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Cablegate: Nigeria: U/S Jeffery Meeting with Ministry of Energy

VZCZCXRO6122
PP RUEHMA RUEHPA
DE RUEHUJA #1563/01 2210634
ZNR UUUUU ZZH
P 080634Z AUG 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 3594
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 9744
RUEHZK/ECOWAS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 ABUJA 001563

SENSITIVE
SIPDIS

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

E.O. 12598: N/A
TAGS: ENRG EPET ECON PGOV EAID PREL NI
SUBJECT: NIGERIA: U/S JEFFERY MEETING WITH MINISTRY OF ENERGY
OFFICIALS

REF: A. ABUJA 1311
B. ABUJA 1082
C. 07 ABUJA 1582

SENSITIVE BUT UNCLASSIFIED - NOT FOR DISTRIBUTION OUTSIDE USG

1. (SBU) SUMMARY. In a July 24 meeting with Under Secretary for
Economic Affairs Reuben Jeffery, Energy Ministry officials requested
urgent technical assistance and sought help from the USG to 1) find
financing to close a $3.8 billion funding gap for new energy
projects, 2) improve Nigeria's image in the global press, 3)
determine natural gas pricing, and 4) build capacity in the power
sector. The GON assesses its proven oil reserves at an estimated 40
billion barrels and plans to produce four million barrels per day
(bpd) by 2010. The Ministry plans to restructure the Nigerian
National Petroleum Corporation (NNPC) in line with a recently
released Oil and Gas Industry Reform Implementation Committee (OGIC)
report. Although President Yar'Adua's administration has been slow
on results, its methodical approach may lead to improvements in the
sector in the short term, which could positively impact the economy.
End Summary.

2. (SBU) The Ambassador and Under Secretary (U/S) Reuben Jeffery
hosted an energy roundtable July 24 with representatives from the
Nigerian Ministries of Energy for Petroleum, Gas, and Power. The
Minister of State for Energy (Petroleum) Odein Ajumogobia headed the
Ministry's delegation which included Director Dr. Patricia Ogboru
and Sr. Technical Advisor to the Minister Dan D. Kunle from the
Ministry Energy (Gas), and Permanent Secretary Dr. Abdullahi Aliyu
from the Ministry of Energy (Power).
.
Minister of State for Petroleum Requests USG Assistance
-----------------------------------
.
3. (SBU) GON officials thanked the Embassy for its continued support
in the energy sector and asked for assistance in the following
areas:

-- Closing the $3.8 billion funding gap between international and
local banks for new energy projects;

-- Managing Nigeria's image in the global press;

-- Gas pricing; and

-- Building capacity in the power sector.

U/S Jeffery offered to work with the GON in these key areas and the
Ambassador said she would follow up with the Ministry.

4. (SBU) Ajumogobia said Nigeria's biggest challenges were the
economy, security, and corruption. He stated that while Nigeria was
endowed with natural resources, it was globally ignored. Recalling
a recent incident in the Niger Delta, he asserted it was blown out
of proportion in the Financial Times. He requested help from the
U.S. to improve Nigeria's image with the global press.

5. (SBU) The Ambassador offered to support a business exposition in
the U.S. which could address current challenges. The U/S
emphasized the USG's intense interest in Nigeria and cited President
Yar'Adua's December 2007 visit to Washington when at a concurrent
business event hosted by the U.S. Chamber of Commerce over 100 of
the Fortune 500 companies were in attendance seeking information on
business opportunities in Nigeria.
.
Minister Optimistic on Future Oil Production
-------------------------------------
.
6. (SBU) Ajumogobia opined that in terms of proven reserves of crude
oil and gas, Nigeria had entered a mature phase of petroleum
exploration and production where reaching a 2010 crude oil
production target of four million bpd was possible. The 2010 target
was ambitious, but feasible, he said, because new information
indicated Nigeria's proven oil reserves were actually 40 billion
barrels as opposed to 36.2 billion as previously estimated. Most
reserves are in the Niger River Delta and offshore in the Gulf of
Guinea. Ajumagobia clarified that one million bpd currently were
not in production because of security problems and technical and
funding issues. He said acts of sabotage aimed at oil company
installations and attacks on government targets in the Niger Delta
had increased in recent months and expressed concern that companies
eventually might find it easier to produce offshore and shutdown
operations in the Delta as a result.
.
Joint Venture Progress

