VZCZCXRO1522
RR RUEHMA RUEHPA
DE RUEHOS #0481/01 3331142
ZNR UUUUU ZZH
R 281142Z NOV 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0340
INFO RUEHUJA/AMEMBASSY ABUJA 9981
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 LAGOS 000481 
 
SIPDIS 
 
TREASURY FOR DFIELDS, AIERONIMO, RHALL, DPETERS 
STATE PASS OPIC FOR DERB, ZHAN, MSTUCKART, JEDWARDS 
STATE PASS TDA FOR LFITTS, PMARIN 
STATE PASS USAID FOR NFREEMAN, GBERTOLIN, GWEYNAND, SLAWAETZ 
STATE PASS EXIM FOR JRICHTER, KJACKSON, KJANIK 
DOC FOR 3317/ITA/OA/KBURRESS 
 
E.O. 12958: N/A 
TAGS: EAID EFIN EINV PGOV NI
 
SUBJECT: NIGERIAN ECONOMIC SUMMIT II: PRIVATE PARTICIPATION, RESPECT 
FOR CONTRACTS, MARKET PRICE FOR GAS ESSENTIAL TO GROW POWER SECTOR 
 
¶1. (U) Summary: Participants at the Nigerian Economic Summit Group's 
power sector forum held October 22 agreed that private sector 
funding is crucial if Nigeria is to attain 70,000 megawatts of 
electricity, projected to cost USD 50 billion, by 2020. Forum 
participants concluded that Nigeria needs to review its electricity 
laws, price gas properly, strengthen its electricity off-takers and 
remove administrative bottlenecks to achieve its goal. They also 
noted that over-regulation of the power industry and probes by 
successive governments have stalled otherwise viable power projects. 
They urged the Federal Government to create "islands of success" on 
the Geometric Independent Power Project model. End summary. 
 
¶2. (U) An interactive session on the state of the Nigerian power 
sector was held on October 22, day two of the 14th annual Nigerian 
Economic Summit in Abuja. Invited speakers were drawn from Britain, 
India and Nigeria. The forum sought to identify strategies and 
frameworks that Nigeria could copy or adapt to transform its power 
sector, and to reach its goal of generating 70,000MW of power by 
¶2020. 
 
Private Sector Participation Essential 
-------------------------------------- 
 
¶3. (U) Professor Barth Nnaji, CEO, Geometric Power Nigeria Limited 
(GPNL) said that to achieve the goal of generating 70,000MW, Nigeria 
must spend USD50 billion. Such a large expenditure requires the 
participation of the private sector. Andrew Reicher, CEO of 
Globeleq, a U.K. company, said that USD25 billion will be required 
to build the generating plants and an additional USD25 billion to 
improve transmission and distribution. 
 
¶4. (U) According to Nnaji, GPNL, which will be commissioned in April 
2009, had benefited from the decentralisation of the power sector. 
Nnaji advocated for effective and sustainable decentralisation of 
the system and the creation of what he called "islands of success", 
consisting of local grids that serve industries in strategic 
locations. These power producers should be independent of the 
national grid, which is inadequate and vulnerable to vandalism, but 
may themselves interconnect. 
 
To Raise Needed USD 50 Billion 
------------------------------ 
 
¶5. (U) Andrew Reicher, said Globeleq, whose major shareholder is 
Actis, a private equity firm operating in Lagos, is interested in 
Nigeria and is already partnering with the Akwa Ibom State 
government to grow the assets of its Ibom Power Project. He warned 
that while companies like his are willing to help in the design and 
construction of plants, they can only put up one third of the 
required funding; the rest must be sourced from institutional 
lenders like the World Bank. 
 
But Nigeria Must Honor Its Contracts 
------------------------------------ 
 
¶6. (U) Onno Ruhl, World Bank Country Director for Nigeria noted that 
Nigeria's plan to adopt Public Private Partnerships (PPP) in power 
projects will require up to three years to mature; which means there 
will be no improvement in the power situation in evidence before 
Nigeria's next national election. He advised Nigeria to get some 
projects off the ground now and to learn from them for future 
projects. Nigeria does not need the World Bank, because it has both 
the gas and money required to finance the projects, but the WB would 
be willing to help on the technical side, he said. Reicher noted 
that private companies like Globeleq will deliver on their part of 
the bargain, but also will need to be paid. He therefore urged the 
political class and consumers to accept that private equity 
companies and institutional investors must make a profit if they are 
to be part of infrastructure development. Ransome Owan, Chairman, 
National Electricity Regulatory Commission (NERC) said there are 
plans to issue bonds that can be bought and sold in the market place 
to raise funds for required power projects in the short term. 
 
Geometric Model Planned for North 
--------------------------------- 
 
¶7. (U) GPNL, located in Aba, Abia State in Nigeria's south east, was 
built at a cost of USD386 million. Nnaji said local banks Stanbic 
IBTC and Diamond Bank provided the construction financing before 
long term funding could be accessed from the International Finance 
Corporation and World Bank. GPNL makes 100 percent of the 188MW 
 
LAGOS 00000481  002 OF 003 
 
 
power it generates available to industries in and around Aba. The 
company has no sovereign guarantees from the Nigerian government. 
Nnaji said sales to commercial customers have been negotiated based 
on NERC's Multi Year Tariff Order (MYTO). He said GPNL is a model 
for a joint power project in Kano, Kaduna and Katsina states, which 
will entail building a power plant and gas pipelines. 
 
