Search

 

Cablegate: Nigeria: Stakeholders Brief U/S Jeffery On Bleak

VZCZCXRO7591
PP RUEHMA RUEHPA
DE RUEHOS #0318/01 2240826
ZNR UUUUU ZZH
P 110826Z AUG 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 0107
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 9783
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC

UNCLAS SECTION 01 OF 03 LAGOS 000318

SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY
SIPDIS

STATE PASS USTR FOR AGAMA
STATE PASS USAID FOR NFREEMAN, GBERTOLIN
STATE PASS EXIM FOR JRICHTER
STATE PASS OPIC FOR ZHAN, MSTUCKART, JEDWARDS
STATE PASS TDA FOR LFITTS, PMARIN
DOC FOR 3317/ITA/OA/KBURRESS
DOC FOR 3310/USFC/OIO/ANESA/DHARRIS
DOC FOR USPTO-PAUL SALMON
DOJ FOR MARI-FLORE KOUAME
TREASURY FOR RHALL, DPETERS

E.O. 12958: N/A
TAGS: ENRG EINV ECON NI
SUBJECT: NIGERIA: STAKEHOLDERS BRIEF U/S JEFFERY ON BLEAK
POWER SECTOR OUTLOOK

1. (SBU) Summary: Nigeria's top electric power sector
companies told Under Secretary of State Reuben Jeffery July
26 that the Government of Nigeria (GON) would not attain its
ambitious goals to significantly expand electricity
generation and distribution with its current policy mix,
which discouraged investment in the sector. An inconsistent
fuel supply, the GON,s dearth of technical expertise, and a
culture of indecisiveness and neglect added to the bleak
near-term outlook. On the bright side, representatives were
guardedly optimistic about the possibility of supplying
limited electricity via private sector "captive power
generation" models. End Summary.

Government's Power Goals Unattainable
-------------------------------------

2. (SBU) Under Secretary of State for Economic Affairs Reuben
Jeffery met July 26 with representatives of Nigeria's top
private sector power companies. Power sector roundtable
participants included:

--James Doak, Managing Director, AES Nigeria Barge Limited
--Robert Kremer, Risk Analyst, AES Nigeria Barge Limited
--Adewale Audifferen, Vice President, Global Energy (former
GE Nigeria Managing Director); and
--Cyril Odu, Chief Financial Officer, ExxonMobil

3. (SBU) Company representatives agreed that the
Presidential Commission on Accelerated Expansion for
Electricity Infrastructure,s plan to deliver 6,000 megawatts
(MWs) of generation capacity by 2009, and an additional
11,000 MWs by 2011 under the National Integrated Power
Projects (NIPP), was unrealistic and unattainable in the
current environment. Audifferen pointed out that while some
equipment, including turbine units, had been imported, they
had not been maintained. Should the government decide to
acquire replacement turbines, a lead time of three to four
years would be required from the time of purchase to
installation. Further, current global demand is such that
Nigeria would be competing with countries like China and
India for a limited supply of the same equipment.
Representatives lamented that an additional infrastructure
problem was that Nigeria's transmission lines had not had
regular maintenance since the 1950s. Kremer suggested that
if existing plants were refurbished properly, the country
might be able to add as much as 4,000 MWs by 2012, however,
it did not appear that the GON had the will to organize such
a renovation.

Sector Challenges Discourage Private Investment
--------------------------------------------- --

4. (SBU) Representatives contended that the GON,s recently
adopted Multi-Year Tariff Order (MYTO) regime to establish
rates for electricity consumers would not help attract the
level of private investment in the sector the government
hoped for. Even with the MYTO, tariffs were set too low,
yet, a cost-effective tariff regime was essential to ensuring
firms would recoup their costs and find investment
profitable. In addition, Audifferen estimated that the cost
borne by power generators -- responsible for all line losses
from point of generation to distribution -- amounted to eight
percent of their potential revenue. Low tariffs, a virtually
nonexistent gas supply, and revenue loss all contributed to
discouraging private investment in the sector, he said. Odu
pointed out that, in addition, any tariff structure would
need an effective, enforceable collection scheme.
Unfortunately the Power Holding Company of Nigeria (PHCN) was
not making its current prepaid meter system work properly.

