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Cablegate: Nigeria: New Power Sector Strategic Plan

VZCZCXRO2681
PP RUEHMA RUEHPA
DE RUEHUJA #1311/01 1911034
ZNR UUUUU ZZH
P 091034Z JUL 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 3310
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 9550
RUEHZK/ECOWAS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 04 ABUJA 001311

SENSITIVE
SIPDIS

DEPT PASS TO USTR- AGAMA AND USTDA - FITTS/MARIN
DEPT OF ENERGY FOR CAROLYN GAYLOCK AND GEORGE PERSON

E.O. 12598: N/A
TAGS: ENRG ECON EPET PGOV EAID NI
SUBJECT: NIGERIA: NEW POWER SECTOR STRATEGIC PLAN

REF: A. ABUJA 1082
B. ABUJA 962
B. ABUJA 402
C. 07 ABUJA 1582

SENSITIVE BUT UNCLASSIFIED - NOT FOR DISTRIBUTION OUTSIDE USG

1. (SBU) SUMMARY. Upon taking office, President Yar'Adua made the
power sector the first priority in his seven-point agenda. One year
after the President's inauguration, Nigeria experiences regular
power outages and load shedding due to a host of reasons. The major
problems are inadequate maintenance of aged generating plants, poor
gas supply, vandalization of gas pipelines, and a shortfall in water
systems for hydro plants. Nigeria has a current installed
generation capacity of 7,876 megawatts (MW) yet can only generate
2,700 MW on a daily basis (With actual generation sometimes dropping
well below that level. We hear as late as June 22 that the daily MW
output is down to 850 MW). In response, the Ministry of Energy
(Power) has developed and presented to the President a short, medium
and long-term recovery plan for the electricity sector. The
Ministry estimates that the plan will cost $20 billion over the next
ten years. The plan and report appear to be well-thought out and if
fully implemented could substantially improve power generation in
the country, however, some high-level contacts have commented that
the Power Holding Company of Nigeria (PHCN) may be re-bundled and
that industry has dim views of the Minister of Power's abilities.
END SUMMARY.

POWER GENERATION UPDATE
-----------------------

2. (SBU) The main power generation problems are inadequate
maintenance of aged generating plants, poor gas supply,
vandalization of gas pipelines, and a shortfall in water systems for
hydro plants. In addition to the generating problems, the country's
transmission and distribution networks are characterized by single
circuit radial lines (which exacerbate the grid's fragility and
increase the likelihood that a disruption in any part of the system
will result in major power outages to a large section of the
country, rather than just the immediately affected area), overloaded
transformers, obsolete substation equipment, and high incidences of
line tapping for electricity theft. The current capacity of the
transmission grid is only 4,000 MW, well below national needs, and
the grid does not cover every part of the country.

POWER MINISTRY STRATEGIC PLAN
-----------------------------

3. (SBU) The Ministry of Energy (Power) has been tasked to develop a
plan to quickly increase energy generation in the short term and to
provide a medium and long term sustainable growth strategy.
According to Dr. Aliyu, Permanent Secretary of the Ministry of State
for Energy (Power), the 73-page National Strategic Plan for the
Sustainable Recovery of the Power Sector details short-term,
medium-term, and long-term recovery and growth for the sector.
Power Minister Fatima Ibrahim has led the plan's development, but
has faced criticism about her ability to implement and overcome
difficult challenges. It covers generation, transmission, and
distribution issues and provides a strategy for the recovery and
growth of the sector. Funding for the plan will come from the 2008
budget, a proposed budget supplemental, independent power producers
(IPP), and other public private partnerships (PPP). The Ministry
estimates that the plan will cost $20 billion over the next ten
years. The document incorporates findings from a Power Ministry
task force, the National Energy Sector Reform Committee chaired by
Presidential Special Advisor on Energy Dr. Rilwanu Lukman, and the
Presidential Committee on the Accelerated Expansion of Power
Infrastructure, chaired by Minister Fatima Ibrahim.

REPORT FINDINGS
---------------

4. (SBU) The report and plan were submitted to President Yar'Adua on
April 17 for his review. Embassy was also provided a copy for
review and comment. The report noted that Minister Ibrahim had
taken action to carefully examine and strengthen the coordination of
the unbundled PHCN companies, which includes the appropriate
transfer of employees, assets, liabilities, rights, and obligations
of the PHCN to various successor companies by establishing a
Transitional Board and Management for the PHCN. The Board is headed
by Minister Ibrahim as Chairperson and the Permanent Secretary as
Vice Chairperson. The membership of the Board includes PHCN
Managing Director, Director General of the Bureau of Public
Enterprise, Accountant General of the Federation, Director of
Finance and Administration, Director of Technical and Commercial,
MD/CEO of the Nigerian Gas Company, Group Executive Director
(Finance and Administration) PHCN, Group Executive Director

ABUJA 00001311 002 OF 004


(Technical and Commercial) PHCN, and unnamed as yet, two to three
presidential appointees.

