VZCZCXRO4641
PP RUEHPA
DE RUEHOS #0602/01 2421535
ZNY CCCCC ZZH
P 301535Z AUG 07
FM AMCONSUL LAGOS
TO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEHUJA/AMEMBASSY ABUJA PRIORITY 9156
RUEHC/SECSTATE WASHDC PRIORITY 9375
INFO RUEHBJ/AMEMBASSY BEIJING 0099
RUEHWR/AMEMBASSY WARSAW 0507
RUEHCD/AMCONSUL CIUDAD JUAREZ 0487
RUEHIT/AMCONSUL ISTANBUL 0484
RUEHSO/AMCONSUL SAO PAULO 0447
RUFOADA/JAC MOLESWORTH AFB UK
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 LAGOS 000602 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR AF/W, INR/AA, DS/IP/AF, DS/ICI/PII, DS/DSS/OSAC 
OSLO FOR HELENA SCHRADER 
DOE FOR GPERSON, CAROLYN GAY 
TREASURY FOR ASEVERENS, SRENENDER, DFIELDS 
COMMERCE FOR KBURRESS 
STATE PASS USTR FOR ASST USTR FLISER 
STATE PASS TRANSPORTATION FOR MARAD 
STATE PASS OPIC FOR ZHAN AND MSTUCKART 
STATE PASS TDA FOR NCABOT 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ 
 
E.O. 12958: DECL: 08/30/2017 
TAGS: EPET ENERG PGOV NI
SUBJECT: NIGERIA ANNOUNCES REORGANIZATION OF ENERGY SECTOR 
 
 
LAGOS 00000602  001.2 OF 003 
 
 
Classified By: Consul General a.i. Donald McConnell; Section 1.4 (B,D) 
 
¶1.  (C) Summary:  On August 29, the Government of Nigeria 
announced the decision to "unbundle" the Nigerian National 
Petroleum Corporation (NNPC) and to create five new 
independent agencies.  International oil companies (IOCs) 
were aware of the plan to restructure, but did not expect it 
to take place so quickly. Whether the problems associated 
with implementing the new plan will outweigh the potential 
gains in efficiency from the restructuring remains to be 
seen. End Summary 
 
¶2.  (U)  On August 29, the Government of Nigeria (GON) 
announced the decision, taken that day by the Federal 
Executive Council, to "unbundle" the Nigerian National 
Petroleum Corporation (NNPC) and to create five new 
independent agencies.  Minister of State for Energy 
(Petroleum) announced to the press that the Ministry of 
Petroleum Resources will become the National Petroleum 
Directorate (NPD).  A new National Oil Company (NOC) will 
assume the core functions of the NNPC.  The National 
Petroleum Investment Management Services Company (NAPIMS), a 
division of NNPC, will be replaced by the National Oil and 
Gas Assets Holding and Management Company (NOGAHAMC).  The 
Department of Petroleum Resources (DPR), currently a division 
of the Ministry of Petroleum Resources, will become the 
Petroleum Inspectorate Commission (PIC).  The Petroleum 
Products Distribution Agency will replace the Pipeline 
Product Marketing Company (PPMC), also a division of NNPC. 
 
¶3.  (U)  According to press reports, the energy sector 
reorganization is the harmonized result of recommendations by 
the Oil and Gas Reform Committee, commissioned by former 
President Obasanjo in 2000 and chaired by the Honorary 
Strategic Advisor to the President on Energy Rilwanu Lukman; 
and by a committee established by the National Council on 
Privatization to examine the oil and gas industry.  The 
harmonized report, called "Roadmap for the Restructuring of 
the Oil and Gas Industry in Nigeria" was reportedly submitted 
to President Yar'Adua in June by the Secretary to the 
Government of the Federation, Alhaji Babagana Kingibe. 
 
National Oil Company Free of Government Control 
--------------------------------------------- -- 
 
¶4.  (U)  Under the new arrangement, the NOC will conduct 
itself like a private oil and gas company. The Petroleum 
Inspectorate Commission (PIC) will be an agency independent 
of the Ministry of Energy, and will be empowered to provide 
effective monitoring of the industry.  Fuel importation will 
be supervised both by PIC and the Petroleum Products 
Distribution Agency (PPDA), and the refineries will be 
privatized.  Plans also call for further unbundling of the 
Nigerian Gas Company as well as pipeline and storage 
facilities into gas transmission and gas 
distribution/marketing companies, press reports stated. 
 
