VZCZCXRO2681
PP RUEHMA RUEHPA
DE RUEHUJA #1311/01 1911034
ZNR UUUUU ZZH
P 091034Z JUL 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 3310
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 9550
RUEHZK/ECOWAS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 04 ABUJA 001311 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO USTR- AGAMA AND USTDA - FITTS/MARIN 
DEPT OF ENERGY FOR CAROLYN GAYLOCK AND GEORGE PERSON 
 
E.O. 12598: N/A 
TAGS: ENRG ECON EPET PGOV EAID NI
SUBJECT: NIGERIA: NEW POWER SECTOR STRATEGIC PLAN 
 
REF: A. ABUJA 1082 
 ¶B. ABUJA 962 
      ¶B. ABUJA 402 
      ¶C. 07 ABUJA 1582 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR DISTRIBUTION OUTSIDE USG 
 
¶1. (SBU) SUMMARY. Upon taking office, President Yar'Adua made the 
power sector the first priority in his seven-point agenda.  One year 
after the President's inauguration, Nigeria experiences regular 
power outages and load shedding due to a host of reasons.  The major 
problems are inadequate maintenance of aged generating plants, poor 
gas supply, vandalization of gas pipelines, and a shortfall in water 
systems for hydro plants.  Nigeria has a current installed 
generation capacity of 7,876 megawatts (MW) yet can only generate 
2,700 MW on a daily basis (With actual generation sometimes dropping 
well below that level. We hear as late as June 22 that the daily MW 
output is down to 850 MW).  In response, the Ministry of Energy 
(Power) has developed and presented to the President a short, medium 
and long-term recovery plan for the electricity sector.  The 
Ministry estimates that the plan will cost $20 billion over the next 
ten years.  The plan and report appear to be well-thought out and if 
fully implemented could substantially improve power generation in 
the country, however, some high-level contacts have commented that 
the Power Holding Company of Nigeria (PHCN) may be re-bundled and 
that industry has dim views of the Minister of Power's abilities. 
END SUMMARY. 
 
POWER GENERATION UPDATE 
----------------------- 
 
¶2. (SBU) The main power generation problems are inadequate 
maintenance of aged generating plants, poor gas supply, 
vandalization of gas pipelines, and a shortfall in water systems for 
hydro plants.  In addition to the generating problems, the country's 
transmission and distribution networks are characterized by single 
circuit radial lines (which exacerbate the grid's fragility and 
increase the likelihood that a disruption in any part of the system 
will result in major power outages to a large section of the 
country, rather than just the immediately affected area), overloaded 
transformers, obsolete substation equipment, and high incidences of 
line tapping for electricity theft.  The current capacity of the 
transmission grid is only 4,000 MW, well below national needs, and 
the grid does not cover every part of the country. 
 
POWER MINISTRY STRATEGIC PLAN 
----------------------------- 
 
¶3. (SBU) The Ministry of Energy (Power) has been tasked to develop a 
plan to quickly increase energy generation in the short term and to 
provide a medium and long term sustainable growth strategy. 
According to Dr. Aliyu, Permanent Secretary of the Ministry of State 
for Energy (Power), the 73-page National Strategic Plan for the 
Sustainable Recovery of the Power Sector details short-term, 
medium-term, and long-term recovery and growth for the sector. 
Power Minister Fatima Ibrahim has led the plan's development, but 
has faced criticism about her ability to implement and overcome 
difficult challenges. It covers generation, transmission, and 
distribution issues and provides a strategy for the recovery and 
growth of the sector.  Funding for the plan will come from the 2008 
budget, a proposed budget supplemental, independent power producers 
(IPP), and other public private partnerships (PPP).  The Ministry 
estimates that the plan will cost $20 billion over the next ten 
years.  The document incorporates findings from a Power Ministry 
task force, the National Energy Sector Reform Committee chaired by 
Presidential Special Advisor on Energy Dr. Rilwanu Lukman, and the 
Presidential Committee on the Accelerated Expansion of Power 
Infrastructure, chaired by Minister Fatima Ibrahim. 
 
REPORT FINDINGS 
--------------- 
 
¶4. (SBU) The report and plan were submitted to President Yar'Adua on 
April 17 for his review.  Embassy was also provided a copy for 
review and comment.  The report noted that Minister Ibrahim had 
taken action to carefully examine and strengthen the coordination of 
the unbundled PHCN companies, which includes the appropriate 
transfer of employees, assets, liabilities, rights, and obligations 
of the PHCN to various successor companies by establishing a 
Transitional Board and Management for the PHCN.  The Board is headed 
by Minister Ibrahim as Chairperson and the Permanent Secretary as 
Vice Chairperson.  The membership of the Board includes PHCN 
Managing Director, Director General of the Bureau of Public 
Enterprise, Accountant General of the Federation, Director of 
Finance and Administration, Director of Technical and Commercial, 
MD/CEO of the Nigerian Gas Company, Group Executive Director 
(Finance and Administration) PHCN, Group Executive Director 
 
ABUJA 00001311  002 OF 004 
 
 
(Technical and Commercial) PHCN, and unnamed as yet, two to three 
presidential appointees. 
 