5. (U) On background, following the enactment of the Electric Power
Sector Reform (EPSR) Act of 2005 an initial holding company was
established - the Power Holding Company of Nigeria (PHCN) to which
the assets, liabilities and staff of National Electric Power
Authority (NEPA) were transferred. Since then, the reform of the
Nigerian electricity sector has achieved the unbundling of the
previous single parastatal into 19 companies. A coordinator was
appointed at PHCN headquarters to oversee the winding down of PHCN
and the taking off of the 19 successor companies, which includes the
transmission company that will remain under the ownership and
operation of the GON. However reportedly, Honorary Adviser on
Energy to the President, Dr. Rilwanu Lukman has recommended
rebundling PHCN, which if done, would literally take things
backwards.

6. (SBU) The report also revealed an important finding on
distribution - there are a number of non-functioning transformers in
the current distribution networks that require immediate
replacement. Transformers, insulators, fuses, cables, and other
maintenance materials were recently found in Power Holding Company
of Nigeria (PHCN) warehouses that were purchased from 1988 - 2003.
The report estimated the value of these materials and equipment at
$41 million. The warehoused materials were quickly inspected and
allocated to the eleven distribution companies with orders to
immediately install the equipment to re-enforce the distribution
networks. This work is expected to be completed by July 2008.

POWER SECTOR FRAMEWORK AND USG SUPPORT
--------------------------------------

7. (SBU) The report noted that the Power Ministry asked the
Ambassador, during a courtesy call in February 2008, for USG
assistance in developing the Private Public Partnerships (PPP)
framework for investments in power plants, transmission and
distribution projects that include build, operate and transfer
(BOT); build, operate, and own (BOO); and build, operate, own, and
transfer (BOOT) or other appropriate contracting finance schemes.
(Note: The meeting with the Ambassador actually took place on
January 24, 2008 (see reftel B) and information was passed to the
U.S. Trade Development Agency (USTDA), which responded positively to
the Ministry's requests and sent a delegation to follow up with the
Power Minister and her team (see reftel A) End note).

USG SPONSORS CONFERENCE ON POWER SECTOR FINANCING
--------------------------------------------- ----

8. (SBU) As a first step forward, the Ambassador and EconOffs worked
with the Lagos-based U.S. Commercial Service Office (USCS), U.S.
Export-Import Bank (EXIM), USTDA, AID and offered a seminar on
Independent Power Project (IPP) financing, which took place in Abuja
from June 9-11. (The GON has issued 26 IPP licenses but each IPP
has had problems that are yet to be resolved). USTDA commissioned a
definition study in April 2008. Results and recommendations of this
study were used to develop the seminar and should prove very helpful
to the Power Ministry as it moves to implement the new strategic
plan.

SHORT-TERM PLAN BY MARCH 2009
-----------------------------

9. (SBU) The short term strategic plan is to generate, sustain,
transmit, and distribute at least 5,800 MW of electricity by March
2009. The plan includes the fast track maintenance and
rehabilitation of the eight existing GON plants established before
1999 that have a total installed capacity of 6,200 MW, with the goal
of adding 3,150 MW by March 2009 and implementing the following
measures:
-- Providing adequate maintenance spares to existing plants;
-- Building sufficient infrastructure and providing gas supply for
the newly completed National Integrated Power Projects (NIPP) plants
at Geregu (414 MW gas fired plant located at Ajaokuta in Kogi state,
north central Nigeria), Omotosho (335 MW gas fired plant located in
Ondo state, south west Nigeria), and Papalanto (335 MW gas fired
plant located in Ogun state, south west Nigeria) with a total
capacity of 1,084 MW. (Note: The gas pipelines for these projects
may be ready by the end of June 2008; however, there may be only
enough gas available to commission the plants at minimum loads. End
note).
-- Fast track maintenance and rehabilitation of the existing
transmission grid capacity to increase wheeling power from 4,000 MW
to 6,000 MW;
-- Reinforce substations, replace transformers, establish strict
adherence to maintenance of the grid, and upgrade the National
Control Center;

ABUJA 00001311 003 OF 004


-- Upgrade distribution networks to distribute the added electricity
generation, replace transformers, and improve staff welfare packages
and morale;
-- Other actions include implementation of the build outs of the
remaining seven NIPPs and review of the EPSR Act of 2005.

