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Cablegate: Nigeria: Af Das Moss' Meetings with Power Sector

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PP RUEHMA RUEHPA
DE RUEHUJA #0402/01 0601208
ZNR UUUUU ZZH
P 291208Z FEB 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 2221
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 8842
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 000402

SIPDIS

SENSITIVE
SIPDIS

DEPT ALSO FOR OES/PCI FOR SPECHT
DEPARTMENT PASS TO USTR (AGAMA)
DEPT OF ENERGY FOR CAROLYN GAY

E.O. 12598: N/A
TAGS: ENRG ECON EPET PGOV EFIN SENV NI
SUBJECT: NIGERIA: AF DAS MOSS' MEETINGS WITH POWER SECTOR
REPRESENTATIVES

REF: STATE 09421

1. (SBU) SUMMARY: The Minister of Energy for Power and the Chairman
of the Electricity Regulatory CommissiQtold AF DAS Todd Moss that
investments in the power sector over the past seven years have not
netted adequate and reliable electricity to support economic growth.
Reforms for the power sector are in the discussion stage. A new
legal framework, coupled with the implementation of a 15 year model
tariff, is intended to establish a level playing field, encourage
private investment and expertise, and meet social and economic goals
-- but needs a lot of work, and there is resistance to tariff rates
that would encourage investment without recourse to government
subsidies. The Ministry is looking to the USG to introduce it to
strategic partners that could advise on commercially viable
public-private models to increase generation capacity and separately
for advice on how to reform the government operated transmission and
distribution system. End summary.

2. (SBU) AF DAS Todd Moss, the Ambassador, Econ Counselor, and
Econoff (notetaker) met with Minister of Energy for Power Fatima
Balaraba Ibrahim, on January 24, 2008. Moss and Econoffs also met
earlier in the day with Dr. Ransome Owan, Chairman/CEO of the
Nigerian Electricity Regulatory Commission (NERC).

----------------------
Power Ministry Meeting
----------------------
3. (SBU) DAS Moss asked the Minister her view of the power
situation and the government's plans. Minister Ibrahim told DAS
Moss that the situation in the power sector is critical, and is the
result of decades of neglect. She explained that the government's
inability to fund and sustain the sector also translates to the poor
state of the economy and inability to implement development
activities across the country. She noted that there are problems
facing the Nigerian electricity industry, apart from inadequate
funding, linked to each of the key sub sectors (generation,
transmission, and distribution). Generation is currently
insufficient to meet national demand of 10,000 MW and rural
electrification remains distant. DAS Moss asked the Minister about
the adequacy of the transmission system and was told that the system
is very fragile and inflexible in its ability to wheel the planned
increased power.

4. (SBU) Minister Ibrahim spoke of the $10B reportedly spent to
upgrade the sector's infrastructure from 2000 - 2007. Projects
commissioned with this budget include Greenfield plants in the Niger
Delta (new GON gas fired power plants) where already-purchased GE
turbines are to be installed. The Minister acknowledged that the GE
turbines are still sitting in warehouses at the docks. She also
said that GE had visited and committed to support the GON in its
efforts to "jump start" the sector, but there was no specific plan
as yet. The minister said that further funding to double generation
capacity to 6,000 MW would need to come from the excess crude oil
account, but cautioned that more money was needed and the GON is
looking to the private sector for help in the form of partnerships.
She emphasized to DAS Moss that the GON is still in a period of
transition. (Note: Ministry contacts have told us that subsequent
to this conversation President Yar'Adua rejected a plan for moving
forward largely with government funding. The President favors
Public-Private Partnerships-details to be defined-for the long-term;
he has approved some quick fixes to increase generation capacity by
the end of the year. End note).

5. (SBU) DAS Moss asked the Minister about the implementation of the
tariff that he had been briefed on at an earlier meeting by Dr.
Owan, the NERC chairman. The Minister noted that the new 15 year
tariff model is ready to implement, but requires consensus.
Minister Ibrahim said that the people are against the new tariff,
"they want power first, tariff later". To meet this demand,
Senators are suggesting a 2008 GON supplemental budget be
implemented, together with the tariff, that will neutralize the
increase to the residential and small business consumer for the
near-term.

6. (SBQThe minister said that the President may declare a state of
emergency in the power sector, but not until the legal framework is
in place for private partnerships and the tariff issue is resolved.
In the short term the President wants to first double the electrical
delivery to 6,000 MW and then redouble to 12,000 MW within four
years. She further explained that "while in the planning mix, the
achievement of 26,000 MW may not be realistic in the near-term" as
gas may not be available in large enough supplies to fuel the power
plants. She noted that a PPP model GON experts had observed in

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India encouraged IPP investors and fuel suppliers to work out
contracts for delivery arrangements in advance. In Nigeria, this
has not been the case. The Minister said she is supportive of
"renewable energy projects and would like to move forward with
more".

-----------------------------------
Meeting with Electricity Commission
-----------------------------------
7. (SBU) In the meeting with the NERC Chairman Dr. Owan, AF DAS Moss
asked about short-term plans to jump start the electricity sector.
Dr. Owan said that the plan would begin with the eleven
government-owned power plants, which would include the strengthening
of distribution and transmission lines. He said this is the
immediate way forward; the IPPs will need time to work with the
bankers and lawyers to feel comfortable with the upcoming
legislation and the new tariff. He also said related funding would
come from the excess crude oil account, and this targeted effort
could bring capacity to 10,000 MW. (Note: Again, it is not clear
that government will tap the ECA for the short-term fixes). Dr.
Owan said that two plants currently in the commissioning process are
receiving "bottled" gas to exercise the turbines (790 MW), but gas
supply for production is not currently available and will not be
until mid 2008 or later

8. (SBU) DAS Moss asked Dr. Owan to highlight some of the other work
being done. Dr. Owan explained that the system currently has losses
of 30 percent due to the absence of state-of-the-art dispatch
facilities in the transmission sector and the fragile and overloaded
distribution network, and theft. NERC is monitoring 22 transmission
projects and 17 new substations that address the evacuation of power
from all power stations to the national grid through major
corridors. A new system of distribution at a higher voltage level
is being adopted.

9. (SBU) Dr. Owan continued by addressing the theft issue. The GON
has active projects to adopt a slum electrification anti-theft
system from a successful program in South America. Dr. Owan said
that he is especially thankful to the U.S. for its continuing
support, especially from USAID and the U.S. Trade Development
Agency. He confirmed that the power sector has been "studied and
there now needs to be implementation and funding," and that Nigeria
needs to engage large American firms in that effort.

-----------------------------------
An Opportunity to Shape the Process
--------------------------------

10. (SBU) COMMENT: It is clear that the GON does not yet have a
comprehensive plan to accelerate production and delivery of
electricity. Long-term, the most critical issues center on the
availability of gas, secure pipelines to deliver gas when available,
and effective transmission and distribution to new customers.
Some/some of the short-term fixes announced separately by
Presidential Energy Advisor Lukman probably are in fact doable. The
Minister will be in Washington the week of March 3 to attend WIREC
2008. The Minister is seeking USG assistance in arranging
introductions to for-profit and/or not-for-profit (preferable)
entities that could advise and assist the GON in bringing its draft
PPP model to final, and also advise on transition possibilities for
the corrupt, inefficient, and deteriorating parastatal-run
transmission and distribution system.

11. (SBU) DAS Moss cleared this message.

SANDERS

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