¶5.  (U)  The Federal Executive Council also mandated 
implementation of the National Oil and Gas Policy (NOAGP) to 
take place within the next six months.  One of the goals of 
the policy is to make Nigeria self sufficient in the energy 
sector, according to press reports.  In a third, related 
move, the FEC approved the constitution for the National 
Council on Energy (NCE) to implement and fine-tune the NOAGP, 
which includes the restructuring of the energy sector.  The 
NCE will be chaired by President Yar'Adua.  Other members of 
 
LAGOS 00000602  002.2 OF 003 
 
 
the Council are Vice President Goodluck Jonathan, who will 
function as Deputy Chair; Odein Ajumogobia, Minister of State 
for Energy (Petroleum); Minister of State for Energy (Gas) 
Olusina Emmanuel, and Minister of State for Energy (Power) 
Mrs. Fatima Ibrahim; Attorney General and Minister of Justice 
Michael Aondoakaa; Minister of Finance Shamsudeen Usman; 
Minister of National Planning Sannusi Daggash; Strategic 
Advisor to the President on Energy Rilwanu Lukman; and 
National Security Advisor General Ibrahim Mukhtar.  Four 
additional members will be appointed by the President. 
 
¶6.  (U) In press reports, Minister Ajumogobia said that the 
establishment of the NCE is a condition precedent to the 
declaration by the President of a state of emergency in the 
energy sector. 
 
IOCS Expected Reorganization But Timing a Surprise 
--------------------------------------------- ----- 
 
¶7.  (C)  John Chaplin, Managing Director of ExxonMobil, told 
Poloff that the company had known "bits and pieces" of the 
reorganization plan, but that the timing of the announcement 
had come as a surprise.  The company had seen the Lukman 
Committee report as early as 2002.  Chapman believes the 
thrust of the reform is to give Nigeria a national oil 
company that functions the way a company should.  The change 
would allow the NOC to control its own revenue and to raise 
needed funds from the capital markets.  This is an important 
change, Chaplin noted, because currently NNPC is completely 
in the dark as to its profits or losses; requests for profit 
and loss statements go unanswered because NNPC does not have 
them.  The impact of the change in NAPIMS is less clear, he 
said.  Work with NAPIMS is a challenge for international oil 
companies (IOCs), but at least now the IOCs can go over 
NAPIMS head for occasional help from NNPC to force decisions 
to be made.  NAPIMS, because it approves all contracts, is 
seen by most as "an opportunity to make money"; a whole 
industry has grown up in which people insert themselves into 
the contracting process in the hope of making money on the 
deal.  Whether the changes will help with this problem or 
create other efficiencies remains to be seen, he said. 
 
¶8.  (C)  Ann Pickard, Regional Executive Vice President for 
Shell Oil, said that she and executives from Shell Petroleum 
and Development Corporation (SPDC) of Nigeria met earlier in 
the week with the President and the Minister of State for 
Energy (Petroleum) and received "no signals" that the 
restructuring was imminent. 
 
¶9.  (C)  O.B. Haffner, Corporate Affairs Manager of Total 
Nigeria Ltd. said he had been aware that the restructuring 
was coming.  Speaking about the downstream end of the 
business, which he oversees, Haffner said that replacing the 
Petroleum Products Distribution Agency with the new Pipeline 
Product Marketing Company (PPMC) could help assure that 
petroleum products are more evenly distributed around the 
country, to the benefit of states in the northern part of the 
country.  Currently, massive quantities of imported fuel are 
pumped into the tanks of marketers in Lagos, where the bulk 
of the imported product is sold.  The marketers then truck 
the remainder to other parts of the country for sale at 
prices higher than the regulated price. 
 
Reorganization Will Not Affect Existing Contracts 
--------------------------------------------- ---- 
 
 
LAGOS 00000602  003.2 OF 003 
 
 
¶10.  (C)  Olisa Agbakoba, President of the Nigerian Bar 
Association, downplayed fears expressed by some that the 
reorganization would interfere with existing contracts or 
ongoing court cases to which NNPC is a party.  Under the law 
of succession, he said, the reorganization will not absolve 
the successor of the legal obligations of its predecessor. 
All legal aspects of the  changes will be worked out in due 
course, he said.  Peter Esele, President of the Petroleum and 
Natural Gas Senior Staff Association of Nigeria (PENGASSAN), 
told Poloff that the unions were "fine with the 
reorganization." 
 
¶11.  (C)  Comment:  Few people expected the Government to 
move so quickly to effectuate this restructuring, which has 
been under study for seven years.  Whether the problems 
associated with implementing the new structure outweigh the 
potential gains in efficiency from the restructuring remains 
to be seen. 
MCCONNELL