VZCZCXRO9718
OO RUEHPA
DE RUEHOS #0071/01 0531405
ZNY CCCCC ZZH
O R 221405Z FEB 10
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0034
INFO ECOWAS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RHMFISS/HQ USAFRICOM STUTTGART GE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHGV/USMISSION GENEVA
RUEHTC/AMEMBASSY THE HAGUE 0003
RUEHUJA/AMEMBASSY ABUJA

C O N F I D E N T I A L SECTION 01 OF 05 LAGOS 000071 
 
SIPDIS 
DEPARTMENT FOR AF/FO, AF/W, AF/RSA, AND INR/AA 
AMEMBASSY YAOUNDE PASS TO AMEMBASSY MALABO 
 
E.O. 12958: DECL: 2020/02/22 
TAGS: EPET ECON PGOV PREL NI
SUBJECT: ASSISTANT SECRETARY CARSON MEETS OIL COMPANIES IN LAGOS 
 
CLASSIFIED BY: Blair, Donna M., CG, State, Lagos; REASON: 1.4(B), (D) 
 
------- 
 
SUMMARY 
 
------- 
 
 
 
¶1. (C)  Assistant Secretary (A/S) Carson met with members of the 
International Oil Companies (IOCs) on February 7.  The A/S stressed 
the fact that Nigeria is the most important country in Africa for 
the United States.  The IOC members noted that the A/S spoke mainly 
of issues in Northern Nigeria and did not dwell on Southern issues. 
The Petroleum Industry Bill is discouraging future investment 
mostly in deep-water fields where most of the remaining oil in 
Nigeria lies.  If Nigeria raised the price of gas to two-thirds of 
the world price, the IOC's would be at each others throats trying 
to cut the price by a penny or two.  Nigeria has the possibility of 
becoming the next Pakistan within 25 years.  A/S allayed the IOCs 
concerns of the United States' relationship with China.  END 
SUMMARY. 
 
 
 
 
 
¶2. (C)  Assistant Secretary (A/S) Carson met with members of the 
international oil community in Lagos on February 7.  In attendance 
were the following:  Shell Senior Vice President's Ann Pickard and 
Ian Craig; Shell Vice President Peter Robinson; Chevron Managing 
Director Andrew Fawthrop; Chevron Public Affairs Manager Femi 
Odumabo; Exxon Mobil Managing Director Mark Ward; Hercules Manager 
Coleman McDonough; Schlumberger Manager Supply Chain Service Demi 
Adenusi; American Business Council (ABC) President Dick Kramer; 
Special Assistant to the Assistant Secretary; Economic Officer; 
Maritime Affairs Officer; Marine AttachC) and, Consul General Lagos. 
 
 
 
 
----------------------------------------- 
 
NIGERIA: MOST IMPORTANT COUNTRY IN AFRICA 
 
----------------------------------------- 
 
 
 
¶3. (C)  Fawthrop asked the A/S whether he was in Nigeria to deliver 
a message or was it more of a fact-finding trip?  A/S stated that 
he was in Nigeria for both reasons in that he wanted to listen and 
engage with Nigeria.  Nigeria is the most important country in 
Africa for the United States due to: the size of its population; 
presence of hydro-carbons; peace keeping role in ECOWAS, especially 
in Sierra Leon and Liberia; its seat on the United Nations Security 
Council; along with the strength and size of its financial markets 
the A/S continued.  Nigeria has enormous potential and is the 
seventh largest Muslim country in the world with an Islamic 
population that will eclipse Egypt by 2015 according to Carson. 
Having no United States presence in Northern Nigeria is akin to 
having no presence in Egypt and is why the United States is 
considering opening a Consulate in Kano. 
 
 
 
¶4. (C) The United States is concerned about the power vacuum in 
Nigeria and the state of health of President Yar A'dua, per Carson. 
The president is "very, very, very, very ill" and Nigerians are 
under illusions regarding the state of their president.  "Nigeria 
cannot afford to implode or run aground."  30 years of military 
government was not good.  The United States expects a stable, 
legal, democratic, constitutionally-based government with no 
"military involvement, full stop," Carson stated.  It is important 
for the GON to do a better job this time around in regards to 
elections.  Only ten percent of Nigerians saw a ballot ticket in 
the 2007 elections.  If Nigeria brings credibility to its 
democratic processes, its economic processes will improve. 
 
LAGOS 00000071  002 OF 005 
 
 
--------------------------------------------- ------------- 
 
UNITED STATES PRESENCE IN SOUTHERN NIGERIA NEEDS ATTENTION 
 
--------------------------------------------- ------------- 
 
 
 
¶5. (C)  Some places are more important than others within the 
Federal system of Nigeria and Lagos is one of the more important 
places, according to Carson.  Consulate General Lagos is bigger and 
more important than Embassies Benin and Togo together.  Lagos is 
significantly more important than Cape Town even though the latter 
is 100 times better in terms of livability.  The United States must 
be in Lagos in a significant way, Carson declared. 
 
