly.  Butare, 
along with other officials, also publicly claim that Dane is a 
"briefcase company" without any substance.  While the GOR lost its 
court case to remove Dane from KP1, it has blocked progress on the 
project by withholding funds and by refusing to renew their price 
purchase agreement (PPA).  Dane seeks international arbitrage to 
resolve the dispute and honor the existing terms of agreement. 
 
¶5.  On the other hand, Dane Associates Director, Hans Hoeg 
Henrichsen, points to Dane's shareholders Wartsila, a leader in 
power plant construction, and Ludan, a recognized expert in gas 
extraction and processing, as proof of their technical expertise, 
and questions why the GOR refuses to agree to have the company 
audited by the Office of the Auditor General.  Henrichsen and fellow 
director Peace Rwivanga, claim that other business entities are 
maneuvering to take over  Dane's concessions for the methane 
extraction.  Dane's understandable fear is that another investor 
will take advantage of the groundwork they've laid and bypass the 
start-up costs they've incurred (feasibility studies, master plan, 
environmental impact assessments, etc.) to realize the incredible 
opportunity in Lake Kivu.  These costs are at the heart of the 
commercial dispute, as the GOR states that Dane has failed to 
produce evidence of such expenditures. 
 
¶6. COMMENT.  Whatever the merits of the claims by each side, Rwanda 
desperately needs affordable energy supplies.  This project promises 
to unlock vast methane resources and help resolve Rwanda's energy 
crisis.  Thus, every conflict and potential problem raises concerns. 
 Both Dane and the GOR claim that this dispute will not delay the 
proof-of-concept project which is scheduled to be completed by the 
end of March, but it will be challenging to accomplish this project 
unless the two sides come to a new understanding. 
 
ARIETTI