VZCZCXRO1116
RR RUEHDE RUEHROV RUEHTRO
DE RUEHDJ #0859/01 3071109
ZNR UUUUU ZZH
R 021109Z NOV 08
FM AMEMBASSY DJIBOUTI
TO RUEHC/SECSTATE WASHDC 9652
INFO RUCNIAD/IGAD COLLECTIVE
RUCNSOM/SOMALIA COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC
RHMFIUU/CJTF HOA

UNCLAS SECTION 01 OF 02 DJIBOUTI 000859 
 
 
DEPARTMENT FOR AF/E 
LONDON, PARIS FOR AFRICA WATCHER 
CJTF-HOA FOR POLAD 
ADDIS ABABA FOR REGIONAL ENVIRONMENT OFFICER 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EINV SENV PGOV PREL ET DJ
SUBJECT: DJIBOUTI'S QUEST FOR NEW ENERGY SOURCES 
 
REF: DJIBOUTI 596 
 
DJIBOUTI 00000859  001.2 OF 002 
 
 
¶1. SUMMARY: Djibouti is completely dependent on expensive 
diesel-generated power, and its nascent service economy is fast 
outstripping modest domestic production capacity.  Faced with trying 
to maintain and expand electricity access for a populace already 
strapped by high food prices, while answering the new energy demands 
of large-scale foreign investment projects, the GODJ has begun in 
earnest to look to the development of its considerable renewable 
energy resources.  In the short term, an interconnection with 
Ethiopia's hydropower grid promises the most rapid relief.  In the 
longer term, Djibouti would be prudent to accelerate its efforts to 
develop the country's long-neglected natural resources: abundant 
geothermal, wind, and solar power.  END SUMMARY. 
 
----------------------- 
EXPLODING ENERGY DEMAND 
----------------------- 
 
¶2. In an October 4 meeting, Djama Ali Guelleh, the Director General 
of Djibouti's national utility company Electricite de Djibouti 
(EDD), told EconOff that his company was struggling to meet 
Djibouti's ever-increasing demands for electricity.  Whereas in the 
past, EDD could anticipate a one or two percent annual growth in 
energy demand, he said, the recent sudden increase in foreign direct 
investment (FDI) has disrupted this pattern.  This year and next, 
EDD is preparing for a 10-15 percent increase in demand.  Guelleh 
cited the newly opened and now expanding luxury Kempinksi hotel, 
built by the Nakheel Group arm of Dubai Ports World (DP World), as 
an example of a single customer demanding unprecedented levels of 
energy supply.  Guelleh said that he only expected an increase in 
this kind of energy-intensive development in the near future, noting 
current projects such as the GODJ-DP World Doraleh Container 
Terminal slated to open in December, U.S.-led investment in salt 
mining at Lac Assal, and hundreds of planned housing units in the 
works. 
 
--------------------- 
FOR NOW: HOOK INTO 
ETHIOPIA'S HYDROPOWER 
--------------------- 
 
¶3. Guelleh said that the project to construct a power 
interconnection between Djibouti and Ethiopia is making "good 
progress," and as of now seems to be the most promising source of 
additional energy capacity.  The African Development Fund (ADF) 
recently approved additional funding to cover inflationary cost 
increases for materials, as well as an upgrade from a single circuit 
to a double circuit transmission line, bringing total project costs 
to over $100 million.  The two primary companies selected for the 
project, Italian Siemens and Indian Kalpataru, are aiming for an 
operation start date in 2010, with a transmission of up to 160 
MW--in comparison with EDD's current 100 MW maximum production 
capacity.  Ethiopia will provide its surplus of electricity during 
the summer when hydropower from rains is abundant, and Djibouti will 
in turn deliver fuel energy to Ethiopia during the winter when 
Ethiopia does not get much rainfall, Guelleh said.  (NOTE: While 
equipment breakdowns and other technical problems often 
significantly reduce EDD's theoretical 100 MW production capacity, 
Djibouti's peak summer season demand of 50 MW dips to 20-30 MW in 
the cooler winter season, leaving some potential for surplus 
capacity delivery to Ethiopia.  END NOTE). 
 
--------------------------- 
DOWN THE ROAD: DJIBOUTI'S 
RENEWABLE ENERGY GOLDMINES? 
--------------------------- 
 
¶4. Looking beyond the hookup into Ethiopia's power grid, Guelleh 
said that the GODJ was continuing to pursue its geothermal, solar, 
and wind power options.  Following the signature of agreements 
between Iceland and the GODJ in 2007 and early 2008, the company 
Reykjavik Energy Invest (REI) is planning to drill three geothermal 
test wells in the next few months.  In July, REI signed the first 
agreement with the International Finance Corporation's new 
InfraVentures fund.  InfraVentures will cover 35% of the Djibouti 
project's exploration costs, with a contribution ceiling of $4 
million.  The success of the three test wells, to be located in 
Djibouti's active geothermal area near the salt lake Assal and the 
beginning of the Rift Valley, will be crucial in determining the 
overall feasibility of the Iceland-Djibouti project. 
 
