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Cablegate: Nigeria: Power Sector to Get $5.3 Billion

VZCZCXRO3325
PP RUEHMA RUEHPA
DE RUEHUJA #2264/01 3230740
ZNR UUUUU ZZH
P 180740Z NOV 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 4478
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 0276
RUEHZK/ECOWAS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 002264

SENSITIVE
SIPDIS

DEPT PASS TO USTR- AGAMA, USTDA - FITTS/MARIN AND EXIM - JRICHTER
DEPT OF ENERGY FOR CAROLYN HAYLOCK AND GEORGE PERSON
USAID AFR/SD FOR MICHAEL CURTIS

E.O. 12598: N/A
TAGS: ENRG EPET ECON PGOV EAID NI
SUBJECT: NIGERIA: POWER SECTOR TO GET $5.3 BILLION

REF: A. ABUJA 1942
B. ABUJA 1930
C. ABUJA 1311
D. ABUJA 1082
E. 07 ABUJA 1607
F. 07 ABUJA 1582

SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY

1. (SBU) SUMMARY: On October 30, 2008 the National Assembly approved
the Federal Government's portion of $2.4 billion the required $5.3
billion for Nigeria's short-term power strategic plan. The funds
will be used to rehabilitate the electricity grid and begin the
completion of the National Independent Power Projects (NIPP). The
rehabilitation of the existing plants will net additional power
output, as much as 6,000 megawatts (MW), as many units are in need
of repair. The funding is expected to be released by the first of
December 2008, when an implementation oversight committee is
inaugurated. The price tag for increasing electricity supply to
16,000 MW will cost has been estimated by the Ministry of Energy for
Power at least $20 billion, and will require public private
partnerships or some type of joint venture to accomplish. END
SUMMARY.

2. (U) President Yar'Adua's 18 month long promise to declare a state
of emergency in the power sector moved closer to fulfillment on
October 30, 2008 as the final vote to approve the Federal
Government's portion of $2.4 billion of a total of $5.3 billion
power sector emergency implementation 2008 supplemental budget for
the rehabilitation of the power grid was passed by both the House
and the Senate. The total of $5.3 billion will be withdrawn from
the Consolidated Revenue Fund as excess crude proceeds with the
approval of all three levels of government, namely the local, state,
and federal.
.
Next Steps
----------
.
3. (SBU) On November 01, 2008 Permanent Secretary of the Ministry
for Power Dr. Abdullahi Aliyu told EconOff that agreement is
expected to be reached by the end of November on the structure of
how the implementation of the $5.3 billion will operate, including
the new NIPPs. Currently the existing power plants are owned and
operated by the Power Holding Company of Nigeria (PHCN), which is in
reorganization and has a management oversight committee (reftel C).
The vision for the formation of this second committee will be to
monitor and approve the implementation spending and benchmark the
expected results of the $5.3 billion. The implementation oversight
committee will be headed by the vice president with 19 planned
members of the committee to include the following. Six governors,
one from each of the six geo-political zones; three governors who
were former ministers of power; the minister of state for gas and
power (both sacked in the recent cabinet reshuffle); minister of
finance; Attorney General of the Federation; Minister of National
Planning; two representatives from banks, one from labor, one from
the media, one from the oil operators.

4. (U) In 2008 a number of National Assembly committees executed
detailed studies on the power sector. The Ministry of Power
inaugurated task forces to undertake a site assessment of the Power
Holding Company Nigeria's (PHCN) facilities. The Federal Executive
Council commissioned the Presidential Committee on Accelerated
Expansion of the Electricity Infrastructure to carry out due
diligence studies covering technical, financial, and legal audits on
the power sector. The Presidential Committee also hired KEPCO
Energy Resources Ltd, a Korean firm, to execute the studies. The
reports were reviewed and once the information was vetted, it was
incorporated into the strategic plan, which is the basis of the
supplemental budget.
.
Big Price Tag
-------------
.
5. (SBU) The complete rehabilitation of the power sector and the new
generation to satisfy demand for 16,000 MW will require an estimated
$20 billion investment as noted in the Ministry's strategic plan for
the power sector. The supplemental funding approved by the National
Assembly for $5.3 billion will increase average electricity
generation to 6,000 MW by December 2009. The 2008 budget and its
supplemental supports the rehabilitation of the following existing
power plants owned by PHCN: Egbin, Kainji Hydro, Sapele, Afam,
Shiroro Hydro, Jebba, Delta, Geregu, and Omotosho; the
rehabilitation of the existing transmission grid and distribution
networks; completion of NIPP plants with Sapele expansion, Alaoji,
Ihaovbor, and Egbema by December 2009; first year implementation of

ABUJA 00002264 002 OF 002


the Multi Year Tariff Order; the first year costs toward the
construction of the Zungeru and Mambilla Hydro projects; and the
first year estimated costs toward the expansion of the transmission
grid to handle 16,000 MW. (NOTE: Several NIPPs will come on line
through 2011; some of their construction funding is in this
supplemental for: Omotosho, Plant II; Papalanto Plant II; Geregu
Plant II; Alaoji Plant II; Sapele Plant II; Calabar; Gbarain; and
Omoku. END NOTE.)

6. (SBU) The 6,000 MW will be generated by:
-- Existing plants 2,110 MW
-- Rehabilitated plants 1,590 MW
-- NIPP 1,140 MW
-- Low-Pour Fuel(LPFO)40 MW (Used for firing boilers/ furnaces)
The majority of plants will be run on natural gas - 79.9%, with the
remaining mainly from hydroelectric - 19.3% and finally LPFO - 0.7.

.
Way Forward
------------
.
7. (SBU) COMMENT: Following President Yar'Adua's inauguration he
placed increasing electricity supplies as a major goal of his
administration. His Seven Point Agenda also focuses on electricity
generation. Despite the President's best efforts, there has been no
quick fix. The administration has been engaged in slow and
deliberate discussions and have finally reached a point where its
understanding of the problems, costs, and previous missteps in the
Obasanjo's administrations are well understood. The approval of the
$5.3 billion is a positive step forward.

8. (SBU) There are several risk factors for this rehabilitation and
supplemental budget to be successful - whether funds will be
executed as budgeted; will implementation continue on the steady
path, which would attain the following benchmarks: (average of 4,100
MW output per day by March 2009; 4,600 MW by June 2009; 5,400 MW by
September 2009; and 6,000 MW by December 2009). Additionally, is
there enough natural gas available and can it be delivered to the
gas fired plants? In October 2008 the U.S. Agency for International
Development (USAID) commissioned a technical assistance program to
examine whether current gas policies will result in sufficient
natural gas supplies (reftel A). END COMMENT

9. (U) This cable was coordinated with Consulate Lagos.

SANDERS

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