 
 
¶6. (C)  The statements of the A/S sounded wonderful from a Hausa 
viewpoint, but nothing was mentioned about Southern and Eastern 
Nigeria, Fawthrop pointed out.  The A/S agreed that Fawthrop was 
correct.  The United States is underrepresented diplomatically, 
economically, commercially, militarily and from a security 
standpoint.  When the A/S served in Nigerian from 1969-1971, the 
United States had the Embassy in Lagos with Consulates in Ibadan, 
Kaduna, and briefly in Port Harcourt, before the Civil war, and 
also a USIS post in Kano.  With the Nigerian population at 50 
million the United States was better and more broadly represented 
in a Nigeria that produced almost no oil.  With an Embassy in Abuja 
and a Consulate in Lagos, the United States has experienced a "huge 
loss" in Nigeria today, per Carson.  The United States must get 
back into Enugu and Port Harcourt.  "No presence means no access, 
which leads to no influence.  Without influence you have nothing." 
 
 
 
 
¶7. (C)  Akwa Ibom governor Godswill Akpabio was singled out as an 
impressive governor by Mark Ward.  Akpabio has built up 
infrastructure and industrial development.  He is "one to watch" 
per Ward.  Other Southern governors that were highlighted included 
were Rivers State governor Chibulke Amaechi and Edo State governor 
Oshiomhole.  Fawthrop suggested that USAID has a lot to offer in 
the South in that if USAID makes a mistake it is OK.  If a private 
company engages in a similar project and makes a mistake you have a 
FCPA investigation.  The Consul General (CG) added that it might be 
possible to team up with security assets of the IOCs to arrange 
diplomatic trips to the Niger Delta.  This arrangement would not 
happen "100 percent of the time," but more often than not, per the 
CG. 
 
------------------------------------- 
STATUS OF THE PETROLEUM INDUSTRY BILL 
------------------------------------- 
 
 
 
¶8. (C)  The PIB is more about taking control and not a real 
solution, per Mark Ward.  Oil Minister Rilwan Lukman has no 
intention of doing the right thing in regards to the PIB stated 
Dick Kramer.  There are currently three versions between the 
Senate, House, and Interagency committee and it is unclear when and 
what will materialize, according to Ward.  Fawthrop added that the 
PIB amounts to resource nationalization and stated that it costs 
more than 40 percent to develop the oil as opposed to leaving it in 
the ground.  The current fiscals of the PIB estimate that is costs 
25 percent to develop the oil, thereby creating a disincentive.  If 
the oil stays in the ground then billions of development money will 
go away and the resulting slowdown will be a massive problem.  The 
IOCs received a lecture from a team made up of various GON agencies 
(the interagency team) in Abuja In a recent meeting in an example 
of the current level of communication per Fawthrop.  The whole 
group then went to the office of the Vice President where the 
interagency team stated that there was very good communication 
between them and the IOCs. 
 
 
 
¶9. (C)  The large fields, elephants, have all been developed in 
Nigeria per Fawthrop.  What remains are fields one-quarter to 
 
LAGOS 00000071  003 OF 005 
 
 
one-third the size.  The same costs are involved in producing the 
oil but the revenue will be less because there is less oil.  The 
IOCs need more incentive, not less, in order to develop these 
fields profitably.  What the PIB accomplishes is a disincentive. 
The downstream sector is very simple in Nigeria in that the refined 
gas is moved from one tanker to another, to a smaller tanker and 
then sold.  The refining sector, exploration and production sectors 
are very complex.  It is unrealistic for the PIB to try to change 
all of these areas in one tome of legislation, asserted Fawthrop. 
 
 
 
¶10.         (C)  The gas side of the PIB tries to legislate the 
delivery of gas rather than incentivize it.  "The donkey is tired 
and beaten.  It will not go no matter what you tell it" stated 
Fawthrop.  If the gas price went to two thirds of the world price 
the IOCs would "cut each others throat" to cut the price by one or 
two cents.  The rest of the IOC members nodded in agreement to this 
statement by Fawthrop.  European gas competition has gas developed 
on a cost plus basis adding about eight percent to the cost.  The 
model should be based on rate of return and not forced upon 
operators by legislative decree. 
 
 
 
¶11.         (C)  Whenever gas doubles the cost of electricity goes 
up by one quarter.  Stable electricity will allow industry to 
flourish in Nigeria but this will not happen 15 months before the 
elections.  Amateur technocrats run the oil and gas sector 
according to Shell's Peter Robinson.  They believe that they can 
control the industry via spreadsheets and pushing through the PIB. 
There are many emotional issues in the PIB with Nigerian 
politicians believing that they make no money on deep-water 
projects.  Potential banker and businessmen partners do not 
understand the industry.  The GON has made USD 2.5 billion with no 
investment in the past two years according to Robinson. 
 
 
 
¶12.         (C)  A large problem will be the ten percent of equity 
that is to go to the communities argued Fawthrop.  Equity going 
into the communities will make them explode.  The recipients of the 
monies will be highly disappointed when they see the amount they 
will receive, a much larger sum will be expected.  Kramer referred 
to the community equity as the "lawyer relief act" and wondered how 
one defines an actual community. 
 
