VZCZCXRO0740
PP RUEHMA RUEHPA
DE RUEHOS #0005/01 0051553
ZNR UUUUU ZZH
P 051553Z JAN 07
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 8328
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEHUJA/AMEMBASSY ABUJA PRIORITY 8166
RUEHWR/AMEMBASSY WARSAW PRIORITY 0058
RUEHCD/AMCONSUL CIUDAD JUAREZ PRIORITY 0032
RUEHIT/AMCONSUL ISTANBUL PRIORITY 0039
RULSDMK/DEPT OF TRANSPORATION WASHDC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHMCSUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 LAGOS 000005 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY 
SIPDIS 
 
DEPT PLEASE PASS TO JAMES WILLIAMS, OPIC 
 
E.O. 12958: N/A 
TAGS: ECPS ECON EINV EIND PGOV PREL NI
SUBJECT: NIGERIANS SUFFER HUGE LOSSES FROM POWER OUTAGES 
 
REF: 05 LAGOS 806 
 
LAGOS 00000005  001.2 OF 002 
 
 
¶1. (U) Summary: Despite the GON,s moves to privatize and 
restructure the power sector, Nigerians continue to suffer 
from inadequate power. Industrial and domestic consumers 
decry the state of the power sector in the last five months. 
Most Nigerians involved in small-scale enterprises spend 
naira 30,000 (USD 231) per month on diesel generators to 
sustain their businesses, yet they also pay the PHCN monthly 
for services not rendered. The GON attributes the dismal 
state of power supply to unrest in the Niger Delta and damage 
by militant groups to gas pipelines that feed power 
generating plants. This excuse has not been generally 
accepted by consumers. The average citizen and many experts 
argue that problems in the sector are due to poor 
infrastructure development and GON mismanagement. Septel will 
outline GON's plans to address these problems. End summary. 
 
-------------------------------------- 
Power Reform and Investment No Panacea 
-------------------------------------- 
 
¶2. (U) As part of a program to overhaul the power sector, the 
GON transformed the state-owned National Electric Power 
Authority (NEPA) - into the Power Holding Company of Nigeria 
(PHCN). PHCN was charged with privatizing 11 power 
distribution companies (discos), 6 generation companies 
(gencos) and 1 transmission company (transco) by the end of 
¶2006. The privatization program is far behind schedule as 
this deadline passes. Nor has a major program of government 
investment in power projects yet had an impact. 
 
¶3. (U) Power generation has failed to increase despite 
billions of dollars invested by the GON on building new power 
plants and refurbishing old ones. In its drive to deliver on 
electoral promises of providing 10,000 MW of electricity by 
2007, the present administration invested naira 1.3 trillion 
(USD 9.6bn) in the sector in the past seven years. Since 
December 2005, the PHCN's output has plummeted by almost 50%, 
from an already insufficient 4,000 megawatts (MW) to a meager 
2,000 MW.  Effective demand is estimated at 10,000 MW. The 
production cuts resulted in massive load shedding to curtail 
a wave of aggressive protests from millions of urban 
customers nationwide. The GON attributed the decline to the 
disruption of gas production and pipeline facilities in the 
Niger Delta since December 2005. This, according to the GON, 
had curtailed the volume of gas input to PHCN's thermal 
generating plants. The Egbin, Sapele, Delta IV and Afam 
thermal plants were affected. 
 
¶4. (U) The Manufacturers' Association of Nigeria (MAN), in 
its recent survey on the impact of power outages on industry, 
found industrial estates around the country enjoyed an 
average of 7.5 hours of electricity per day in 2005. The 
report, which in other words, put total power outages to 
industries at 16.5 hours per day, reported that the Ikeja 
industrial estate in Lagos had the highest power supply at 
12.5 hours per day. Edo and Delta States suffered the 
greatest energy scarcity, receiving only 4 hours of power 
supply per day. The Bureau of Public Enterprises (BPE) 
estimated that Nigeria loses about naira 135bn (USD 1.03bn) 
annually to inefficiency in the power sector. 
 
¶5. (U) MAN member companies run on diesel generators to meet 
targets. Resort to generators increases production costs 
significantly. One manufacturer claimed he could double his 
profits if he could rely on the public power supply. 
Sensitive manufacturing processes are hard hit by inadequate 
power supply. Even with the use of back-up generators, there 
is a gap of several seconds before power is restored, harming 
sensitive equipment, according to business owners and 
aviation industry officials. 
 
--------------------------------------------- - 
Power Outage Takes a Toll on Average Nigerians 
--------------------------------------------- - 
 
¶6. (U) Power outages have taken a financial toll on business 
 
LAGOS 00000005  002.2 OF 002 
 
 
and private life. Many small- and medium-scale business 
owners claim they spend naira 30,000 (USD 231) per month to 
power their operations. For many, the price of electricity 
accounts for most of their overhead costs, undermining the 
competitiveness of their products and services. While a 
small-scale hairdresser in Ketu, Lagos spends naira 15,000 
(USD 115) per month on diesel-powered generators, her 
customers have responded negatively to her attempts to raise 
charges to cover these costs. The owner of a printing press 
claimed to have been running his press exclusively on power 
from a diesel generator for several months. According to him, 
extra funds that could have been used to expand the business 
or maintain machinery were being used on fuel. 
 
¶7. (U) Domestic consumers suffer similar hardships. Many have 
resorted to using small gasoline generators, which power 
appliances such as fans and televisions. Most middle and 
upper-middle class households have two generators. Many 
residents pine for the arrival of the cooler temperatures of 
the rainy season so they can reduce generator use and relieve 
pressure on household finances. 
 
-------------------------------------- 
Nigeria's Power Company Loses Capacity 
-------------------------------------- 
 
¶8. (U) A visit to PHCN offices at Magodo and Ilupeju in Lagos 
revealed the company's offices also run on diesel-fueled 
generators. At the Magodo office, customers paid electricity 
bills and lodged complaints about inadequate power supply 
above the muffled sound of a 250 KVA F.G. Wilson diesel 
generator. In Ilupeju, a 35 KVA Perkins diesel generator was 
in use. At both locations, customers challenged PHCN 
personnel on the accuracy of their bills and questioned 
whether PHCN was overcharging them. 
 
¶9. (SBU) Poor infrastructure and gross mismanagement of 
revenue allocation by the GON and PHCN officials are the 
true, underlying reasons for the abysmal state of power 
supply in the country.  However, according to many industry 
sources, if NEPA had properly done its homework the 
dislocation caused by the militants would have been a 
nuisance but not catastrophic.  Over the years, however, NEPA 
and PHCN officials inflated contract costs to extract profit. 
Some contractors, in collaboration with NEPA/PHCN officials, 
were said to have imported used turbines and transformers at 
a cost that could have purchased brand new machinery. 
 
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Comment 
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¶10. (SBU) Since 1999, President Obasanjo's administration has 
spent more funds on the PHCN than on any other government 
enterprise, yet improvements in power supply remains elusive. 
Many have attributed this to sabotage and conspiracy between 
government officials and importers of generators. Several 
target dates for the transfer of power generation and 
distribution to the private sector have come and gone without 
progress being made. This casts doubt on the GON's political 
will to reform the sector, which is believed to be a major 
source of patronage for the federal government. 
 
BROWNE