VZCZCXRO1936
PP RUEHMA RUEHPA
DE RUEHUJA #1582/01 2061139
ZNR UUUUU ZZH
P 251139Z JUL 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 0362
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 7483
RUEHWR/AMEMBASSY WARSAW 0468
RUEHNM/AMEMBASSY NIAMEY 0123
RUEHCO/AMEMBASSY COTONOU 0202
RUEHCD/AMCONSUL CIUDAD JUAREZ 0468
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 ABUJA 001582 
 
SIPDIS 
 
SENSITIVE 
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 EAID NI
SUBJECT: NIGERIA: MISSING LONG-TERM ENERGY PLAN 
 
REF:  A. ABUJA 1575 
 
  ¶B. LAGOS 494 
  ¶C. ABUJA 1376 
 
ABUJA 00001582  001.2 OF 003 
 
 
¶1.  (SBU) SUMMARY:  Nigeria faces power problems despite abundant 
oil and gas resources because it does not have a coherent long-term 
energy plan, according to Dr. Joseph Makoju, Special Adviser to the 
President on Electric Power.  Since 2005, the GON has spent $13.7 
billion on the power sector, however, due to construction delays, 
vandalism, Niger Delta insecurity, political turmoil and poor 
planning power production has not increased.  END SUMMARY. 
 
¶2. (U) U.S. Department of Energy Assistant Secretary for Policy and 
International Affairs Karen Harbert on July 17 met with Dr. Joseph 
Makoju, Special Adviser to the President on Electric Power.  Makoju 
described the recent history of Nigeria's power sector and 
strategies to address Nigeria's domestic energy crisis.  A/S 
Harbert's discussion is supplemented with details from previous 
Mission interaction with Makoju. 
 
------------------- 
Power Sector Primer 
------------------- 
 
¶3. (U) Despite rapid population growth and rising demand since the 
1970s, the GON invested inconsistently in power infrastructure 
causing a huge electricity supply deficit.  When President Obasanjo 
took power in 1999, seven gas-fired and hydro power plants, some 
virtually obsolete, produced an average of 1,750 megawatts (MW) per 
day.  More than 70% of transmission capacity was over 20 years old 
and not routinely maintained, leaving the power grid fragile and 
overstretched.  Starting in 1999 the GON embarked on a two-track 
strategy of government investment to expand and rehabilitate power 
infrastructure, and to deregulate the power sector to encourage 
private investment.  While Nigeria doubled functional power 
generation capacity between 1999 and 2007, gains were achieved by 
rehabilitating old plants. 
 
¶4. (U) From 2002 to 2004 GON officials expected that private 
investment would fund domestic power sector expansion and reduced 
government investment.  By 2005, lukewarm private investment in the 
sector coupled with declining performance led the GON to increase 
its role in restoring the power system using the excess crude fund 
under the $9.7 billion National Independent Power Project (NIPP). 
The NIPP included generation, transmission, distribution, and gas 
supply projects across Nigeria.  The plan foresees privatizing the 
majority of these assets at a later date to recoup their development 
costs. 
 
---------------------------- 
Progress But Problems Remain 
---------------------------- 
 
¶5.  (SBU) Since 2005 the GON spent $4 billion on power 
infrastructure expansion and 17 new power station projects ongoing 
in locations across Nigeria - including seven in the Niger Delta - 
making the NIPP the largest power project in Africa.  Plans for 
several Independent Power Plant (IPP) joint ventures with 
international oil companies (IOCs) continue.  Makoju estimated 
Nigerian suppressed electricity demand was between 10,000 and 20,000 
MW.  Nigeria was working with the World Bank on a study to assess 
Nigeria's suppressed demand, needed to expand cheaper grid-supplied 
power and the gas network to industry in Lagos and Port Harcourt to 
encourage privately-generator users to join the public power grid. 
 
