VZCZCXRO1922
PP RUEHMA RUEHPA
DE RUEHUJA #2191/01 2901229
ZNR UUUUU ZZH
P 171229Z OCT 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 1186
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 8067
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC
RUEKDIA/DIA WASHDC

UNCLAS SECTION 01 OF 03 ABUJA 002191 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT PASS TO USTR (AGAMA) 
DEPT OF TREASURY FOR RHALL, DPETERS 
DEPT OF ENERGY FOR CAROLYN GAY 
DOC FOR 3317/ITA/OA/KBURRESS AND 3130/USFC/OIO/ANESA/DHARRIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG EPET PGOV PREL NI
SUBJECT: NIGERIA: INDUSTRY HURTING IN THE NORTH 
 
REF: A. ABUJA 2059 
 ¶B. ABUJA 1582 
 
SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY 
 
¶1. (SBU) Summary.  Northern business leaders were unanimous in 
voicing their displeasure with current economic conditions in the 
region.  The supply of electricity is epileptic, requiring expensive 
generators run on expensive fuel to operate businesses.  An energy 
expert provided a dire overview of the state of the electric power 
supplies. In order for a company to operate it must build and 
maintain its own infrastructure due to years of neglect from federal 
and state governments.  Petrochemical, plastics and agriculture 
sectors were cites to Emboffs as areas for potential growth. 
Businessmen are cautiously optimistic that President Yar'adua will 
address their concerns.  End Summary. 
 
¶2. (U) Embassy Abuja hosted Iftar dinners, to mark the breaking of 
the Muslim Ramadan fast, in Kaduna and Kano on October 2 and 3.  At 
the dinners and other meetings Emboffs met with a wide range of 
northern business leaders. 
. 
What Happened to Electricity 
---------------------------- 
. 
¶3. (U) In a conversation with a well-connected local business and 
energy consultant, Emboffs were told that in 1999 the Nigeria 
generated only 1,600 Megawatts (MW) of electricity compared to 5,000 
MW in 1990.  Former President Obasanjo assured the public in 1999 
that electricity was a priority of his administration.  The GON 
invested $2.1 billion in the subsequent three years to rehabilitate 
its power generation, transmission and distribution infrastructure. 
In addition, in 2001 the GON invited the private sector to construct 
ten independent power plants (IPPs). 
 
¶4. (U) By mid 2006, the GON successfully completed the Shiroro 
(Niger State) - Abuja line, adding 1,462 MW from power generation 
plants at Geregu (Kogi State), Omotosho (Ondo State), Papalanto 
(Ogun State), Alaoji (Abia State) and another 968 MW from five other 
IPPs.  Despite these efforts, it was estimated that in 2001 power 
generating capacity was 4,000 MW and actual generation 2,500 MW, 
with an actual distribution of 2,000 MW.  At the end of 2006 all 
three figures dropped - power generating capacity was 2,800 MW, 
actual generation 2,000 MW and actual distribution 1,800 MW.  In a 
population of 130 million, 50 million citizens have no access to 
power, 80 million citizens have access to interrupted power and no 
one access to uninterrupted power from the national grid. 
 
¶5. (SBU) The energy consultant contended that the failure of the GON 
to provide adequate, uninterrupted and reliable electricity was the 
direct result of the failure to fully privatize the Power Holding 
Company of Nigeria (PHCN).  His solution was for the PHCN to be 
privatized and the price of electricity deregulated.  Based on 
figures provided by the consultant, PHCN charges are a fraction of 
international rates, and due to subsidization the utility company 
cannot generate revenue to operate efficiently. 
. 
Alternative Sources of Electric Power 
------------------------------------- 
. 
¶6. (SBU) Over the past 40 years, unreliable energy has compelled the 
public and private sectors to turn to alternative power supply in 
the form of standby power generators.  An estimated 14,000 
generators were imported in 2005 alone at a value of $400 million. 
Industry contacts suggest that at least 600,000 generators operate 
in Nigeria at a total value of $9 billion with a combined generating 
capacity of 19,200 MW - six times national supply of electricity 
available via the national grid.  It is estimated that these standby 
generators, operating at an average of 8 hours per day and consuming 
eight liters of diesel per hour, consume 13.8 billion liters 
annually valued at $10 billion.  Their maintenance costs add a 
further $1.2 billion. 
 
¶7. (SBU) Businessmen told us that the losses to industry reach the 
billions of dollars for continuous production interruptions leading 
to downtime, idle staff, alternative energy costs and opportunity 
losses to the Nigerian manufacturing industry.  The energy 
consultant calculated that if 80 million Nigerians currently 
 