¶5. According to Dr. Jalludin Mohamed, a geologist and the Director 
General of the Djibouti Research and Study Center (CERD), REI has 
 
DJIBOUTI 00000859  002.2 OF 002 
 
 
contracted Iceland GeoSurvey (ISOR) to drill the first three wells, 
although one or more specialty subcontractors may also be chosen. 
An environmental impact study has already been completed, and the 
project is expected to have minimal negative environmental 
consequences.  Given the extremely specialized nature of the needed 
equipment and expertise, Dr. Jalludin estimated that a realistic 
start date for the drilling of the test wells would be early 2009. 
Much will hinge, according to Dr. Jalludin, on the level of total 
dissolved solids (TDS) discovered in the test wells.  During the 
1970s, modest geothermal attempts in Djibouti were abandoned because 
of too-high salinity; and this time, Dr. Jalludin said that the 
location had been carefully chosen for the highest probability of a 
TDS level "close to seawater."  Depending on the success of the test 
wells and the ability of Iceland and Djibouti to pull together a 
projected $350 million in financing, construction of a geothermal 
plant could begin as early as 2011 or 2012, with a potential 
production capacity of 50-100 MW. (NOTE: In 1999, the United States 
Trade and Development Agency (USTDA) co-financed a geothermal 
feasibility study with the U.S. firm Geothermal Development 
Associates.  The GODJ's MOU with the Icelanders was thus a 
disappointment.  Post will renew efforts to explore opportunities 
for U.S. firms in the geothermal sector.  END NOTE). 
 
¶6. In addition to geothermal potential, Djibouti has considerable 
untapped solar, wind, and tidal power resources.  While still modest 
in scale, Djibouti's efforts to utilize its near-constant sunshine 
are increasing.  The Ministry of Education has already equipped at 
least twenty-three schools and several rural health clinics with 
solar panels, and has contracted with a young Djiboutian company, 
the Societe d'Ingenierie Electrique, to equip an additional 
seventeen schools.  Several of Djibouti's small-scale experiments in 
rural agriculture are also outfitted with solar water pumps, and a 
local bank is offering loans for households interested in purchasing 
small solar panels for domestic use.  Anecdotally, rural communities 
have reported great success with solar panels, although provision of 
maintenance for hard-to-repair solar equipment remains a challenge. 
 
 
¶7. Building on these efforts to install small-scale solar projects 
for localized needs, the GODJ has begun looking for partners to 
exploit solar energy on a more commercial scale.  Guelleh reported 
that several companies have approached EDD to discuss solar project 
possibilities, including at least one U.S. firm.  Guelleh said that 
EDD hopes to reach an agreement with the U.S. company Solar Power 
Ltd. for the production of 20 MW of solar power.  Another American 
firm, Maple Ridge, is interested in developing wind energy in 
Djibouti and has signed a memorandum of understanding with EDD for 
the potential production of 20 MW to 50 MW of wind power. 
Currently, Guelleh said, EDD is awaiting Maple Ridge's response to 
EDD's proposed Power Purchase Agreement (PPA) terms. 
 
---------------------------- 
ENERGY: THE LIMITING FACTOR 
---------------------------- 
 
¶8. COMMENT:  The former head of Djibouti's National Investment 
Promotion Agency--now serving as Minister of Transport--recently 
told EmbOffs that energy was the "number one, two, and three" issue 
on his list of potential impediments to continued foreign direct 
investment (FDI).  Many businesspeople and government officials have 
echoed his assessment.  To continue its success in growing FDI--and 
especially to begin encouraging local small-scale industry--Djibouti 
must aggressively continue to seek out cleaner, cheaper, and more 
reliable energy sources. 
 
¶9. Djibouti's decision to investigate several potential renewable 
energy sources while simultaneously pursuing an interconnection with 
Ethiopia is wise.  In the long term, renewable energy sources may 
prove to be Djibouti's great undiscovered natural resource. 
However, for the practical present, most of Djibouti's energy 
projects remain in the experimental stages, while immediate demand 
continues to grow.  Post agrees with CERD and EDD that Djibouti 
needs a coherent strategic policy to coordinate the development and 
use of disparate energy sources.  Post has submitted a proposal for 
an Embassy Science Fellow (reftel) to support the Ministry of Energy 
in developing this kind of framework policy, and will continue to 
urge all of the GODJ players to amplify their individual efforts 
through an emphasis on interagency coordination.  END COMMENT. 
 
SWAN