 
¶6.  (SBU) Despite progress, NIPP implementation was delayed and no 
NIPP plant had yet been commissioned.  Securing adequate and 
reliable gas supplies was a hurdle for capacity expansion.  As of 
July, Nigeria's total gas requirement for power generation was 920 
million standard cubic feet per day (mmscfd) but supply was 400 
mmscfd.  The Niger Delta security situation had reduced gas supplies 
available to power plants, affecting power generation.  As of July 
2007, Nigeria's power sector exhibits a high incidence of load 
shedding from insufficient generation due to restricted or 
interrupted gas supplies to gas-fired power plants, and heavy water 
reservoir drawdown at hydropower stations from drought and 
overrunning of hydro plants.  Makoju cited the vandalism in February 
2006 of the Escravos-Lagos Gas Pipeline (ELP), a major line for the 
 
ABUJA 00001582  002.2 OF 003 
 
 
Egbin power plant.  However, as of July the local community in the 
area of the rupture had granted repair crews access to the pipeline 
and he expected the ELP to be operational by October.  Makoju 
contended attitudes in the Niger Delta had changed and attacks on 
energy infrastructure would decrease, due to improvements in state 
and local government accountability.  He pointed to the militants' 
willingness to come to the bargaining table over the last ten months 
as positive steps, despite increased hostage taking. 
 
---------------------------- 
Necessity for New Gas Regime 
---------------------------- 
 
¶7.  (SBU) Makoju underscored that the GON would need a gas 
regulatory and pricing regime that provided incentives for 
international oil companies to invest in the domestic gas 
infrastructure.  A/S Harbert shared similar concerns of power 
generation shortfalls in the U.S.  Makoju was optimistic that 
efforts to form a 25-year power development plan would be successful 
because it was necessary to depoliticize Nigeria's electricity 
tariff. 
 
--------------------------------------------- -- 
Electricity Pricing Endangers Power Development 
--------------------------------------------- -- 
 
¶8.  (SBU) Makoju indicated the Nigerian Electric Power Authority's 
(NEPA) successor companies still relied on GON subsidies for 
financial viability, but stressed they must achieve financial 
autonomy and independence to survive in the long run.  The GON 
electricity tariff structure reinforced the reliance on subsidies 
and put undue stress on the budget, exacerbated by Power Purchase 
Agreements (PPAs) with Agip and AES Independent Power Plants (IPPs). 
 The IPPs paid world prices for feedstock gas, and the PPAs 
obligated the GON to pay world prices for the electricity IPPs 
generated.  Makoju lamented the GON was hemorrhaging cash to meet 
its PPA obligations, severely depleting power sector working 
capital.  This contributed to an $11.7 million monthly power sector 
operating loss and which led to under funding supplies and 
maintenance at government-owned plants.  Further, the persistent 
threat of GON default on PPA's led IPPs to demand securitization for 
GON payments and could deter future IPP investment.  If the GON 
privatized its gas-fired power plants, projected total monthly PPA 
obligations would reach $51 million.  Privatization thus might "do 
more harm than good" if the electricity tariff was not adjusted to 
reflect costs.  He advocated phasing out power subsidies gradually. 
A/S Harbert agreed this was not sustainable and advocated moving to 
a system where power development costs were passed on to the 
consumer. 
 
--------------------------- 
Diversifying the Energy Mix 
--------------------------- 
 
¶9. (SBU) As part of its 25-year energy plan, the GON plans to 
diversify its energy mix by exploring several potential hydropower 
projects that together could add 6,000 MW of power generation 
capacity.  The GON was interested in coal-fired power plants, 
biodiesel, wind, and solar power for off-grid generation.  These 
off-grid initiatives would work in conjunction with the GON's rural 
electrification program, but would require government subsidies and 
international aid assistance in the absence of private investment. 
A/S Harbert offered the U.S. government's experience with regulating 
renewable energy.  The geographic peculiarities of U.S. transmission 
and distribution systems meant renewable energy standards were best 
left to state governments, while federal tax credits could make 
renewable energies more cost competitive.  Renewable power storage 
and transmission problems made their widespread use difficult, but 
the U.S. was researching high-voltage transmission and electricity 
storage.  Makoju said these solutions would be welcome in Nigeria, 
as they would free up gas supplies to seek higher returns in the 
export market. 
 
----------------------------- 
West African Power Pool (WAPP) 
----------------------------- 
 
¶10.  (SBU) Parallel to his calls for Nigeria to develop a long-term 
energy plan, Makoju said Nigeria should be planning power supplies 
 
ABUJA 00001582  003.2 OF 003 
 
 
for the entire West Africa region.  Providing power to the WAPP had 
little impact on Nigeria's domestic supply since the power needs of 
the neighbors were small by comparison - 14 MW to Niger and 80 MW to 
Benin and Togo daily.  The WAPP served Nigeria's strategic interests 
by helping it to build goodwill with its neighbors and deterring 
Niger from building dams on the River Niger upstream of Nigeria. 
 
GRIBBIN