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Cablegate: Nigeria Economic Update, November 2004

This record is a partial extract of the original cable. The full text of the original cable is not available.

301319Z Nov 04

UNCLAS SECTION 01 OF 02 LAGOS 002399

SIPDIS

PASS TO USTR

E.O. 12958: N/A
TAGS: ECON NI
SUBJECT: NIGERIA ECONOMIC UPDATE, NOVEMBER 2004


1. (U) Summary: The National Electric Power Authority
(NEPA) generated significantly less power in November
than normal due to poor planning, maintenance and
repair issues. The World Bank recently estimated
Nigeria loses $496 million per year from power
failures. The Nigeria-Sao Tome and Principe joint
development authority is offering five deep offshore
oil blocs for sale, ahead of Nigeria's sale of about 27
onshore and offshore blocs in early 2005. The GON's
local content campaign got a boost as Schlumberger
began working with indigenous firms to raise funds for
local marginal field operations. Nigerian
Telecommunications Limited (NITEL), the state-owned
telecommunications company, owes GSM operators millions
of dollars; operators have begun terminating services
for some subscribers. End summary.

2. (U) This economic update includes:
-- A Power Sector Update
-- Offshore Oil Blocs Up for Licensing
-- Schlumberger Helps Indigenous Operators
-- State-owned NITEL Highly Indebted to GSM Companies

--------------------------------------------- ----------
-
Power Sector - Massive Loss of Generation; Electricity
Tariffs May Rise; US Firm to Build State Plant
--------------------------------------------- ----------
-

3. (U) NEPA's power generation declined from 4,000MW to
2,566MW. This resulted in massive load shedding across
the country. Much of Lagos has been without electricity
the majority of the past several weeks. Businesses
and residents, who have the wherewithal, have been
forced to rely on auxiliary power sources throughout
most of November. Those less fortunate have had to
suffer through long periods without power and light.
The World Bank recently estimated that Nigeria loses
$469 million a year from power failures.

4. (U) NEPA reported that three hydropower stations
(Kainji, Shiroro and Jebba) are operating at about 55
percent capacity, due to low water levels. (Comment:
With rainy season just now ending, if water levels are
already a problem, this difficulty is only likely to
escalate as Nigeria moves further into dry season.
NEPA said it "used up" all the water, anticipating a
"big flood," which never materialized. End Comment.)
The Egbin thermal plant in Lagos is also operating
below its 1,320MW, due to repair and maintenance work.
(Comment: Technicians from Japan arrived about a week
ago to work on the Lagos plant. End comment.) NEPA said
it hopes to increase generation to at least 3,000MW
early December. However, that would still be less than
50% of total installed capacity of 6,654MW and well
short of the GON's target to increase installed
capacity to 10,000MW by 2007. Press reported that NEPA
plans to increase electricity tariffs from between 40%
and 194% to achieve full cost recovery. The
subsidization of NEPA and NEPA's resultant lack of
popularity have been major impediments to NEPA's
privatization and to attracting increased private
investment to the struggling sector.

6. (U) Meanwhile, U.S. firm Black and Veatch announced
plans to partner with an indigenous company and the
Kwara State Government to build a gas-fired Independent
Power Plant (IPP) worth $275 million. About $170m of
the total sum is projected for constructing a gas
pipeline to fuel the plant. In what may be a harbinger
of things to come, the arrangement will exclude NEPA
from the sale of electricity, and allow direct sale
from the IPP to industry. The plant, which should be
completed in 2006, has an estimated output of 105
megawatts. (Comment: GON plans to increase power
generation from current 3,000MW to 10,000MW by 2005
appear unachievable, despite the number of ongoing IPP
projects of various state governments, which are at
different levels of completion. End comment.)

---------------------------
Oil: Blocs Up for Licensing
---------------------------
6. (U) The Nigeria-Sao Tome and Principe Joint
Development Zone (JDZ), November 15, opened a call for
bids for the award of five deep offshore oil blocs in
the zone. Bidding in this second JDZ licensing round is
expected to close December 15, with winners announced
December 31.
7. (U) Edmund Daukoru, presidential adviser on
petroleum and energy, said Nigeria would award 27
onshore and offshore oil blocs the first quarter of
2005. The GON is aiming for $29 billion in petroleum
revenue by 2007 and 40 billion barrels of oil reserves
while producing 4.5 million barrels per day by 2010.
Daukoru said the allocation and exploration of the
blocs in 2005 would be critical in meeting these
targets. (Comment: Stakeholders at a recent forum in
Lagos opposed the GON's "rush" to license new blocs in
2005. They claimed the country has yet to fully benefit
from previously licensed blocs, most of which are not
yet operational. End comment.)

--------------------------------------------- ----------
---
Schlumberger Helps Indigenous Operators of Marginal
Fields
--------------------------------------------- ----------
---
9. (U) Schlumberger announced plans to work with a
consortium of four indigenous oil companies to develop
four marginal fields, believed to have high prospects.
(Note: In 2003, 31 indigenous companies were awarded
licenses to operate 24 marginal fields - those oil
fields which are no longer profitable for production
for major oil firms, but which can present attractive
opportunities for smaller companies. However, a large
number of these companies had been unable to work these
fields due to insufficient start-up capital. End note.)

--------------------------------------------- ----------
State-owned NITEL Incur Enormous Debts to GSM Companies
--------------------------------------------- ----------
11. (U) State-owned, Nigerian Telecommunications
Limited (NITEL), and some private telecom operators
(PTOs) owe major GSM operators (MTN, Vmobile and
Glomobile) an estimated $97.7 million. NITEL alone
owes about $82.7 million. As a result of these mounting
debts, MTN has cut off subscribers on some PTO
networks. (Comment: Industry watchers speculate the
high level of indebtedness may cause some PTOs to
liquidate or lead to consolidation within the telecom
industry. This would further simplify the introduction
of Unified Telecom Licenses in 2006, when some PTOs
will have approval to provide mobile services. End
comment.)


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