VZCZCXRO5301
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #3490/01 2761211
ZNR UUUUU ZZH
R 031211Z OCT 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2118
INFO RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDC/DEPT OF COMMERCE WASHDC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 0179
RUEHBJ/AMEMBASSY BEIJING 0665
RUEHLO/AMEMBASSY LONDON 1316
RUEHMO/AMEMBASSY MOSCOW 0671
RUEHFR/AMEMBASSY PARIS 1174
RUEHJO/AMCONSUL JOHANNESBURG 7561
RUEHDU/AMCONSUL DURBAN 9241
RUEHTN/AMCONSUL CAPE TOWN 4921

UNCLAS SECTION 01 OF 02 PRETORIA 003490 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR AF/S, EEB/ESC, EEB/CBA 
DOE FOR SPERL, PERSON 
COMMERCE FOR ITA/DIEMOND 
 
E.O. 12958:  N/A 
TAGS: ENRG EINV EPET SF
SUBJECT:  U.S. FIRM AES CHARGES INTO SOUTH AFRICA'S ELECTRIC POWER 
SECTOR 
 
 
PRETORIA 00003490  001.2 OF 002 
 
 
This cable was a collaboration between Congen Johannesburg and 
Embassy Pretoria. 
 
¶1.  Summary.  An AES Corporation (AES)-led consortium has been 
selected as the preferred bidder by the Department of Minerals and 
Energy (DME) for two open-cycle gas turbine peaking power stations 
to be constructed in South Africa.  The AES-led consortium, which 
won the bid over a Suez-led consortium, will finance, design, build, 
own and operate a 750 MW power station in Durban and a 330 MW plant 
in Port Elizabeth, at the Coega industrial development zone.  AES 
will be one of the first firms to enter South Africa as an 
Independent Power Producer (IPP) and will sell its production to 
South Africa's state-owned electric power company, Eskom.  Over $600 
million will be spent on construction of the plants.  End Summary 
 
--------------------------------------- 
Background - Need to Build Power Plants 
--------------------------------------- 
 
¶2.  The South African Government has embarked on a program to 
greatly increase its energy production capacity and upgrade its 
aging power infrastructure to meet the demand created by its strong 
economic growth and activities related to the 2010 FIFA World Cup in 
South Africa.  It is estimated that up to 2,000 MW will need to be 
built each year for the next twenty years in order to match demand. 
Government policy calls for 30 percent of the country's power to 
come from private power producers.  This was the first IPP project 
to be bid out by the DME.  The project will set the bar for similar 
efforts to introduce IPPs in neighboring countries, including 
Namibia, Botswana, and Mozambique.  Comment: Half of the additional 
power requirements for the next 20 years, or up to 20,000 MW, is to 
be supplied by nuclear power.  Westinghouse of the U.S. is one of 
two companies, along with Areva of France, that have been selected 
to compete for the next nuclear power contract.  The winning company 
for that contract is expected to be chosen in early 2008.  End 
Comment. 
 
--------------------------------------------- --------- 
Market Opening Efforts by U.S. Mission in South Africa 
--------------------------------------------- --------- 
 
¶3.  The South African state-owned electric power company, Eskom has 
dominated the electric power sector in South Africa and neighboring 
countries and has long been closed to U.S. exporters of 
energy-related services and products.  While there are no regulatory 
barriers denying U.S. firms access to this largest power producer in 
sub-Saharan Africa, long standing preferences for European 
suppliers, developed during the United States' apartheid-era 
divestment from the country, have persisted. 
 
¶4.  The U.S. Embassy in South Africa, led by the U.S. Commercial 
Service South Africa (CSSA) and the U.S. Trade and Development 
Agency (USTDA), developed a strategy to increase U.S. participation 
in the power sector in South Africa.  To promote U.S. firms with 
appropriate technologies, goods, and services, CSSA and USTDA 
jointly organized programs to introduce U.S. energy companies to 
South African decision-makers.  These programs included two 
orientation visits (OVs) funded and organized by USTDA with 
delegations led by CSSA.  The first OV was primarily composed of 
Eskom officials while the second included DME officials and 
representatives from throughout southern Africa.  USTDA and CSSA 
also organized in partnership with Eskom a U.S.-South Africa Power 
Industry Supplier Conference, held in Johannesburg in October 2006. 
These efforts have helped breach the procurement barriers and 
initiate Eskom's acceptance of and preference for technologies from 
U.S. suppliers.  These activities helped companies such as AES to 
demonstrate their capabilities as well as their interest and plans 
to enter the South African market.  Several other companies, 
including Black and Veatch and Honeywell have directly attributed 
the award of recent contracts with Eskom to these USTDA and CSSA 
activities. 
 
------------------------------ 
U.S. Company Enters the Market 
------------------------------ 
 
¶5.  Representatives from AES directly and indirectly benefited from 
 
PRETORIA 00003490  002.2 OF 002 
 
 
these programs.  AES participated as a gold sponsor for the 
U.S.-South Africa Power Industry Supplier Conference, where AES 
representatives had access to the senior management of Eskom and key 
officials within the Department of Public Enterprises, which 
oversees Eskom, and DME.  Two senior DME officials responsible for 
the IPP bid also participated in a site visit to an AES facility in 
the U.S. during the November 2007 orientation visit.  Additionally, 
in response to a request from AES and its Broad-Based Black Economic 
Empowerment (BBBEE) partners, USTDA funded a $550,000 technical 
assistance grant in May 2006 with Tiso Energy, one of AES's BBBEE 
partners, to provide support and build capacity within the BBBEE 
partner companies throughout the drawn-out bid period during which 
all but two of the original short-listed companies withdrew from the 
competition. 
 
¶6.  AES partnered with Tiso Energy, Mbane Power and Kurisani Youth 
Development Trust on its bid, as part of its Broad-Based Black 
Economic Empowerment (BBBEE) program strategy.  To ensure the bona 
fides of AES' potential BBBEE partners, CSSA conducted due diligence 
research and provided reports to AES that became the basis of these 
partnerships.  The resulting consortium successfully competed 
against the French Suez-Inkanyezi consortium for this project, which 
will allow AES to build, own and operate a 750 megawatt power 
station in Durban and a 330 megawatt plant in Port Elizabeth at the 
Coega Industrial Development Zone. 
 
¶7.  COMMENT: This $600 million project is both a great win for AES 
and representative of the significant opportunities available to 
U.S. energy firms in South Africa and the southern Africa region. 
The growing success of U.S. firms in South Africa's electric power 
sector is directly related to the sustained and combined efforts of 
the multiple trade agencies of the U.S. Mission in South Africa. 
BOST