Cablegate: Syria Seeking Market Quality Solutions at Fixed

VZCZCXYZ0007
PP RUEHWEB

DE RUEHDM #0855/01 3441323
ZNR UUUUU ZZH
P 101323Z DEC 09
FM AMEMBASSY DAMASCUS
TO RUEHC/SECSTATE WASHDC PRIORITY 7103
INFO RUEHLO/AMEMBASSY LONDON PRIORITY 0810
RUEHFR/AMEMBASSY PARIS PRIORITY 0765
RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0091
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHMFISS/USCENTCOM INTEL CEN MACDILL AFB FL PRIORITY

UNCLAS DAMASCUS 000855

SENSITIVE
SIPDIS

DEPT FOR NEA/ELA, NEA/FO, EEB/EX, EEB/ESC/TFS, L/EB;
COMMERCE FOR BIS/SONDERMAN/CHRISTINO
NSC FOR SHAPIRO/MCDERMOTT
TREASURY FOR HAJJAR/CURTIN
PARIS FOR NOBLES
LONDON FOR LORD

E.O. 12958: N/A
TAGS: ECIN ECON EINV PGOV PREL SY
SUBJECT: SYRIA SEEKING MARKET QUALITY SOLUTIONS AT FIXED
PRICES TO SOLVE ELECTRICITY SHORTAGES

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Summary
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1. (SBU) Deputy Minister of Electricity Hisham Mashfej
reviewed with us Syria's significant power generation
problems and his ministry's continuing efforts to cobble
together short-term solutions. Mashfej acknowledged
electricity generated from renewable resources and energy
conservation were the key to Syria's meeting increasing
demands for electricity and for developing an infrastructure
capable of sustaining economic expansion. He said Syria
needed to establish a transparent procurement process to lure
investors for private-public partnerships in order to fund
needed expansion in all areas of power generation. Mashfej
also disclosed Syria had received a $350,000 grant from the
IAEA to finance a nuclear power plant feasibility study. End
summary.

2. (U) On December 7, embassy staff called on Hisham Mashfej,
Deputy Minister of Electricity and Director General of the
Public Establishment for Electricity Generation and
Transmission (PEEGT) at his office in the Ministry of
Electricity. Munzer Ahmad, an officer from the Americas
Department at the Syrian Ministry of Foreign Affairs also
attended the meeting. The meeting was apolitical in tone and
Mr. Mashfej was cordial and candid.

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Syria Focused on Meeting Electricity Demand
-------------------------------------------

3. (U) Mashfej said Syria's current maximum installed
electricity generation capability was 8,000 MW (1,500 MW of
which is hydro-electric), with an actual average production
capability of about 6,700 MW-7,000 MW against a peak demand
for electricity of about 7,200 MW. To meet this demand,
Syria operated eleven power generation plants plus three
hydro-electric power plants. Because of the substantial
infrastructure required for new power plants, the SARG was
currently focusing on expanding existing plants and replacing
old, inefficient turbines and with new state-of-the-art
equipment. Mashfej acknowledged it was inevitable the SARG
would have to construct new plants in the future and was
looking at building an expandable, 750 MW power generation
plant in Dayr al-Zawr. Mashfej said Syrian power plants ran
on natural gas, fuel oil or dual capability natural gas/fuel
oil.

4. (U) Mashfej noted 12-15 percent of power generation
capability was lost due to aging equipment, maintenance, and
low water levels. He explained that high summer temperatures
decreased the efficiency of power generation plants by
another 10-15 percent. Hydro-electric power production was
also an issue in summer due to decreased water levels in the
Euphrates River. Mashfej said up to 20 percent of Syria's
total generated electricity came from the three
hydro-electric plants, but these plants were only used during
peak summer hours to supply supplemental power. Mashfej
admitted rolling blackouts would continue in the winter and
summer, but said PEEGT had not established set schedules for
these blackouts.

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Regional Sources
----------------

5. (U) According to Mashfej, Syria was involved in a
seven-country grid connection project with Lebanon, Jordan,
Iraq, Turkey, Egypt and Libya. He said the grid connections
with Lebanon, Jordan, Egypt and Libya (through Egypt) were
completed. He added work was currently underway to connect
Dayr al-Zawr with the Iraqi grid: this connection would
enable Syria to connect with the Gulf States. The Syrian and
Turkey grids were connected but not yet synchronized, he
said. Mashfej asserted that Turkey was focused on its grid

connection with Europe and planned to activate its grid
connection with Syria after that project was completed (NFI).
According to Mashfej, Syria imported and exported
electricity through its international grid connections and
for the past two years had been a net exporter.

---------------------------------
Public Utility, Private Financing
---------------------------------

6. (U) Mashfej asserted the SARG intended to keep electricity
transmission in the hands of the public sector but was
opening up power generation to the private sector and to
public-private partnerships (PPP). He said a new law on
private electricity generation was almost ready for review
and then submission to the Parliament.

7. (U) Mashfej acknowledged PEEGT's lack of experience in
conducting open competition procurements was an obstacle to
implementing PPP projects. PEEGT had commissioned the
International Finance Corporation (IFC) to conduct the
procurements for the initial PPP projects and develop
procedures for PEEGT to generate and evaluate tenders. He
said the goal was to ensure transparency throughout the
procurement process. Mashfej told us the first independent
power project (IPP), a 250-350 MW power plant to operate on
natural gas/fuel oil at Nasriyeh (near Damascus), had already
been announced and that five companies applied for the
Request for Qualification (RFQ). Under the terms of the RFQ,
PEEGT will be required to supply the needed fuel to operate
the plant and to buy all the electricity generated by the
plant. This project will be a build-operate-transfer (BOT)
plant with an operation period of 20-25 years.

