VZCZCXRO9250
PP RUEHMA RUEHPA
DE RUEHUJA #1376/01 1800835
ZNR UUUUU ZZH
P 290835Z JUN 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 0073
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 7275
RUEHWR/AMEMBASSY WARSAW 0412
RUEHCD/AMCONSUL CIUDAD JUAREZ 0413
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 02 ABUJA 001376 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT PASS TO USTR (AGAMA) 
DEPT OF TREASURY FOR DPETERS 
DEPT OF COMMERCE FOR 3317/ITA/OA/KBURRESS 
DEPT OF ENERGY FOR CAROLINE GAY 
 
E.O. 12598: N/A 
TAGS: ENRG ECON EINV NI
SUBJECT: NIGERIA: ELECTRICITY GENERATION UPDATE 
 
 
ABUJA 00001376  001.2 OF 002 
 
 
¶1.  Summary.  Nigerian Electricity Regulatory Agency (NERC) was 
established in 2005 to regulate electricity generation, as a first 
step in unbundling, privatizing and attracting new investment in the 
power sector.  Chronic electricity shortages have hindered social 
and economic growth in Nigeria.  The GON continues to approve new 
projects, but recently acknowledged that the December 2007 target 
date of 10,000 Megawatts (MW) of production would not be reached. 
Many projects are in the Niger Delta region, which is plagued by 
violence.  Further most projects will use natural gas as fuel yet 
supplies are neither physically nor contractually secured.  The 
sequencing of generation, transmission and distribution upgrades may 
slow power entering the grid.  End Summary. 
. 
STATE OF THE INDUSTRY 
--------------------- 
. 
¶2.  At a forum in Abuja, NERC Chairman Dr. Ransome Owan and other 
energy officials discussed the state of power generation in Nigeria. 
 Since its creation, NERC has granted generation licenses to twenty 
independent power producers to generate a total of 8,237.50 MW of 
electricity by the year 2010.  These are in addition to the seven 
on-going GON projects that were slated to bring the national 
capacity to 10,000 MW by December 2007.  On June 19, NERC granted 
four new licenses for Independent Power Projects (IPPs).  The four 
licenses are Shell Petroleum Development Company to generate 642 MW 
from Afam in Rivers State; Ibafo Power Station Limited to generate 
200 MW from Ibafo in Ogun State; Western Technologies and Energy 
Services to generate 50 MW and 1000 MW at Buena Vista Estate at 
Lekki in Lagos State and Maya Ajegunle in Ogun State respectively; 
and Hudson Power Limited to generate 50 MW at Wara in Ogun State. 
 
¶3.  Joseph Makoju, the Special Adviser to the President on Electric 
Power, reported that the December 2007 target date was no longer 
feasible because of local communal clashes in the Niger Delta where 
many projects are located.  Makoju put the new expected completion 
date at June 2008.  He said that power generation had improved to 
3,200 MW in April 2007, but recent press items reported that 
generation had dropped back below 2,000 MW in June.  The two power 
plants of combined capacity of 670 MW in Ondo and Ogun states 
commissioned in May 2007, were not yet operational because power 
evacuation and grid line projects are not completed, but would be by 
the end of 2007, according to Makoju. 
. 
NERC PRIMER 
----------- 
. 
¶4.  The NERC was set up as the electric power sector regulator under 
Nigeria's Electric Power Sector Reforms (EPSR) Act of May 2005.  The 
NERC is empowered to make regulations on arbitrations, licensing, 
customer matters, market monitoring, and fines and penalties.  NERC 
has the exclusive responsibility to license companies to generate, 
transmit and distribute electricity.  It is responsible for 
establishing the regulatory framework within which power companies 
operate.  Dr. Owan reported that to promote competition and private 
sector participation, the NERC seeks to allow for prudent cost 
recovery and reasonable margins, using a model Power Purchase 
Agreement (PPA) review process that addresses cost recovery, profit 
and risk sharing.  The NERC has launched a nationwide customer 
awareness campaign to enlighten electricity consumers and 
stakeholders on NERC activities and their rights and obligations in 
a market-driven power sector.  NERC also is presenting the framework 
it is devising to encourage private investment in power generation 
and distribution. 
. 
INVESTMENT OPPORTUNITIES IN THE POWER SECTOR 
--------------------------------------------- 
. 
¶5.  Dr. Owan promoted Nigeria's electricity sector as holding great 
potential following deregulation.  He underscored that Nigeria's 
power sector reforms sought to create reliable and efficient 
electricity at affordable prices in a business friendly environment 
with a cost-effective tariff and cost recovery.  The NERC's cardinal 
mission was to attract private sector investment in the power 
industry by creating fair and stable regulations for all players, 
sanctity of contracts, full protection of investments, and 100% 
profit repatriation.  He estimated that Nigeria's power sector had 
unmet demand in excess of 20,000 MW, and urged investors to take 
advantage.  The NERC was holding workshops and seminars on safety 
and health standards.  The NERC had received funding from the United 
States Government on safety standards. 
. 
 
ABUJA 00001376  002.2 OF 002 
 
 
OTHER ISSUES 
------------ 
. 
¶6.  Electricity generation continues to be a thorny issue in Nigeria 
as chronic power shortages hinder social and economic development. 
The NERC's role is to create a sound regulatory regime that promotes 
private sector entry and competition in the sector.  Many pieces of 
the puzzle also need to be put in place, however.  Many new plants 
are located in the Niger Delta, close to fuel supplies, but are 
threatened by security and safety issues.  Secondly plans to build a 
network to supply natural gas to many of the new power plants and 
locations are lagging behind.  Most plants have not secured natural 
gas supply contracts, and the absence of effective regulation in the 
natural gas sector is a further hindrance to gas-based power 
projects.  Beyond the Delta, Nigeria lacks an adequate national grid 
to transmit power generated from even two of the recently 
commissioned plants in Ondo and Ogun states, demonstrating problems 
with the sequencing of generation, transmission and distribution 
projects and upgrades.  Finally the privatization process has been 
repeatedly stopped and started and subject to mammoth political 
interference, leaving many existing elements of the existing 
infrastructure in legal limbo.  If the GON is serious, focused 
attention needs to be brought to bear, and coordinated action needs 
to be taken, on the many issues hindering progress in the power 
sector, despite literally billions of dollars in government 
investment. 
 
CAMPBELL