ABUJA 00001563 002 OF 003


----------------------
.
7. (SBU) Ajumagobia contended that despite setbacks (the NNPC failed
to meet its share of development costs in all five joint-venture oil
projects with international oil companies) joint ventures in general
had made progress in resolving funding problems largely through the
effort of the GON's partners. The GON has short, medium, and long
term plans to raise funds in local and international capital markets
to help fund joint ventures and avoid future shortfalls, he said.
In the short term, a creative deal was made with private partners to
loan the GON, through NNPC, over $6.1 billion ($2 billion from
ExxonMobil, $1 billion from Total and $3.1 billion from Shell).
NNPC's creditworthiness would determine how successful it would be
in raising capital going forward, he said. Costs were increasing
because NNPC's procurement process took two years from conception to
approval. Ajumagobia thought the USG could provide assistance in
raising capital.
.
NNPC Restructuring Needed
-------------------------
.
8. (SBU) Ajumagobia lamented that the current arrangement - joint
ventures funded through a budgetary allocation from the GON via the
NNPC - was not working. In part to address this problem in
September 2007, as part of a new oil and gas policy, President
Yar'Adua ordered the restructuring of NNPC. NNPC restructuring
would likely be based on draft recommendations from a report by the
Oil and Gas Sector Reforms Implementation Committee (OGIC), but the
next step would be to submit draft legislation to the National
Assembly. Ajumagobia stressed that ensuring the full transformation
of the oil and gas industry and the implementation of the OGIC
report was his number one priority.
.
Electricity Production Woeful But GON Has A Plan
--------------------------------------------
.
9. (SBU) Permanent Secretary for the Federal Ministry of Energy
(Power) Dr. Abdullahi Aliyu said Nigeria's electricity supply as
inadequate and characterized by frequent interruptions and
countrywide load shedding. As of June 3, 2008 only 3,966 megawatts
(MW) per day were potentially available from an installed capacity
of up to 7,982 MW. However, actual power generation had decreased
and by June 22, 2008 was as low as 850 MW per day because of
insufficient gas supply and low water levels at hydro plants.

10. (SBU) Aliyu reported that the Ministry had a strategic plan
(reftel A) through which it expects to expand distribution and
transmission networks. In addition, the plan calls for increasing
power generation from existing and new plants by December 2009 to a
peak of 7,982 MW and an average of 6,180 MW. The medium phase would
add new power generation for a peak of 14,737 MW and an average of
11,540 MW by December 2011.
.
Where is the Natural Gas to Power the Plants?
----------------------------------------
.
11. (SBU) According to Aliyu, the current total domestic gas supply
in the country is 700 Million Standard Cubic feet per day (MMSCF/d)
which would equal a total power generation capacity of 2,000 MW per
day for gas-fired power plants. According to the GON's gas supply
plan, available natural gas will increase to 1,400 MMSCF/d by the
end of 2008, to 2,042 MMCF/d by the end of 2009, and then to 3,600
MMSCF/d by December 2011. The increased gas supply will come from
reduced flaring, existing/new reserves, production efficiencies, and
expanded infrastructure.

12. (SBU) The plan is based on four supply sources:

--Source 1: gas supplied into the Escravos-Lagos-Pipeline System
(ELPS) directly and transported to various power plants and
industries along the ELPS.

--Source 2: gas supplied in a dedicated manner to specific power
plants. This applies specifically to the National Integrated Power
Project (NIPP) or Joint Venture Independent Power Producers (JV IPP)
power plants.

--Source 3: gas supplied in the Eastern part of the country, to be
fed into the Nigeria Liquefied Natural Gas -jointly owned by NNPC,
Shell, Total, and Agip (NLNG).

--Source 4: gas supplied into the existing Nigeria Gas Company (NGC)
Eastern Pipeline Network.
.
Ministry of Power Seeks Technical Assistance

ABUJA 00001563 003 OF 003


-----------------------------------------
.
13. (SBU) According to Aliyu, the most important requirement of the
strategic plan, which calls for the creation of seven training
centers, is in-country technical training. He requested USG
assistance in identifying qualified trainers to train instructors
and develop course curricula and a mentoring program. (Note: The
Ministry has identified 39 PCHN employees for substation operation
and maintenance training in the United States. Aliyu reported that
PHCN has a staff of 3,700 and needs ongoing training for at least
185 technical positions. End note). The Ministry also seeks
contact information for U.S. power sector equipment manufacturers
and contractors. Aliyu expressed appreciation to the U.S. Trade
Development Agency for the technical assistance provided to the
Nigerian Electricity Regulatory Commission (NERC) to develop a
National Electricity Health and Safety Standard and associated
training toward the implementation and enforcement of the standard.

.
Comment
--------
.
14. (SBU) Nigeria's 2010 oil production goal implicates a
significant investment upstream which has not yet begun although the
GON has a detailed plan for how it will reform NNPC and increase
investment. Plans to repair the electricity grid and promote new
generation power plants began during the Obasanjo administration but
netted little or no results. President Yar'Adua has taken a much
slower approach and has had at least three different committees
working on identifying problems in the power sector. Improvements
in power generation and distribution would have an enormous positive
effect on the economy.
While the USG cannot be responsive to all the roundtable requests,
the GON's openness to U.S. input provides an opportunity to steer
policies in more market compatible and stable directions. End
Comment.

PIASCIK

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