10. (SBU) Estimates for the short and medium-term plans were made on
the basis of known generation plants and some planned projects. The
plans include recommendations on what must be executed in order to
reach and sustain the estimates of generating capacity for each
phase, including the age and state of the existing plants. The
Ministry recommends the release of funds, accredited to short and
medium-term planning, for increasing Mambilla hydro-power plant to
2,600 MW (Currently 1,500 MW hydro-power plant located in Taraba
state, north east Nigeria) and Zungeru (960 MW hydro-power plant
located in Niger state, north central Nigeria, on the Kaduna River)
hydro projects. The Mambilla plant will be Nigeria's largest plant
and is estimated to take up to five years to come on line, as it
requires three dams and an underground power station to be built.
This project was awarded to two Chinese firms in 2005; and was to be
executed partly through a loan facility of $2.5 billion offered by
the Export-Import Bank of China, in exchange for four oil bloc
allocations to China National Offshore Oil Corporation during the
May 2007 oil bid round. To date no progress has been made on the
project. In June ministry contacts have told EconOff that a
decision has been made for the GON to build the plant and the GON
plans to ask U.S. EXIM for partial financing for the project.

MEDIUM-TERM PLAN BY MARCH 2011
------------------------------

11. (SBU) The strategic plan recognizes that the power sector is
capital intensive, and recommends that the GON substantially
deregulate in the medium term to encourage private sector
participation. The medium-term plan expects to generate a total of
11,852 MW through:
-- Consolidation of all gains realized in the short-term plan in all
stations;
-- Completion of the NIPP projects;
-- Promoting the completion and/or rehabilitation of dams for the
purpose of improving power generation through hydro at Dadin Kowa
(34 MW), Gurara (30 MW), Oyan (9 MW), Bakalori (2.4 MW), Ikere Gorge
(6 MW), Tiga (6 MW), and Chalawa (7 MW);
-- Planning and implementation for more hydro plants, especially at
the Mambilla and Zungeru hydro power plants;
-- Encourage the development of medium size hydro plants on the
Niger, Kaduna, Donga, Geregu, Onitsha, Benue, Ikom, and Katsina-Ala
rivers which are located in the Niger Delta, Kaduna state, Taraba
state, Niger state, Anambra state, Benue state, Cross River state
and Benue state respectively;
-- Expansion of the transmission and distribution networks to
accommodate the added generation loads;
-- Encouraging the development of a gas grid to accommodate the
geo-political zones for power generation;
-- Promoting the establishment of coal powered and renewable energy
generation plants.

LONG-TERM PLAN BY DECEMBER 2020
-------------------------------

12. (SBU) The long-term plan focuses on the continuation of the
development of a gas grid and continued expansion of the national
grid throughout the country as a top priority. Other elements of
the plan include:
-- Monitoring the development of new power plants based on effective
and reliable generation mix;
-- Providing the legal, fiscal, administrative, and regulatory
environment for the setting-up of power related industries;
-- Increasing, progressively, the proportion of renewable energy;
-- Adding nuclear energy to the generation mix;
-- Commissioning of the Mambilla and Zungeru hydro plants adds 3,550
MW to the national grid providing electricity to a power starved
nation at a lower cost than gas or coal.

COMMENT
-------

13. (SBU) The USG is working very closely with the Ministry of Power
and other GON agencies to put into place the right framework to
attract sustained private sector financing to the power sector. The
GON has an unending appetite for USG expertise in this area and it
behooves us to take advantage of this engagement.

14. (SBU) The crux of the electricity problem is implementation and
follow through. The President and his advisors have little to show
to the Nigerian people after one year of empty promises.
Electricity generation will provide an easy barometer for the people

ABUJA 00001311 004 OF 004


to determine whether the President has delivered on his numerous
promises. As of now, Vision 2020 and 13% yearly GDP growth are a
mirage. We believe that Ministry officials are sincere in their
motives and the strategic plan appears to be well-thought out and if
implemented could improve power generation substantially. However,
some high-level contacts have commented that the Power Holding
Company of Nigeria (PHCN) may be re-bundled and that industry has
dim views of Minister of Power's abilities to follow through on
implementation because she has no previous power sector background.
In addition, with daily MW output allegedly down to 850 MW, power
distribution has worsened under her leadership. The next 6-12
months will demonstrate the administration's ability to improve
power generation.

SANDERS

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