VZCZCXRO1461
RR RUEHMA RUEHPA
DE RUEHOS #0143/01 1090721
ZNR UUUUU ZZH
R 180721Z APR 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 9864
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 9580
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 LAGOS 000143 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY 
SIPDIS 
 
DEPT FOR AF/W 
DEPT PASS TO TDA 
DEPT PASS TO OPIC FOR JOAN EDWARDS 
DOE FOR PARSON 
 
E.O. 12958: N/A 
TAGS: ENRG EINV ECON NI
SUBJECT: NIGERIA: AES CORPORATION TO PURSUE INTERNATIONAL 
ARBITRATION 
 
REF: A. 07 LAGOS 147 
 
     ¶B. 07 LAGOS 507 
 
Sensitive But Unclassified; Business Propriety Information; 
Handle Accordingly. 
 
¶1. (SBU) Summary: During a March 28 meeting with EconOffs, 
U.S. company AES Corporation said it will pursue 
international arbitration if the Government of Nigeria (GON) 
does not pay an owed USD 17.5 million and honor the terms of 
a power purchase agreement between AES and the Power Holding 
Company of Nigeria (PHCN).  The Mission previously advocated 
on behalf of AES in 2006 and 2007 to the Ministry of Finance 
for non-payment by PHCN.  AES Managing Director fears the 
Nigerian Presidential Committee on the Accelerated Expansion 
of the Electrical Power Sector has not done a thorough 
analysis of solutions to Nigeria,s power problem.  He 
suspects a forthcoming recommendation for public private 
partnerships will result in the transfer of billions of 
dollars worth of turbines and other equipment to well-placed 
insiders. End Summary. 
 
¶2. (SBU) AES Corporation Managing Director Ahmer Nadeem met 
with Pol/Econ Section Chief and EconOff on March 28 to 
discuss the GON,s failure to pay more than USD 17.5 million 
in fees owed AES for power generated by the company.  The USD 
17.5 million is over 30 days due, and while the GON makes 
periodic payments, it continues to dispute the total amount. 
AES had obtained a one year waiver from its lenders to avoid 
drawing on a USD 60 million letter of credit it has with 
Citibank while attempting to resolve tax and other problems 
with the GON. 
 
¶3. (SBU) Nadeem believes the negotiations over the company,s 
tax exemption provision have reached a dead end.  The company 
met with President Yar,Adua in July 2007, and the President 
said provisions of their contract providing for a 14 year tax 
exemption conflict with existing law which allows a maximum 
five year tax exemption.  The President could not change the 
law for a single company and asked that they submit a 
proposal complying with current law.  The company submitted a 
proposal to adjust its tariff upward and the GON hired the 
accounting firm KPMG to audit the company,s calculated tax 
liabilities.  However, at the end of this protracted process, 
the Federal Inland Revenue Service told the company there was 
nothing it could do and referred the company back to PHCN 
where the dispute began.  PHCN demanded that AES pay 50 
percent of the tax and reduce its tariffs, terms which AES 
refused. 
 
¶4. (SBU) Nadeem said the company planned to initiate 
international arbitration on or about April 14.  AES has also 
sent a letter to President Yar,Adua requesting a meeting in 
early May to find a peaceful resolution to the dispute.  On 
pursuing international arbitration, Nadeem believes the 
company,s rights under the contract are clear, and the GON 
may be persuaded to pay the amounts in question when it 
realizes its case before the arbitrator is weak.  He 
contended that the GON,s desire to attract private 
investment in the power sector will act as an incentive for 
the GON to settle before there is an arbitration decision. 
 
¶5. (SBU) Nadeem reported that the Presidential Committee on 
Accelerated Expansion of the Electrical Power Sector has 
already submitted its report  without having seriously 
considered how adequate power could be achieved.  The 
committee plans to fund the completion of the Nigerian 
Independent Power Project (NIPP) by raising USD 3.5 billion 
and engaging in public private partnerships.  Nadeem 
underscored that it would be difficult at best to raise this 
large amount, particularly if the committee seeks funding 
from GE Capital with local banks providing bridge loans. 
Regarding public private partnerships, he posited that 
influential insiders have already been identified to take 
over the NIPP assets, including the 18 turbines purchased 
from GE, which will be the public sector contribution to the 
partnerships. 
 
¶6. (SBU) AES representatives lamented that U.S. companies are 
criticized for their unwillingness to accept risks, but the 
GON fails to recognize that risks must be hedged.  In a 
functioning market, the risk of getting enough fuel for a 
 
LAGOS 00000143  002 OF 002 
 
 
plant is hedged by the multiplicity of buyers and sellers. 
In Nigeria, where there is no functioning market, the 
government needs to back projects by providing risk guarantee 
schemes.  Nadeem attributed the GON,s overconfidence to the 
empty promises made by Chinese investors and to the 
ill-founded advice offered by local consultants. 
 
¶7. (SBU) Comment: The Mission has been engaged in advocacy 
efforts on behalf of AES for several years. The GON routinely 
threatens non-payment and complains about the cost of the 
electricity generated by AES.  We have consistently passed 
the message to the GON that contracts should be honored and 
that not paying AES will not improve Nigeria,s image as a 
country with a difficult business climate. End comment. 
 
¶8. (U) Embassy Abuja has cleared on this cable. 
BLAIR