Loan, Payment Guarantees In Lieu of Positive History
--------------------------------------------- -------


LAGOS 00000318 002 OF 003


5. (SBU) Interlocutors agreed that in the absence of a
"history of positive development" in the energy sector, the
GON should offer sovereign guarantees to attract foreign
investment to the power sector. Current high oil prices make
it possible for the GON to extend guarantees, they believe,
and banks would be disposed to lend money for investment if
the government stood behind the project. However, Odu noted
examples of the GON not living up to its commitments which
undermined a healthy power and energy sector. For example,
he said the National Electric Power Authority (NEPA) had not
paid its share of the cost for the 450 MWs powerplant built
by Italy's AGIP in Delta State, Shell had had to refinance
funding for a project because the government had not paid its
share pursuant to a joint venture agreement, and Shell's
Power Purchase Agreement (PPA), pursuant to which it sells
power to the national grid, was being questioned by the
government.

Human Capital Needs Upgrading
-----------------------------

6. (SBU) Audifferen said the level of technical capacity in
the sector overall was low. Nigerian power plants are, on
average, twenty years old and operated by technicians who
have not had refresher training or skill upgrades in that
entire period, he observed. Plants do not have the resources
for retraining staff, and developing technical capacity is
not a priority of the government. Doak said the dearth of
skills in Nigeria is far more severe than elsewhere. By
comparison, he said, in Jordan or Kazakhstan, power units
might be old but people are capable of repairing and
maintaining them.

Gas an Untapped Solution to Power Generation Fuel Shortage
--------------------------------------------- -------------

7. (SBU) Overall, Nigeria's reliance on oil has prevented the
development of a diverse power generation portfolio, Kremer
observed. Water shortages have curtailed the usefulness of
hydroelectric plants and solar power was not an option except
for housing. While natural gas is available, most is
"associated gas," a byproduct of oil production, and natural
gas production had not been developed to fuel power
generation, representatives explained. Therefore, supplies
for power producers were inadequate and no power producer had
a gas supply agreement in place. No agreement on the price
of gas and no security for payment resulted in no investment.


Real Solution Requires Competent, Innovative Leadership
--------------------------------------------- ----------

8. (SBU) Representatives criticized President Yar'Adua's
appointment of the current Minister of Power, Hajiya Fatima
Ibrahim, as ill-advised. Ibrahim does not have a technical
background in the electric power industry, they said, and as
a result, she had to rely on people entrenched in the current
system who brought no innovative ideas to the current
challenges. Doak said his company, AES, had a favorable
Power Purchase Agreement (PPA) with the GON and was willing
to add 300-400 MWs of generation capacity. The stumbling
block was that negotiations with the GON had stalled. AES
had the units and turbines available for ramping up
generation, and the GON seemed enthusiastic about the
project, but the window during which the GON needed to make a
final decision was fast closing. Without a quick decision,
AES would have to commit the equipment elsewhere. (Note: AES
Barge Nigeria, the only operating IPP in Nigeria, is seeking
arbitration in a dispute with PHCN over the terms and
conditions of its PPA. Payments on its existing PPA are
perpetually in arrears. End Note) Given the gravity of
Nigeria's electricity problem, which hinders economic
diversification and industrialization, and the inherently

LAGOS 00000318 003 OF 003


complex nature of the power sector, the GON urgently needs
technically competent and innovative government leadership to
break the stalemate and to demonstrate a commitment to
following through on effective policies, they said.

Captive Power Model as the Way Forward
--------------------------------------

9. (U) As a way around the lack of electricity in the
country, instead of relying on the government, those who can
afford it have resorted to private sector arrangements, such
as the captive power model, representatives noted. Under
this model, private operators generate and distribute power
off the national grid and collect tariffs directly from
consumers. Given that only 60 percent of NEPA tariffs are
collected at all and the cost of uncollected tariffs must be
borne by power generators, the captive power model presents
producers with an alternative model that may be somewhat
successful, Audifferen contended.
BLAIR

© Scoop Media

 
 
 
 
 
World Headlines

 

Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>

ALSO:

Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>

ALSO:

Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>

ALSO:

 
 
 
 
 
 
  • Pacific.Scoop
  • Cafe Pacific
  • PMC