 
 
¶13.         (C)  Peter Robinson stated after the meeting that Pedro 
Van Meurs, the oil consultant hired by the GON to help negotiate 
with the IOCs, is considering leaving.  Van Meurs has been trying 
to show the GON officials that their fiscal math does not work with 
the PIB.  Van Meurs does not agree with the IOC position completely 
but sees areas for improvement.  One example given to Lagos Econoff 
by Exxon Mobil Project Manager Anh Tran concerned the levels of 
cost involved with deep-water projects.  Exxon, and other IOCs, 
maintain that their capital costs are at least 40 percent of 
deep-water projects while the GON allows for 25 percent capital 
costs under the PIB.  Van Meurs agreed that 25 percent was not 
adequate. 
 
 
 
-------------------------------- 
 
WHERE DOES NIGERIA GO FROM HERE? 
 
     -------------------------------- 
 
 
 
¶14.         (C)  It is possible that Nigeria could be a future 
Pakistan according to the A/S.  In 25 years, there could be 
impoverished masses, a wealthy elite and radicalism in the North. 
The question is whether the oil wells will be dry as well and could 
Nigeria be on "sustainable and irreversible glide path to a new 
economic base" per the A/S.  When you look at the 2020/20 plan by 
the GON you see that Nigeria needs to grow by 14 percent a year to 
be at the current level of Indonesia Fawthrop asserted.  That is 
 
LAGOS 00000071  004 OF 005 
 
 
using today's figures, which does not take into account Indonesia's 
growth Kramer added.  Nigeria is growing at five percent now and 
would need 20 percent growth per annum in energy and USD 22 billion 
investment in power plants Fawthrop stated.  What would happen if 
Nigeria fell just short of their goals, would there be an 
alternative plan in place Fawthrop wondered?  He cited the example 
of the 2009 6,000 Megawatt goal.  It was apparent early on that the 
goal was not feasible and an alternative plan could have been 
devised.  The GON insisted that they would reach their goal and did 
not develop alternatives.  The same would hold true for 2020/20 
Fawthrop assumed. 
 
 
 
¶15.         (C)  The A/S offered that a forum could be organized in 
Nigeria with World Bank President Robert Zoellick speaking to a 
wide audience.  Under Secretary for Economic, Energy, and 
Agricultural Affairs Bob Hormats would be invited as well to lend 
his knowledge of Africa.  The forum would be shaped with the 
broader picture in mind, not just oil.  This would not be sponsored 
by the IOCs.  Members of the business community and individuals 
that were committed to making oil meaningful to Nigeria's future 
would be asked to participate.  Talk would center on "over the 
horizon" issues, where Nigeria has gone right and where it has gone 
wrong.  Two or three fora would be defined with key people to spark 
debate.  Religious tensions, North-South issues, the lack of 
capacity in the GON, narco-trafficking, the growing irrelevance of 
Nigeria, as Princeton Lyman has suggested, could be potential 
subjects.  Nigeria is at a critical financial and political 
threshold and the entire nation could possibly tip backwards 
permanently per the A/S. 
 
--------------------------------------- 
CHINESE - AMERICAN RELATIONS IN AFRICA 
--------------------------------------- 
 
 
 
¶16.         (C)  What is the status of America's influence in 
Africa and how does it compare to China, Fawthrop queried?  The 
influence of the United States has increased in Africa, the A/S 
countered.  The United States' reputation is stable and its 
popularity is the highest in Africa compared to anywhere else in 
the world.  Obama has helped to increase that influence.  "We must 
manage the expectations of the Obama administration" offered the 
A/S.  The United States does not consider China a military, 
security or intelligence threat.  China is a very aggressive and 
pernicious economic competitor with no morals.  China is not in 
Africa for altruistic reasons.  China is in Africa for China 
primarily.  A secondary reason for China's presence is to secure 
votes in the United Nations from African countries.  A third reason 
is to prove that Taiwan is not an issue.  There are trip wires for 
the United States when it comes to China.  Is China developing a 
blue water navy?  Have they signed military base agreements?  Are 
they training armies?  Have they developed intelligence operations? 
Once these areas start developing then the United States will start 
worrying.  The United States will continue to push democracy and 
capitalism while Chinese authoritarian capitalism is politically 
challenging.  The Chinese are dealing with the Mugabe's and 
Bashir's of the world, which is a contrarian political model, the 
A/S stated. 
 
------- 
 
COMMENT 
------- 
 
 
 
¶17.         (C)  The A/S effectively provided the IOCs with a 
rationale for the United State's interest in Nigeria and its 
commitment to the country.  This commitment seems more substantial 
than the IOCs given the prospect of the PIB and the current state 
of play in Nigeria.  Providing the IOCs with statements of support 
through continuing if not increasing the USG presence in Nigeria 
will be important in determining the increasing, decreasing or 
non-existent role of the IOCs in the future in Nigeria.  As the A/S 
stated, if we can have a substantial presence in Pakistan, why not 
Nigeria?  END COMMENT 
 
LAGOS 00000071  005 OF 005 
 
 
¶18.          (U)  This message has been cleared by the AF Front 
Office. 
BLAIR