VZCZCXRO3438
PP RUEHMA RUEHPA
DE RUEHOS #0053/01 0360757
ZNR UUUUU ZZH
P 050757Z FEB 09
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 0469
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 0092
RUFOADA/JAC MOLESWORTH AFB UK
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEWMFD/HQ USAFRICOM STUTTGART GE

UNCLAS SECTION 01 OF 03 LAGOS 000053 
 
SENSITIVE 
SIPDIS 
 
DOE FOR GPERSON, CHAYLOCK 
 
E.O. 12958: N/A 
TAGS: ENRG PREL NI
SUBJECT: NIGERIA: ELECTRICITY EXEC SEES NO LARGE INCREASE 
IN POWER IN 2009 
 
BUSINESS PROPRIETARY INFORMATION-NO DISTRIBUTION OUTSIDE USG 
 
¶1. (SBU) Summary:  The former country manager for GE Nigeria 
expects that due to a lack of domestic natural gas, Nigeria 
will see no significant increase in power generation in 2009. 
 In a January 27 conversation, Ade Audifferen said the GON is 
focusing on transmission projects in the 2009 budget, but 
budget execution will remain problematic and many 
transmission projects are unexecuted line items from the 2008 
budget.  Power distribution remains an unattractive 
investment in large cities in Nigeria because of high rates 
of theft.  While final investment decision on a ArcelorMittal 
pipeline fabrication facility in Calabar will be delayed 
until 4th quarter 2009, Audifferen expects the deal to go 
forward because ArcelorMittal views Nigeria as one of two 
strategically important countries.  Audifferen's current 
employer, a diversified, Nigerian owned-energy company, has 
been visited in recent weeks by several European energy firms 
interested in entering the Nigerian upstream natural gas 
market.  End Summary. 
 
No Increase in 2009 Electricity Supply Anticipated 
--------------------------------------------- ----- 
 
¶2.  (SBU) A former GE executive now working for a diversified 
Nigerian energy company said that while construction 
continues on power plants across the Niger Delta, Nigeria 
will see little improvement in on-grid power generation in 
2009 because new plants lack access to a reliable supply of 
natural gas.  Ade Audifferen, the head of the power business 
unit of Global Energy Group (GEG), told Energyoff on January 
27, that few of the power plants being constructed under 
Nigeria's National Integrated Power Project have the natural 
gas needed to start generating electricity, even if the 
plants are completed in 2009.  As a consequence, he expects 
actual power generation to remain at its current level while 
theoretical capacity may increase slightly.  To highlight his 
point, he noted that the 188 megawatt Ibom Power Plant in 
Akwa Ibom State is complete AND ready to operate, but remains 
off-line because it lacks a supply of natural gas. 
 
3  (SBU) Additionally, the effects of poor project management 
continue to plague certain power plants.  As an example, 
Audifferen said the power supply from the Chinese-built 
Omotosho plant in Ondo State is still intermittent, almost 
two years after an official ribbon cutting (by then President 
Obasanjo) marked its opening.  According to Audifferen, the 
Chinese-built plant uses GE turbines that GE exported to 
China in the late 1990's for use within China.  The Chinese 
contractor re-exported the turbines to Nigeria and installed 
them in Omotosho, but has not been able to get them function 
properly; the GON has ordered that the contractor bring in GE 
to fix the problem, a costly process because of the age of 
the turbines and the fact that GE was not involved in their 
installation in Nigeria. (Note: The local press has reported 
that Omotosho also suffers from an unreliable gas supply. 
The plant's planned capacity is 335MW, but it typically 
generates less than 100MW per day. End Note.) 
 
¶4. (SBU) According to Audifferen and an excerpt from 
Nigeria's 2009 budget which he shared, electricity 
transmission and distribution projects are the focus of the 
GON, with 19 billion naira (USD 131 million) allocated to 
distribution projects, 32 billion naira (USD 220 million) for 
transmission lines, and 21 billion naira (USD 144 million) 
for completion of ongoing power generation projects and 
refurbishment of existing power plants.  Each of the 27 
transmission line construction projects was listed in the 
budget by project name and cost.  In contrast, the budget 
items for construction or refurbishment of power plants 
consisted of three lump sums with no clear indication of the 
amount of money allocated to each project.  Audifferen noted 
that budget execution remains a problem and that many of the 
power infrastructure line items in this year's budget were 
left over from the 2008 budget. 
 
