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PP RUEHWEB

DE RUEHUJA #2335 2500749
ZNR UUUUU ZZH
P 070749Z SEP 06
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 7031
INFO RUEHOS/AMCONSUL LAGOS 4978
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS ABUJA 002335 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS TO USTR 
TREASURY FOR DAN PETERS 
 
 
USDOC FOR 3317/ITA/OA/KBURRESS 
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS 
 
E.O. 12958: N/A 
TAGS: EPET EINV BEXP PGOV KCRM NI
SUBJECT: THREATS TO BONNY LNG PROJECT 
 
 
¶1. (SBU) Summary: The project managers have shut down the $1.2 
billion train six construction of the Nigeria Liquid Natural Gas 
(NLNG) Plus Project on Bonny Island twice in the last two months due 
to violence and sabotage. The project management, headed by a TSKJ, 
a subsidiary of Kellog, Brown and Root (KBR), in turn a subsidiary 
of Halliburton, said that if security were not restored, they might 
pull out of the project. Given the current problems, TKSJ had 
incurred costs that the project owners so far had not reimbursed, 
causing them to lose tens of millions of dollars. The NLNG 
corporation, a joint venture between the Nigerian National Petroleum 
Company (NNPC), Shell and others, so far did not appear to take the 
security problems seriously. TKSJ believed Rivers State Governor 
Peter Odili had the means to settle many of the problems, and was 
scheduled to meet him. TKSJ planned to restart work the week of 
September 4, but would fire a large group of troublemakers, 
institute strict security procedures, and greatly increase police 
presence at the project. Current projections are for natural gas to 
overtake oil as a revenue earner for Nigeria in the next decade, but 
only if security problems do not derail project construction, 
included a slated $5 billion expansion of the Bonny Island facility. 
End Summary. 
 
¶2. (SBU) On September 2, Joe Dougherty, TSKJ site resident manager 
of the NLNG Plus project on Bonny Island called on the Ambassador to 
discuss the security problems that had forced his company to shut 
down work at the site twice in the last month. TSKJ is subsidiary of 
Kellog, Brown and Root, a soon to be spun off subsidiary of 
Halliburton. TKSJ is building train six of the NLG project and 
operating the site during construction.  The project currently loads 
two tankers a week of LNG. Dougherty estimated that each tanker 
produced a profit of $15 million, so losses are $30 million for each 
week the project is shut down. The kidnapping of three Filipino 
workers and labor unrest resulting in vandalism and sabotage at the 
plant had forced them to shut down all work and lock down the site 
twice in the last month. 
 
¶3. (SBU) So far NLNG, the owner of the project, had not agreed to 
compensate TSKJ for the losses incurred, nor did the owner or its 
shareholders (NNPC and Shell) appear to take the security problems 
seriously, dismissing them as local labor squabbles. Though 
Dougherty agreed that the root of the problem was labor unrest, the 
problems involved were serious. With death threats frequent, and an 
actual kidnapping of expatriate personnel, the safety of project was 
a real issue. The occupation of work sites and the damaging of 
equipment could have even more serious consequences. In a natural 
gas plant pressure imbalances could cause catastrophic explosions. 
Finally, the company would have no incentive to continue work if 
financial losses continued to mount. Most of worker demands did not 
apply directly to their employer, but rather centered around taxes 
and other deductions. In an earlier case, the governor agreed to 
halve income taxes for the Bonny Island workers. Thus much of the 
unrest is directed more at the state and federal government. 
Jockeying for advantage and access to fees among the 22 local rulers 
also might be a factor behind some of the trouble. 
 
¶4. (SBU) Dougherty believed that Rivers State governor Peter Odili 
had the most authority to resolve the issues and restore security. 
TKSJ had scheduled meeting with the governor for August 31; that was 
pushed back to September 5. TKSJ planned to resume operations at 
Bonny Island the week of September 4, starting with the firing of 
about 500 troublemakers.  The remaining workers would be subjected 
to drug screening, security searches and entering and leaving the 
compound, and stricter access controls. To prevent the fired workers 
from causing trouble, TKSJ planned to have a greatly expanded 
presence of armed police. Drug screening could remove up to an 
additional 1000 workers.  All this would impact the project, which 
was already short of about 1000 workers, but Dougherty expected that 
eventually the jobs would be filled. Labor contracts were a chief 
source of revenue for local leaders, who as labor brokers got a 
percentage of the salary of each worker provided to the site. The 
company's lawyer, who is a traditional ruler in neighboring Brass 
Island, in a subsequent meeting with the Ambassador, said the 
general atmosphere of lawlessness in the Delta was a factor behind a 
standard labor dispute escalating into greater violence. 
 
¶5. (SBU) If NLNG continued to balk at covering losses due to the 
security problems and if Governor Odili failed to help reduce future 
security problems, Dougherty said the company would look at pulling 
out of the project.  Further, they were preparing to bid on the work 
of train seven and further expansion, slated to be up to $5 billion 
of new investment, but would have to review their future plans. 
Comment: Natural gas is set to overtake oil as Nigeria's largest 
revenue earner within a decade. If unresolved, security problems in 
the Delta could be a serious set back to the trend, and an obstacle 
for U.S. investment and contracts in Nigeria. CAMPBELL