¶5. (U) On background, following the enactment of the Electric Power 
Sector Reform (EPSR) Act of 2005 an initial holding company was 
established - the Power Holding Company of Nigeria (PHCN) to which 
the assets, liabilities and staff of National Electric Power 
Authority (NEPA) were transferred.  Since then, the reform of the 
Nigerian electricity sector has achieved the unbundling of the 
previous single parastatal into 19 companies.  A coordinator was 
appointed at PHCN headquarters to oversee the winding down of PHCN 
and the taking off of the 19 successor companies, which includes the 
transmission company that will remain under the ownership and 
operation of the GON.  However reportedly, Honorary Adviser on 
Energy to the President, Dr. Rilwanu Lukman has recommended 
rebundling PHCN, which if done, would literally take things 
backwards. 
 
¶6. (SBU) The report also revealed an important finding on 
distribution - there are a number of non-functioning transformers in 
the current distribution networks that require immediate 
replacement.  Transformers, insulators, fuses, cables, and other 
maintenance materials were recently found in Power Holding Company 
of Nigeria (PHCN) warehouses that were purchased from 1988 - 2003. 
The report estimated the value of these materials and equipment at 
$41 million.  The warehoused materials were quickly inspected and 
allocated to the eleven distribution companies with orders to 
immediately install the equipment to re-enforce the distribution 
networks.  This work is expected to be completed by July 2008. 
 
POWER SECTOR FRAMEWORK AND USG SUPPORT 
-------------------------------------- 
 
¶7. (SBU) The report noted that the Power Ministry asked the 
Ambassador, during a courtesy call in February 2008, for USG 
assistance in developing the Private Public Partnerships (PPP) 
framework for investments in power plants, transmission and 
distribution projects that include build, operate and transfer 
(BOT); build, operate, and own (BOO); and build, operate, own, and 
transfer (BOOT) or other appropriate contracting finance schemes. 
(Note:  The meeting with the Ambassador actually took place on 
January 24, 2008 (see reftel B) and information was passed to the 
U.S. Trade Development Agency (USTDA), which responded positively to 
the Ministry's requests and sent a delegation to follow up with the 
Power Minister and her team (see reftel A) End note). 
 
USG SPONSORS CONFERENCE ON POWER SECTOR FINANCING 
--------------------------------------------- ---- 
 
¶8. (SBU) As a first step forward, the Ambassador and EconOffs worked 
with the Lagos-based U.S. Commercial Service Office (USCS), U.S. 
Export-Import Bank (EXIM), USTDA, AID and offered a seminar on 
Independent Power Project (IPP) financing, which took place in Abuja 
from June 9-11.  (The GON has issued 26 IPP licenses but each IPP 
has had problems that are yet to be resolved).  USTDA commissioned a 
definition study in April 2008.  Results and recommendations of this 
study were used to develop the seminar and should prove very helpful 
to the Power Ministry as it moves to implement the new strategic 
plan. 
 
SHORT-TERM PLAN BY MARCH 2009 
----------------------------- 
 
¶9. (SBU) The short term strategic plan is to generate, sustain, 
transmit, and distribute at least 5,800 MW of electricity by March 
¶2009.  The plan includes the fast track maintenance and 
rehabilitation of the eight existing GON plants established before 
1999 that have a total installed capacity of 6,200 MW, with the goal 
of adding 3,150 MW by March 2009 and implementing the following 
measures: 
-- Providing adequate maintenance spares to existing plants; 
-- Building sufficient infrastructure and providing gas supply for 
the newly completed National Integrated Power Projects (NIPP) plants 
at Geregu (414 MW gas fired plant located at Ajaokuta in Kogi state, 
north central Nigeria), Omotosho (335 MW gas fired plant located in 
Ondo state, south west Nigeria), and Papalanto (335 MW gas fired 
plant located in Ogun state, south west Nigeria) with a total 
capacity of 1,084 MW.  (Note:  The gas pipelines for these projects 
may be ready by the end of June 2008; however, there may be only 
enough gas available to commission the plants at minimum loads.  End 
note). 
-- Fast track maintenance and rehabilitation of the existing 
transmission grid capacity to increase wheeling power from 4,000 MW 
to 6,000 MW; 
-- Reinforce substations, replace transformers, establish strict 
adherence to maintenance of the grid, and upgrade the National 
Control Center; 
 
ABUJA 00001311  003 OF 004 
 
 
-- Upgrade distribution networks to distribute the added electricity 
generation, replace transformers, and improve staff welfare packages 
and morale; 
-- Other actions include implementation of the build outs of the 
remaining seven NIPPs and review of the EPSR Act of 2005. 
 
