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

C O N F I D E N T I A L SECTION 01 OF 03 ABUJA 001624 
 
SIPDIS 
 
 
E.O. 12958: DECL: 07/06/2006 
TAGS: EPET ELAB ECON NI
SUBJECT: NIGERIA: MEETING WITH SPECIAL ADVISOR FOR 
PETROLEUM RILWANU LUKMAN--DOWNSTREAM DEREGULATION STILL ON 
TRACK; REFINERY REHABILITATION MISHANDLED 
 
 
REF: A. ABUJA 1530 
     ¶B. ABUJA 742 
     ¶C. LAGOS 1077 
 
 
¶1. Classified by Ambassador Howard Jeter for reasons 1.5 
(B) and (D). 
 
 
 
 
¶2. (C) Summary:  On June 22 Ambassador Jeter, DOE 
Energy Advisor Brodman, and Econoff Flook (notetaker) 
met in Abuja with Special Advisor to the President for 
Petroleum Affairs and Energy, Dr. Rilwanu Lukman. 
During the meeting, Dr. Lukman indicated that the GON 
has no choice but to proceed with fuel price 
deregulation as planned. Public sensitivity to 
deregulation makes this an explosive political issue as 
Nigeria gears up for the 2003 Presidential elections. 
In addition, Lukman revealed that the turn-around 
maintenance (TAM) contracts for Nigeria's refineries 
have been badly mishandled, and as a result Nigeria's 
four refineries remain in a dismal state.  DOE Energy 
Advisor Brodman described and again offered USG 
technical assistance in the areas of deregulation, 
pipeline security, and safety, an energy assistance 
program funded through prior year Economic Support Funds 
(ESF).  Dr. Lukman welcomed this offer and agreed to 
follow-up with his staff.  Other issues discussed 
included upstream exploration and production 
developments (Ref A) and climate change (Septel). End 
Summary. 
 
 
 
 
------------------------- 
GON Plans on Deregulation 
------------------------- 
 
 
 
 
¶3.  (SBU) During the hour and 30 minute meeting, 
Ambassador Jeter asked if the GON intended to proceed 
with petroleum deregulation.  Many observers believe 
that President Obasanjo can ill afford to implement this 
controversial policy given the sustained public protest 
following the GON's previous announcement to do so 
(Reftel B provides a detailed analysis of deregulation). 
Some political analysts, as mentioned in Reftel B, argue 
that Obasanjo would sacrifice his future political 
ambitions, if he implements deregulation while Nigeria 
begins to focus on the 2003 elections.  Energy sector 
insiders predict that the GON will continue to press for 
price deregulation, but that actual implementation will 
be delayed until after the 2003 presidential elections. 
Some question if the GON has made a final decision on an 
implementation time frame. 
 
 
 
 
¶4. (SBU)  Dr. Lukman confirmed that the GON is 
proceeding with deregulation "as planned".  He said that 
the GON has no choice but to do so. (Comment: This 
response is an about-face from the deregulation 
discussion that DOE Energy Advisor had with Dr. Lukman 
in August 1999, when Lukman refused to take a firm 
position on deregulation.  End Comment.)  Lukman noted 
that Special Assistant to the President for Petroleum 
Matters, Engineer Funsho Kupolokun, and Minister for 
National Orientation and Information, Professor Jerry 
Gana have been tasked by President Obasanjo to gain 
public support for deregulation.  Kupolokun is engaged 
in a state-by-state lobbying campaign.  The apparent 
strategy is to bring as many state governors and 
political leaders into the pro-deregulation fold as 
possible; then utilize these allies to educate the 
masses on the benefits of deregulation. 
 
 
 
 
5.(C) In discussing labor's sustained resistance to 
deregulation, Ambassador Jeter commented that he met the 
National Labor Congress (NLC) leader, Mr. Adams 
Oshiomhole, several months ago in Lagos (Reftel C). 
(Comment:  Oshiomhole is a vocal opponent of 
deregulation, and the impact of NLC labor strikes on the 
economy provides the NLC considerable influence over 
this issue. End Comment.)  The Ambassador recalled that 
during that discussion, the NLC President indicated that 
the NLC was in fact willing to cooperate with the GON on 
deregulation.  Dr. Lukman responded that the NLC has not 
been cooperative, and the NLC leadership is beholden to 
the masses. Lukman went on to opine that "Adams 
Oshiomhole is just a little too bright," implying that 
Oshiomhole changes his tune depending upon the audience. 
Dr. Lukman stated that the message the Obasanjo 
Administration wants to get across to the NLC, and to 
the public at large, is that the GON is spending 
massively on petroleum subsidies, and this money could 
be put to better use in areas such as health care, 
education, and business development, all "democracy 
dividends" that the public is clamouring for. 
¶6. (C) Ambassador Jeter shared with Lukman a proposal 
where the USG may be able to assist the GON with 
deregulation efforts.  One aspect of this proposal could 
be targeted specifically at the NLC and other labor 
organizations. Another program could focus on political 
groups and leaders.  On the labor side, all parties 
agree that a confrontation between labor and the GON 
would be counter-productive.  The proposal Ambassador 
Jeter described would educate labor leaders on the 
positive aspects of deregulation, and its long-term 
benefits for Nigeria.  Such a program would link 
Nigerian labor leaders with counterparts in countries 
where petroleum deregulation efforts have worked.  A 
similar program could be designed for political leaders 
and parties.  Both programs would bring foreign experts 
to Nigeria to speak about the benefits of price 
deregulation.  Another possibility is to sponsor 
Nigerian official travel to countries where deregulation 
has been successful.  The Ambassador suggested that this 
type of assistance may require a "silent partner" 
relationship, given the public sensitivity to 
deregulation.  Lukman welcomed this idea and thought 
that our interest and low-key assistance might help. 
 