¶5. (SBU) Audifferen mentioned that the Power Holding Company 
of Nigeria and Ministry of Electricity would cancel a 
consulting contract they have with the German engineering and 
 
LAGOS 00000053  002 OF 003 
 
 
consulting firm Lahmeyer.  The firm is the overall project 
manager for the multi-billion dollar  National Integrated 
Power Project, Nigeria's troubled plan to increase its power 
generation and transmission capacity.  Audifferen said he 
thought the American company Parsons Brinckerhoff (PB) might 
be able to fill the role vacated by Lahmeyer.  PB currently 
has a small oil and gas consulting presence in Nigeria. 
 
¶6. (SBU) When asked about business opportunities in the 
electrical distribution market, Audifferen was restrained. 
While population centers like Lagos may look attractive 
because of the large number of customers, the dilapidated 
state of existing distribution networks and the low payment 
rates makes them long term money losers.  He thought a city 
like Jos, that has a smaller population but one with a higher 
rate of payment by customers, might be a better market.  In 
addition, the current emphasis, at least in Lagos, on getting 
existing customers to pay via existing metering methods is 
not likely to succeed.  In his view, new, "smart 
distribution" equipment that shuts down power to a block or 
neighborhood in the event of tampering and collects metering 
data remotely is the only way to reduce power theft and 
bribery of meter readers by customers.  As an interim step, 
he thought a government payment guarantee to distribution 
companies based on the number of registered customers and the 
power off-take agreements was the only way to make 
distribution viable as a private sector enterprise.  In any 
case, his company is focusing on power generation and 
transmission, not distribution. 
 
ArcelorMittal Still Planning for Nigeria Investment 
--------------------------------------------- ------ 
 
¶7. (SBU) GEG has various business units operating across a 
variety of energy and infrastructure markets including oil 
exploration and production, electrical transmission, power 
generation (which Audifferen heads) and industrial project 
construction.  Like other diversified energy companies 
working in the power sector in Nigeria (most notably Oando 
Plc), GEG focuses on building captive power generation 
facilities for large industrial customers.  GEG is currently 
bidding to supply steel conglomerate ArcelorMittal with a 25 
megawatt power plant to generate electricity for a proposed 
steel pipe fabrication facility in Calabar, Cross River 
State.  GEG is negotiating with Oando Plc for a gas off-take 
agreement, but Audifferen noted that dealing with Oando puts 
GEG in a difficult position.  Oando has its own power 
generation business and uses its monopoly position as the 
sole gas supplier in the Calabar area to gather information 
on competitors' power supply bids then propose its own power 
project directly to the customer. 
 
¶8. (SBU) Still, Audifferen was upbeat on the future of the 
ArcelorMittal deal.  While a final investment decision is not 
expected until the 4th quarter of 2009 (18 months behind 
schedule), he said ArcelorMittal officials have told him the 
company views Nigeria as a strategically important country 
and it is committed to future investments in Nigeria despite 
recent cuts in capital expenditures worldwide.  To better 
mitigate local risks, ArcelorMittal will reportedly offer a 
40 percent stake in the new pipeline plant to local 
investors, up from initial plans to offer only 10 percent of 
the project to local partners.  Audifferen said his company 
plans to leverage both its power generation and 
infrastructure construction businesses in any deal for the 
ArcelorMittal plant and it has been approached by the steel 
company about taking an equity position in the project. 
 
New European Interest in Upstream Natural Gas 
--------------------------------------------- 
 
¶9. (SBU) Audifferen mentioned that his company's oil and gas 
business unit has had several visits in the past three weeks 
from central and eastern European energy gas companies 
seeking to either farm into existing oil and gas plays or 
participate in new natural gas exploration ventures in 
Nigeria.  The European firm E.on Energie has show particular 
interest in gas exploration.  Audifferen attributed the 
recent increase in European interest to the latest gas 
 
LAGOS 00000053  003 OF 003 
 
 
dispute between Russia and the Ukraine. 
 
¶10. (SBU) Comment:  Word that the ArcelorMittal project may 
press forward is rare positive note in an increasingly gloomy 
Nigerian economic scene.  Nigeria's Gas Master Plan calls for 
USD 35 billion to be spent on natural gas infrastructure 
projects to connect gas fields in the Niger Delta to a 
variety of domestic and international markets. (Note: In the 
Ambassador's February 2 meeting with new Petroleum Minister 
Rilwanu Lukman, the minister stated that the GON's Gas Master 
Plan, although a good paper document, does not address 
immediate needs.  Lukman said that he will be providing 
alternative, short-term recommendations to President Yar'Adua 
on the sector.  End Note.)  While plagued with uncertainty, 
when the troubled plan eventually gets straightened out the 
demand for tubular products, like those that will be produced 
at the future Calabar plant, will be enormous.  End Comment. 
 
¶11. (U) This cable cleared by Embassy Abuja. 
BLAIR