¶10. (SBU) Estimates for the short and medium-term plans were made on 
the basis of known generation plants and some planned projects.  The 
plans include recommendations on what must be executed in order to 
reach and sustain the estimates of generating capacity for each 
phase, including the age and state of the existing plants.  The 
Ministry recommends the release of funds, accredited to short and 
medium-term planning, for increasing Mambilla hydro-power plant to 
2,600 MW (Currently 1,500 MW hydro-power plant located in Taraba 
state, north east Nigeria) and Zungeru (960 MW hydro-power plant 
located in Niger state, north central Nigeria, on the Kaduna River) 
hydro projects.  The Mambilla plant will be Nigeria's largest plant 
and is estimated to take up to five years to come on line, as it 
requires three dams and an underground power station to be built. 
This project was awarded to two Chinese firms in 2005; and was to be 
executed partly through a loan facility of $2.5 billion offered by 
the Export-Import Bank of China, in exchange for four oil bloc 
allocations to China National Offshore Oil Corporation during the 
May 2007 oil bid round.  To date no progress has been made on the 
project.  In June ministry contacts have told EconOff that a 
decision has been made for the GON to build the plant and the GON 
plans to ask U.S. EXIM for partial financing for the project. 
 
MEDIUM-TERM PLAN BY MARCH 2011 
------------------------------ 
 
¶11. (SBU) The strategic plan recognizes that the power sector is 
capital intensive, and recommends that the GON substantially 
deregulate in the medium term to encourage private sector 
participation.  The medium-term plan expects to generate a total of 
11,852 MW through: 
-- Consolidation of all gains realized in the short-term plan in all 
stations; 
-- Completion of the NIPP projects; 
-- Promoting the completion and/or rehabilitation of dams for the 
purpose of improving power generation through hydro at Dadin Kowa 
(34 MW), Gurara (30 MW), Oyan (9 MW), Bakalori (2.4 MW), Ikere Gorge 
(6 MW), Tiga (6 MW), and Chalawa (7 MW); 
-- Planning and implementation for more hydro plants, especially at 
the Mambilla and Zungeru hydro power plants; 
-- Encourage the development of medium size hydro plants on the 
Niger, Kaduna, Donga, Geregu, Onitsha, Benue, Ikom, and Katsina-Ala 
rivers which are located in the Niger Delta, Kaduna state, Taraba 
state, Niger state, Anambra state, Benue state, Cross River state 
and Benue state respectively; 
-- Expansion of the transmission and distribution networks to 
accommodate the added generation loads; 
-- Encouraging the development of a gas grid to accommodate the 
geo-political zones for power generation; 
-- Promoting the establishment of coal powered and renewable energy 
generation plants. 
 
LONG-TERM PLAN BY DECEMBER 2020 
------------------------------- 
 
¶12. (SBU) The long-term plan focuses on the continuation of the 
development of a gas grid and continued expansion of the national 
grid throughout the country as a top priority.  Other elements of 
the plan include: 
-- Monitoring the development of new power plants based on effective 
and reliable generation mix; 
-- Providing the legal, fiscal, administrative, and regulatory 
environment for the setting-up of power related industries; 
-- Increasing, progressively, the proportion of renewable energy; 
-- Adding nuclear energy to the generation mix; 
-- Commissioning of the Mambilla and Zungeru hydro plants adds 3,550 
MW to the national grid providing electricity to a power starved 
nation at a lower cost than gas or coal. 
 
COMMENT 
------- 
 
¶13. (SBU) The USG is working very closely with the Ministry of Power 
and other GON agencies to put into place the right framework to 
attract sustained private sector financing to the power sector.  The 
GON has an unending appetite for USG expertise in this area and it 
behooves us to take advantage of this engagement. 
 
¶14. (SBU) The crux of the electricity problem is implementation and 
follow through.  The President and his advisors have little to show 
to the Nigerian people after one year of empty promises. 
Electricity generation will provide an easy barometer for the people 
 
ABUJA 00001311  004 OF 004 
 
 
to determine whether the President has delivered on his numerous 
promises.  As of now, Vision 2020 and 13% yearly GDP growth are a 
mirage.  We believe that Ministry officials are sincere in their 
motives and the strategic plan appears to be well-thought out and if 
implemented could improve power generation substantially.  However, 
some high-level contacts have commented that the Power Holding 
Company of Nigeria (PHCN) may be re-bundled and that industry has 
dim views of Minister of Power's abilities to follow through on 
implementation because she has no previous power sector background. 
In addition, with daily MW output allegedly down to 850 MW, power 
distribution has worsened under her leadership.  The next 6-12 
months will demonstrate the administration's ability to improve 
power generation. 
 
SANDERS