 
 
 
------------------------------------- 
Refineries Remain in Dismal Condition 
------------------------------------- 
 
 
 
 
¶7. (SBU) Also raised during the discussion was the 
condition of Nigeria's four refineries.  Ambassador 
Jeter remembered that hundreds of millions of dollars 
had been set-aside during the interim Abubaker 
Adminstration to "fix" the refineries, but it appeared 
that very little had been done.  Dr. Lukman was very 
frank in his condemnation of the ongoing turn-around 
maintenance contracts.  He said that these deals have 
been badly mishandled, and as a result there has been 
little improvement in the refineries' production 
capacity.  In his view, the solution is to allow present 
TAM contractors to complete projects, even if badly, and 
then move to sign new contracts with other firms.  He 
opined that once the GON officials who oversaw the 
present TAM contracts "are out of the way," (implying 
that they would be fired) new contracts would be awarded 
to firms more reliable and competent to complete the 
task at hand. 
 
 
 
 
---------------------------- 
Pipeline Security and Safety 
---------------------------- 
 
 
 
 
¶8. (C)  Another USG technical assistance offer discussed 
was a pipeline security and safety program.  DOE Energy 
Advisor Brodman described a USG study which evaluated 
how different countries around the world have addressed 
pipeline security and safety.  Using this study, and the 
successful examples of other countries, a program could 
be designed by the U.S Department of Energy and the 
Department of Transportation.  This assistance would 
look at ways to address Nigeria's ongoing pipeline 
security and safety problems. Program possibilities 
include a "needs assessment" and various training 
opportunities.  Again, Lukman welcomed the offer of 
assistance both in the areas of deregulation and 
pipeline security and safety.  It was reiterated to Dr. 
Lukman that given the sensitivity of these issues, it 
would be best not to publicize the U.S. role. 
 
 
 
 
¶9. (SBU) Note: The GON has continually battled the 
problem of pipeline sabotage.  This practice targets all 
types of pipelines.  "Product" pipelines, which 
transport gasoline and other petroleum products, are 
often tapped and refined products are siphoned off. 
This activity occurs at all levels, from organized 
criminal gangs with tanker trucks, down to the local 
villager with a plastic bucket.  Other types of 
pipelines, including crude oil pipelines, are targeted 
for various other reasons including theft of crude and 
sabotage.  The end result of these practices is a heavy 
loss of lives, environmental degradation, and supply 
disruptions. 
 
 
¶10. (SBU) Comment:  Nigeria is a tale of paradoxes.  On 
the one hand the country has abundant hydrocarbon 
reserves, both in crude oil (25 billion barrels) and 
also natural gas (159 trillion cubic feet). 
Unfortunately, ongoing upstream prospects and excitement 
do not transcend to the downstream side of the industry 
where domestic refining, distribution, and regulatory 
systems are fiascos.  Dr. Lukman confirmed what many 
industry insiders have reported:  Nigeria's refineries 
remain in dismal condition, official refinery production 
figures are often inaccurate, and frequent GON 
statements that all refineries are working near "full 
capacity" are plainly misleading. 
 
 
 
 
¶11. (SBU) Comment Cont.  The good news is that the 
Obasanjo Administration appears intent on implementing 
fuel price deregulation.  This policy shift, if 
implemented, should have a profoundly positive impact on 
the Nigerian economy.  In Lukman's words it will free up 
petroleum subsidies to be put to better use elsewhere. 
As for cross-border smuggling; "if we charge an 
appropriate price they (Benin and Niger) can take as much 
as they want." Press reports indicate that domestic 
gasoline consumption has gone up from 12 million litres 
per day in 1999 to the present level of 25 million 
litres per day.  Dr. Lukman indicated that these figures 
are inaccurate.  However, in our view these numbers do 
give some indication of the phenomenal growth in demand 
and how, via a GON fuel price subsidy, a great number of 
petroleum smugglers are growing rich, either by 
supplying the domestic "black market" or through cross- 
border smuggling. 
Jeter