Decentralized Grid Better for Nigeria 
------------------------------------- 
 
¶8. (U) Dr. V. S. Verma of the Indian Central Electricity Authority 
(CEA) advised Nigeria to copy the Indian transmission model which 
evolved from state and regional grids which later interconnected to 
form the national grid. Although 45 percent of India's population 
still lacks access to electric power, Verma said the gradual 
evolution of the national grid ensured that a large number of people 
did obtain access. He said this also enabled the reduction of 
electricity theft from 40 percent to the current 28 percent. Verma 
expects that theft will be further reduced to 15 percent by 2012 
with the enactment of laws providing for severe punishment for 
electricity theft. Verma said the Indian CEA is willing to help 
Nigeria to design thermal, hydro, transmission and distribution 
projects; to structure its regulatory affairs and to develop 
standards, specifications, contract documents, demand forecasting 
and generation, transmission and distribution planning, using 
India's software models. 
 
Price Gas Properly to Achieve Power Goal 
---------------------------------------- 
 
¶9. (U) GPNL favors power plant concessions rather than joint 
ventures with government so that efficiency is achieved more 
quickly. Nnaji also advised that off-takers be made stronger and 
more creditable through concessions, while generating companies must 
be given real incentives such as rights to gas use and duty free 
importation of turbines and components. He said the country's gas 
infrastructure must be developed and the gas properly priced to 
encourage production sufficient to satisfy domestic demand. Onno 
Ruhl of the World Bank agreed that getting gas to current power 
plants is critical to solving Nigeria's power problem. Ruhl noted 
that the current price for gas is inadequate. 
 
Removal of Administrative Bottlenecks Necessary 
--------------------------------------------- -- 
 
¶10. (U) Bureaucratic delays can inhibit Nigeria from meeting its 
target of power infrastructure development. Reicher said there is no 
shortage of capital for Nigeria's power plans, but government's 
administrative capacity to support the sector is the main problem. 
For example, installing a turbine which ordinarily would take 28 
months can take 10 years if bottlenecks in Nigeria's bureaucracy are 
not eliminated, he said. The government must stop generating 
complicated processes which slow down power plant construction and 
create a regulatory regime that incentivizes development with a 
market driven tariff structure in place, he said. Owan said NERC is 
gradually growing in autonomy and experiencing only limited 
political interference. Creating a level playing field for all 
players, building an integrated system and making investment 
decisions easier are priorities for NERC, said Owan. 
 
¶11. (U) Reicher decried the financial weakness and slow functioning 
of Nigeria's power off-takers. He said the India's Power Trading 
Company helped to revolutionize the sector by improving off-takers' 
credit quality. It also ensured open access to generating companies 
so that customers in any location in the country can be served, a 
model Nigeria should copy, Reicher opined. Owan noted Nigeria must 
meet the challenge of building a sector that allows trading in 
electricity just like other goods and services, a new concept for 
Nigeria. 
 
Probes and Over-Regulation Stall Power Sector Growth 
--------------------------------------------- ------- 
 
¶12. (U) Participants at the forum noted that probes by successive 
governments have stalled otherwise viable power projects. They 
decried over-regulation of an industry still in its infancy and 
called for allowing "islands of success" to grow before tightening 
regulations. 
 
Electricity Law Reforms Key to Indian Success 
--------------------------------------------- 
 
LAGOS 00000481  003 OF 003 
 
 
 
¶13. (U) Dr. Verma of India's CEA compared the current situation in 
the Nigerian power sector to post-independence India in 1947 which 
had only 1,362 megawatts (MW) capacity. He said Nigeria could copy 
India which grew its capacity to 145,555MW in 2007 by constantly 
reviewing and liberalizing its electricity laws. That allowed India 
to provide reliable and quality energy at competitive rates and to 
grow the economy at 8 to 9 percent. 
 
¶14. (U) Although India modified the Indian Electricity Act of 1910 
in 1948 to create State Electricity Boards and in 1998 to eliminate 
government determined tariffs, create a Central Electricity 
Regulatory commission, and allow states to create their own 
Electricity Regulatory Commissions; it was the 2003 Electricity Act 
revision that was the game changer in India's power sector. That Act 
encouraged private sector participation in generation, transmission 
and distribution. It de-licensed generation and introduced the 
concept of non-discriminatory open access on transmission and 
distribution networks. Shri Chandon Roy, Operations Director, NTPC 
Limited, the largest power generating company in India, said the Act 
ensured that government distanced itself from the sector and gave 
the signal for interested private companies to enter. According to 
Verma, India has greatly diversified its power sources with thermal 
accounting for 92,893MW (64 percent of total), hydro 36,348 MW (25 
percent), renewable energy sources (RES) 12,194 MW (8 percent) and 
nuclear 4,120MW (3 percent). 
 
¶15. (U) This cable has been cleared by Embassy Abuja. 
BLAIR