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Cablegate: Dwindling Power Supply Leaves Lagos Dark

VZCZCXRO3886
RR RUEHMA RUEHPA
DE RUEHOS #0182/01 0721406
ZNR UUUUU ZZH
R 131406Z MAR 07
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 8600
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 8425
RUEHBJ/AMEMBASSY BEIJING 0085
RUEHUL/AMEMBASSY SEOUL 0037
RUEHWR/AMEMBASSY WARSAW 0190
RUEHCD/AMCONSUL CIUDAD JUAREZ 0170
RUEHIT/AMCONSUL ISTANBUL 0171
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 LAGOS 000182

SIPDIS

SIPDIS

DEPT PLEASE PASS TO JAMES WILLIAMS, OPIC
DEPT PLEASE PASS TO TDA

E.O. 12958: N/A
TAGS: ECPS ECON EINV EIND PGOV PREL NI
SUBJECT: DWINDLING POWER SUPPLY LEAVES LAGOS DARK

LAGOS 00000182 001.2 OF 002


1. (U) Summary: For the past three months, Lagos State has
suffered a critical diminution in its power supply. Public
power supply, normally spotty at best, has become almost
non-existent. This has more than doubled operating costs for
businesses and households for those fortunate enough to have
recourse to diesel-powered generators. Lagosians without
generators complain of having only four hours of electricity
each day, with many neighborhoods going without power for
days. Observers say this situation is the worst in recent
history. End summary.

---------------------------
Lagos Power Supply Dwindles
---------------------------

2. (U) For the past three months, Lagos State has been
crippled by power shortages. Public power supply, normally
spotty at best, has become almost non-existent. The Power
Holding Company of Nigeria (PHCN) reported that while demand
for power in Lagos State was 1,200 megawatts (MW), the state
currently received only 300MW.

3. (SBU) The shortage has more than doubled operating costs
for businesses and households, due to running costly
diesel-powered generators. Lagosians without generators
complain of having only four hours of electricity daily. In
some areas, residents report having no power for several
days. This situation, which appears to be worsening in spite
of the GON's assurances to the contrary, has driven some
manufacturers to neighboring states. Managing Director of
Ergonomix Group Ltd., Shola Adebajo, told us his plant had
been relocated to Enugu State as power there was more
reliable. The Nigerian Manufacturers Association recently
reported that the manufacturing capacity utilization rate,
which hovered around 50% in 2004 and 2005 had fallen to less
than 24% by Q1 2007, mainly due to the lack of power. In
Lagos, Ergonomix ran on generators full time, he said. In
Enugu, there was less demand and Ergonomix would have access
to more reliable electricity.

4. (SBU) High production costs have affected large
manufacturers as well. French Commercial Counselor
Marie-France Derbier said the French company Michelin decided
to close its 1,300 employee tire manufacturing plant, located
in Port Harcourt, in large part because of decreased
competitiveness due to high energy costs. Michelin would
retain its marketing, distribution, and sales operations in
the country.

5. (U) Since January, PHCN has rationed power. PHCN reported
rationing was necessitated by a shortage of natural gas
resulting from damage to the gas pipeline from Escravos to
Lagos, which militants have refused to allow the Nigerian
National Petroleum Corporation (NNPC) to repair. Power
generation at Egbin power station decreased from 700MW to
200MW, an all-time low, and generation at Delta Power Station
also decreased significantly.

----------------------------------------
Integrated Power Projects Don't Deliver
----------------------------------------

6. (U) The GON claimed investment in the ailing power sector
since 2004 totaled USD 4.5 billion. In 2004, the GON
announced production targets of 10,000 MW by 2007 and 15,000
MW by 2010. On March 7, Minister of Energy Edmund Daukoru
announced new production targets of 5,500 MW by May 29 and
15,000 MW by year's end. Currently, 1,500 MW is being
generated. A key part of this reform was the implementation
of the National Independent Power Project (NIPP), which was
designed to improve power supply through the implementation
of generation, transmission, distribution, and gas supply
plants.

7. (U) The NIPP involves the building of eleven power plants,

LAGOS 00000182 002.2 OF 002


seven of which were to be located in the Niger Delta. Those
to be built in the Niger Delta include

- Eyean 250MW (Delta State)
- Sapele 250MW (Delta State)
- Calabar 250MW (Cross River)
- Ikot-Abasi 123MW (Akwa Ibom)
- Gbaran Ubie 125 MW (Bayelsa)

Those to be built in southern states are

- Egbema 175MW (Imo State)
- Papalanto 335 MW (Ogun)
- Omotosho 335 MW(Ondo)
- Alaoji 346MW (Abia)

A single plant generating 414MW is planned for construction
in the Middle Belt, Kogi State. Few of these stations have
been built and none is operating at full capacity.

8. (U) States were also building IPPs. Rivers State Governor
Peter Odili commissioned the Omoku Power Plant, expected to
produce 100 MW. In Akwa Ibom, and IPP would produce 185 MW.
Neither of these is yet online.

9. (U) In addition to these plants, the GON planned to
generate an additional 7,520MW through joint venture
partnerships with international oil companies. At a public
lecture, PHCN Coordinator Joseph Makoju announced agreements
had been reached with China and South Korea for such
projects.

-------
Comment
-------

10. (SBU) Some industry experts argue the critical element
for Nigeria in meeting its energy needs is the ability of
firms to negotiate power purchase agreements (PPAs) with
favorable terms upheld by Nigerian authorities. However,
there is no legal framework for such PPAs. In the past few
years, the GON has come close to breaching the only existing
PPA, with U.S. power services company AES Nigeria Barge Ltd.,
by failing to pay for power purchased. In addition, the
government's inability to repair the Escravos to Lagos
pipeline demonstrates the degree to which frustration in the
Niger Delta can thwart current production as well as GON
plans for the future.

11. (SBU) In its 2007 budget, the GON projected a yearly GDP
growth rate of ten percent as well as expansion of the
non-oil sector. However, growth is critically dependent on an
adequate power supply. In spite of massive investment and an
increase in PHCN's revenue collection, up from 40% in 2003 to
65% in 2005, Nigeria has seen a decline in power generation
in the recent past. It seems this worrisome condition will
persist, at least for the short term.


BROWNE

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