VZCZCXRO3886
RR RUEHMA RUEHPA
DE RUEHOS #0182/01 0721406
ZNR UUUUU ZZH
R 131406Z MAR 07
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 8600
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 8425
RUEHBJ/AMEMBASSY BEIJING 0085
RUEHUL/AMEMBASSY SEOUL 0037
RUEHWR/AMEMBASSY WARSAW 0190
RUEHCD/AMCONSUL CIUDAD JUAREZ 0170
RUEHIT/AMCONSUL ISTANBUL 0171
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 LAGOS 000182 
 
SIPDIS 
 
SIPDIS 
 
DEPT PLEASE PASS TO JAMES WILLIAMS, OPIC 
DEPT PLEASE PASS TO TDA 
 
E.O. 12958: N/A 
TAGS: ECPS ECON EINV EIND PGOV PREL NI
SUBJECT: DWINDLING POWER SUPPLY LEAVES LAGOS DARK 
 
LAGOS 00000182  001.2 OF 002 
 
 
¶1. (U) Summary: For the past three months, Lagos State has 
suffered a critical diminution in its power supply. Public 
power supply, normally spotty at best, has become almost 
non-existent. This has more than doubled operating costs for 
businesses and households for those fortunate enough to have 
recourse to diesel-powered generators. Lagosians without 
generators complain of having only four hours of electricity 
each day, with many neighborhoods going without power for 
days. Observers say this situation is the worst in recent 
history. End summary. 
 
--------------------------- 
Lagos Power Supply Dwindles 
--------------------------- 
 
¶2. (U) For the past three months, Lagos State has been 
crippled by power shortages. Public power supply, normally 
spotty at best, has become almost non-existent. The Power 
Holding Company of Nigeria (PHCN) reported that while demand 
for power in Lagos State was 1,200 megawatts (MW), the state 
currently received only 300MW. 
 
¶3. (SBU) The shortage has more than doubled operating costs 
for businesses and households, due to running costly 
diesel-powered generators.  Lagosians without generators 
complain of having only four hours of electricity daily. In 
some areas, residents report having no power for several 
days. This situation, which appears to be worsening in spite 
of the GON's assurances to the contrary, has driven some 
manufacturers to neighboring states.  Managing Director of 
Ergonomix Group Ltd., Shola Adebajo, told us his plant had 
been relocated to Enugu State as power there was more 
reliable. The Nigerian Manufacturers Association recently 
reported that the manufacturing capacity utilization rate, 
which hovered around 50% in 2004 and 2005 had fallen to less 
than 24% by Q1 2007, mainly due to the lack of power. In 
Lagos, Ergonomix ran on generators full time, he said. In 
Enugu, there was less demand and Ergonomix would have access 
to more reliable electricity. 
 
¶4. (SBU) High production costs have affected large 
manufacturers as well. French Commercial Counselor 
Marie-France Derbier said the French company Michelin decided 
to close its 1,300 employee tire manufacturing plant, located 
in Port Harcourt, in large part because of decreased 
competitiveness due to high energy costs. Michelin would 
retain its marketing, distribution, and sales operations in 
the country. 
 
¶5. (U) Since January, PHCN has rationed power. PHCN reported 
rationing was necessitated by a shortage of natural gas 
resulting from damage to the gas pipeline from Escravos to 
Lagos, which militants have refused to allow the Nigerian 
National Petroleum Corporation (NNPC) to repair. Power 
generation at Egbin power station decreased from 700MW to 
200MW, an all-time low, and generation at Delta Power Station 
also decreased significantly. 
 
---------------------------------------- 
Integrated Power Projects Don't Deliver 
---------------------------------------- 
 
¶6. (U) The GON claimed investment in the ailing power sector 
since 2004 totaled USD 4.5 billion. In 2004, the GON 
announced production targets of 10,000 MW by 2007 and 15,000 
MW by 2010. On March 7, Minister of Energy Edmund Daukoru 
announced new production targets of 5,500 MW by May 29 and 
15,000 MW by year's end. Currently, 1,500 MW is being 
generated. A key part of this reform was the implementation 
of the National Independent Power Project (NIPP), which was 
designed to improve power supply through the implementation 
of generation, transmission, distribution, and gas supply 
plants. 
 
¶7. (U) The NIPP involves the building of eleven power plants, 
 
LAGOS 00000182  002.2 OF 002 
 
 
seven of which were to be located in the Niger Delta. Those 
to be built in the Niger Delta include 
 
- Eyean 250MW (Delta State) 
- Sapele 250MW (Delta State) 
- Calabar 250MW (Cross River) 
- Ikot-Abasi 123MW (Akwa Ibom) 
- Gbaran Ubie 125 MW (Bayelsa) 
 
Those to be built in southern states are 
 
- Egbema 175MW (Imo State) 
- Papalanto 335 MW (Ogun) 
- Omotosho 335 MW(Ondo) 
- Alaoji 346MW (Abia) 
 
A single plant generating 414MW is planned for construction 
in the Middle Belt, Kogi State. Few of these stations have 
been built and none is operating at full capacity. 
 
¶8. (U) States were also building IPPs. Rivers State Governor 
Peter Odili commissioned the Omoku Power Plant, expected to 
produce 100 MW. In Akwa Ibom, and IPP would produce 185 MW. 
Neither of these is yet online. 
 
¶9. (U) In addition to these plants, the GON planned to 
generate an additional 7,520MW through joint venture 
partnerships with international oil companies. At a public 
lecture, PHCN Coordinator Joseph Makoju announced agreements 
had been reached with China and South Korea for such 
projects. 
 
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Comment 
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¶10. (SBU) Some industry experts argue the critical element 
for Nigeria in meeting its energy needs is the ability of 
firms to negotiate power purchase agreements (PPAs) with 
favorable terms upheld by Nigerian authorities. However, 
there is no legal framework for such PPAs. In the past few 
years, the GON has come close to breaching the only existing 
PPA, with U.S. power services company AES Nigeria Barge Ltd., 
by failing to pay for power purchased. In addition, the 
government's inability to repair the Escravos to Lagos 
pipeline demonstrates the degree to which frustration in the 
Niger Delta can thwart current production as well as GON 
plans for the future. 
 
¶11. (SBU) In its 2007 budget, the GON projected a yearly GDP 
growth rate of ten percent as well as expansion of the 
non-oil sector. However, growth is critically dependent on an 
adequate power supply. In spite of massive investment and an 
increase in PHCN's revenue collection, up from 40% in 2003 to 
65% in 2005, Nigeria has seen a decline in power generation 
in the recent past. It seems this worrisome condition will 
persist, at least for the short term. 
 
 
BROWNE