ABUJA 00002191  002 OF 003 
 
 
receiving only interrupted electricity could receive an 
uninterrupted supply there would potentially be a 31  GDP increase. 
. 
How the Rural Population Suffers Without Electricity 
--------------------------------------------- ------- 
. 
¶8. (U) Over 70  of Nigerians rely on agriculture for their income 
and welfare.  Agriculture contributes 40  of the GDP.  Since 1999, 
of 774 local government areas (LGAs) nearly all of them - 717 - have 
been connected to the national power grid.  Despite this progress, 
the same number of MW is shared leading to increased outages.  It is 
estimated that rural areas experience more than 70% down time in 
electricity, hindering basic necessities such as drawing water from 
local wells, simple irrigation systems, and milling seeds.  Rural, 
isolated areas are unable to take advantage of remote communications 
because mobile phones and computers cannot be recharged. 
. 
Manufacturers Need Help 
----------------------- 
. 
¶9. (SBU) During a meeting with Manufacturers Association of Nigeria 
(MAN) President Bashir Borodo, he agreed that the main problem his 
members face is the shortage and unreliability of electric power. 
He said electricity availability had declined in the last five 
years.  As a result, companies are concentrating on establishing 
private sources of electricity.  The MAN chief lamented how poor 
macroeconomic policies and high GON deficits for most of the period 
since 1993 have harmed Nigerian manufacturers.  Borodo said it 
remains difficult for MAN members to obtain needed replacement 
machinery or spare parts because of previous or existing government 
policies. 
. 
Manufacturers Take Independent Action 
------------------------------------- 
. 
¶10. (SBU) Returning to Nigeria's chronic electricity problems, 
Borodo said domestic manufacturers have no confidence whatsoever 
that the GON will address successfully the power issue, so his 
constituents are concentrating on establishing private sources of 
electricity.  The MAN chief noted that at many companies in Nigeria, 
employees spend the entire day at their workplace unable to do any 
work because of a lack of electricity.  He commented on the 
"psychological cost" of repeated power outages and said outages 
occurring in the middle of domestic manufacturers' decreasing 
production is particularly ruinous. 
 
¶11. (SBU) Borodo said recent laws streamlining the electricity 
sector will aid Nigerians in establishing private electricity 
companies.  He noted that MAN is negotiating with a UK and South 
African company for development of a MAN power plant in the Lagos 
area.   The Lagos area has access to natural gas and MAN members are 
trying to take advantage of that.  He complained that MAN members 
operating natural gas powered generators have been affected by 
vandalism to pipelines yet the pipelines transporting natural gas to 
Bonny LNG for export curiously have been unaffected.  Another 
complaint was the GON hiking the natural gas price per cubic meter 
15 cents in 2007 without notice.  Borodo maintained the industry is 
willing to pay higher prices as long as supply is guaranteed, which 
it is not. 
. 
Manufacturing Challenges 
------------------------ 
. 
¶12. (SBU) Over and over we heard from businessmen lamenting that in 
order to manufacture, you must provide for everything yourself - 
build the factory, buy the machines, dig the water borehole, 
construct the road leading to your factory, pay for connection to 
the national electricity grid, then purchase generators and pay the 
90 naira per liter fuel costs and maintain the generators that will 
run nearly 100% of the time.  All the while, the company must pay 
multiple taxes for services that do not exist. The manufacturing 
industry also suffers from damage to industrial machinery and basic 
equipment from power surges, ranging from electric motors, pumps, 
compressors and electric lights.  Large sums must be invested in 
power stabilizers, voltage regulators and uninterrupted power supply 
units to protect equipment. 
 
¶13. (SBU) Industry representatives expressed unhappiness with the 
 
ABUJA 00002191  003 OF 003 
 
 
lack of access to credit and when credit is available interest rates 
range from 20 to 30 .  Lebanese industrialists who have been in the 
region for as long as 100 years are divesting and leaving the region 
due to the poor economic conditions.  Experts contend that in 
northern Nigeria only 20  of industrial capacity is used.  The 
deterioration of infrastructure has hurt businesses that rely on 
transportation.  Several companies complained about the high cost to 
ship and receive products to and from Lagos due to deteriorating 
roads, increased highway banditry and unreliability of old trucks. 
The railway is dormant and air shipments are rare and expensive to 
Kaduna and Kano. 
 
¶14. (SBU) Borodo reported that in the last 20 years, the 
petrochemical and plastics sector has had the fastest growth rate, 
particularly in Lagos, Aba and Kano.  When asked why the GON has 
been unsupportive of industry, Borodo responded that GON officials 
view manufacturers as "thieves" only interested in subsidies.  He 
acknowledged that some businessmen have abused government 
concessions. 
. 
Textile Industry Hard Hit 
------------------------- 
. 
¶15. (SBU) Another major issue touched upon by industry was smuggled 
goods.  Borodo said he has seen a huge influx of smuggled cheap, 
substandard Chinese goods into Nigeria.  He commented that the 
textile industry has been hit hardest, even though there is a total 
ban on foreign textile importation.  In 1982, 800,000 workers were 
employed in 72 textile factories, and by 2007 less than 300,000 
workers labored in 12 textile factories.  In September, United 
Nigeria Textile, the last textile firm operating in Kaduna, closed 
with the loss of 4,000 jobs. 
 
¶16. (SBU) At night, trucks cross Nigeria's porous borders and unload 
banned goods from China into Kano and other cities.  Borodo 
contended that the authorities were fully aware of the actors 
involved but chose not to punish them. 
. 
Comment 
------- 
. 
¶17. (SBU) The lack of power remains the biggest hurdle to industry 
with transportation and infrastructure next in line.  There was 
general agreement among industry experts that agriculture was a way 
forward and that a good policy environment and GON/donor assistance 
can lead to rapid economic development in the north.  Yar'adua's 
administration has said that power is a priority and -- despite 
bitter experiences -- industry leaders in the north were generally 
optimistic that the President would follow through. 
 
PIASCIK