8. (U) Mashfej said the SARG financed most power projects in
Syria via long-term loans from the European Investment Bank
(EIB), the Arab Fund for Economic and Social Development
(AFESD), the Islamic Fund, and the Abu Dhabi Fund for
Development (ADFD). The government used its own funds to
cover any gaps, he said. Mashfej cautioned that the EIB had
rejected financing any projects deemed "harmful to the
environment." Japan, he added, had financed past projects
and the Export-Import (EXIM) Bank of India provided financing
for the Tishreen power plant expansion project managed by
India's Baharat Heavy Electricity Limited Company (BHEL).
Mashfej said Syria was also looking at funding opportunities
from major equipment suppliers such as Siemens as financing
options.

9. (U) According to Mashfej, there was local investor
interest in PPP projects. The newly established
Syrian-Qatari Investment Group was interested in establishing
electricity generation projects; Cham Holding Company had
formed a new joint venture, named "Marafeq," with the Kuwaiti
al-Khurafi Group, and intended to bid on IPP projects.

---------------------------------
Need for Renewable-Resource Power
---------------------------------

10. (U) Mashfej said the SARG had an ambitious goal to use a
combination of renewable energy and energy conservation to
cover 27 percent of electricity demand by 2020. By then peak
demand for electricity in Syria would reach 12,000 MW, based
on a seven to nine percent annual growth rate, he said.

11. (U) PEEGT had recently announced two wind farm projects,
one in Damascus and a second in Homs, and other projects were
under consideration. Companies from Turkey, Greece and Egypt
had already requested the RFQs for the two initial projects,
boding well for future private-sector interest. Mashfej said
surveys to determine production potential were underway at
both sites with each site expected to have a capacity of
50-100 MW. PEEGT had 15 additional wind measurement stations
scattered throughout Syria in search of potential future wind
farm sites. PEEGT was also looking for outside assistance to

run the vendor selection process for these two wind farm
projects, and Mashfej anticipated seeking World Bank
assistance in meetings in mid-December.

12. (U) Mashfej asserted solar energy was another strategic
solution for overcoming Syria's electricity shortfalls.
Mashfej said joint venture Solaric, owned 30 percent by
PEEGT, 40 percent by the Ministry of Industry and 30 percent
by a Ukrainian company which will provide the technology,
would produce photovoltaic cells. Solaric expected to begin
cell production during the first quarter of 2010. Mashfej
explained Solaric would produce solar panels for use by the
SARG to establish its own solar power production facilities
and for sale to private industry for commercial use and PPP
projects. Solaric would also focus on the production of
solar water heaters.

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Nuclear Power Feasibility Study
-------------------------------

13. (U) When asked about the SARG's plans for the use of
atomic energy, Mashfej told us the IAEA had given Syria a
$350,000 grant to finance a nuclear power plant feasibility
study. Indicating concern about nuclear power, Mashfej
opined that costs and safety issues outweighed the benefits
of this method of power generation, in spite of the
large-scale use of nuclear power in countries like France.

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Private Power Generation Plants
-------------------------------

14. (U) According to Mashfej, some large manufacturers were
now considering establishing their own power generation
plants to supply their facilities, and the SARG planned to
buy their surplus power. He would not estimate the price of
buying the surplus, but commented the private sector sought a
20 percent profit margin. Higher costs would adversely
affect Syria's ability to provide electricity at subsidized
prices, he said. Prior to entering any agreements, Mashfej
planned first to consult with other, especially neighboring,
countries on their experiences with private electricity
producers. Mashfej said he presently had no clear vision
about the future relationship between PEEGT and the private
sector in terms of purchasing privately produced electricity,
but was carefully studying this alternative.

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Ministry of Electricity Restructuring
-------------------------------------

15. (U) Mashfej said a new electricity law being drafted
would, among other thing, restructure the Ministry of
Electricity and create two new departments at the PEEGT: a
Public-Private Partnerships Department and a Renewable Energy
Department. The staff for these two departments was
currently receiving training in Jordan. In the future, PEEGT
would sell electricity to the Public Establishment for
Electricity Distribution and Transmission (PEEDT) at cost and
PEEDT would then sell electricity to consumers at the
established subsidized price. This would allow the SARG to
keep the subsidy limited to one entity (the PEEDT) to help
control the cost of the subsidies. Mashfej told us PEEGT
employed 11,000 people but the total number of people
employed by the Ministry of Electricity was about 40,000. He
complained that over-employment and a shortage of skilled
labor within the ministry were a problem.

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Comment
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16. (SBU) Although it took a month to arrange the meeting
with the Deputy Minister by dipnote, our initial exchange was
notable for its positive and candid tone. Mashfej pulled no

punches in presenting the challenges facing Syria. Rolling
blackouts remain an everyday occurrence during times of peak
demand in winter and summer, and shortfalls in electricity
generation will grow to as much as 1,800 MW by 2012.
Ambitious power generation expansion plans and forays into
solar and wind power production can only be achieved with a
large influx of foreign investment via private-public
partnerships. Public discontent with unreliable electricity
supplies, coupled with a strong opposition to paying higher
prices for power in the future, leave Syria's electric
utility authorities in a dilemma that can be managed, but
probably within constraints that will make power generation a
continuing challenge.
HUNTER

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