VZCZCXRO5035
RR RUEHMA RUEHPA
DE RUEHOS #0198/01 1111144
ZNR UUUUU ZZH
R 211144Z APR 09
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0727
INFO RUEHUJA/AMEMBASSY ABUJA 0331
RUEHOR/AMEMBASSY GABORONE 0094
RUEHGB/AMEMBASSY BAGHDAD 0031
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RHMFISS/HQ USAFRICOM STUTTGART GE
RHMFIUU/COMUSNAVEUR NAPLES IT

UNCLAS SECTION 01 OF 02 LAGOS 000198 
 
SENSITIVE 
SIPDIS 
 
FOR GABORONE PASS PDROUIN 
FOR BAGHDAD PASS DMCCULLOUGH 
COMMERCE FOR KBURRESS 
ENERGY FOR PERSON, HAYLOCK 
TREASURY FOR DPETERS, RHALL, RABDULRAZAK 
STATE PASS USTR FOR LISER, AGAMA 
STATE PASS TRANSPORTATION FOR KSAMPLE 
STATE PASS OPIC FOR ZHAN, MSTUCKART, JEDWARDS 
STATE PASS TDA FOR EEBONG, DSHUSTER 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR NFREEMAN, GBERTOLIN 
 
E.O. 12958: N/A 
TAGS: EPET ECON EFIN EINV PGOV NI
SUBJECT: NIGERIA: GAS EXEC SAYS GASOLINE, KEROSENE SHORTAGE IMMINENT 
AS IMPORTERS CUT BACK 
 
¶1. (SBU) Summary: According to Adewale Tinubu, CEO of Oando Plc., 
Nigeria's largest indigenous energy group, the Government of Nigeria 
(GON) owes importers of refined petroleum products, namely gasoline 
and kerosene, USD 1 billion for products imported in 2008. Gasoline 
and kerosene are two primary refined petroleum products still 
regulated by the GON with a petroleum support fund (subsidy). 
Importers are now cutting back on the imports of these two products, 
and as a result, Nigeria will face a shortage of gasoline and 
kerosene in the near future.  Nigeria imports around 85 percent of 
its refined petroleum product needs due to the low capacity 
utilization and frequent breakdowns of its refineries. In addition, 
Tinubu argued that Nigeria can no longer sustain the USD 6 million 
it spends daily on subsidizing refined petroleum products, making it 
imperative for Nigeria to deregulate the downstream sector, as 
unpopular as that may be among ordinary Nigerians.  End Summary. 
 
Refined Petroleum Product Shortage Imminent As Importers Cut Back 
--------------------------------------------- - 
 
¶2. (SBU) Importation of refined petroleum products, particularly 
gasoline and kerosene, are expected to decline significantly in the 
near term as importers cut back because of an outstanding petroleum 
support fund (subsidy) of naira 150 billion (USD 1 billion) for 2008 
which the federal government has failed to pay.  On April 7, Wale 
Tinubu, CEO Oando Plc, Nigeria's largest indigenous energy group and 
a major indigenous refined petroleum products importer, told 
executives at the Lagos Business School monthly meeting that Oando 
recently canceled 26 shipments of refined product imports.  He said 
this is now common among product importers and he predicts the 
cutback will soon result in a shortage of gasoline.  He said Nigeria 
is heading back to the days of the Abacha regime (Nigeria's late 
military dictator from 1993 to 1998) when fuel scarcity and long 
queues were the norm. 
 
¶3. (SBU) Tinubu noted that it is imperative for Nigeria to 
deregulate the downstream sector even though it could be extremely 
unpopular and lead to problems for the incumbent government in the 
next election.  The country can no longer sustain the USD 6 million 
it daily spends on subsidizing refined petroleum products, he said. 
 
Refineries Operate At Ten Percent of Capacity 
--------------------------------------------- 
 
¶4. (SBU) Tinubu decried the state of Nigeria's four refineries which 
he said are operating at 10 percent of the total installed capacity 
of 450 thousand barrels per day.  Nigeria imports around 85 percent 
of the country's refined product needs due to the low capacity 
utilization and frequent breakdowns of its refineries.  By producing 
mostly fuel oil, the most basic derivative of crude oil, instead of 
higher margin refined products like gasoline, the refineries are a 
constant drain on Nigeria's revenue, he said.  Although Nigeria 
could generate up to USD 2 billion annually from refining at full 
capacity, a lack of political will to invest and maintain the 
refineries has made it impossible.  He advised the GON to promptly 
privatize government-owned downstream infrastructure like depots, 
refineries and pipelines to allow it to compete with imports and 
drive down product prices. 
 
Private Sector Investment Discouraged 
------------------------------------- 
 
¶5. (SBU) The private sector runs a parallel rather than a 
complementary infrastructure network to the state owned network in 
the downstream market, Tinubu said.  However, private investment in 
infrastructure is frustrated by politics and bureaucratic 
bottlenecks.  The system is inefficient because state-owned 
infrastructure is dilapidated while private infrastructure is 
difficult to construct in the face of Nigeria's bureaucracy and a 
 
LAGOS 00000198  002 OF 002 
 
 
highly regulated market.  He cited the example of Oando's USD 100 
million proposed investment to build an underwater pipeline to aid 
the transportation of imported petroleum products at the Lagos port, 
which was disapproved by the GON. 
 
Oando Is Diversifying 
--------------------- 
 
¶6. (SBU) Tinubu said Oando is going into the upstream and gas 
sectors because there is no real value in Nigeria's downstream oil 
sector.  He said the company could no longer operate in an 
unstructured and sporadic sector that depends on intermittent 
product shortages to recoup investment. From its origins in 
downstream petroleum products marketing, Oando recently redefined 
its business to encompass the entire value chain in the oil and gas 
industry, from local distribution of natural gas via pipelines, to 
independent power generation, he said. (Note: In November 2005, 
Oando Plc was listed in the Oil and Gas Sector of the Johannesburg 
Stock Exchange (JSE); becoming the first African company to seek a 
cross-border inward listing on JSE. End note.) 
 
¶7. (SBU) Comment:  Refined petroleum products importers have been 
threatening to cut off shipments to Nigeria since at least mid 2008. 
 Typically the GON drags its heels on making payments and then when 
things appear to be reaching a breaking point, hands over enough 
cash to temporarily calm the fuel importers.  But Tinubu is right, 
this game can't continue and the GON seems to realize this.  In 
February 2009, the government announced its intention to end subsidy 
payments and deregulate the price of gasoline and household 
kerosene.  To date, the subsidies and price controls continue. 
Tinubu is also right in saying deregulating the price of gasoline 
and kerosene would be very unpopular.  But Nigeria's current flawed 
electoral process, assuming it is not significantly reformed before 
the 2011 election, means that Tinubu is probably optimistic to think 
the public's reaction to price deregulation would (or could) 
manifest itself at the polls.  Mass discontent in Nigeria, such that 
it exists, is usually expressed outside the voting booth.  End 
Comment. 
 
¶8. (U) This cable was cleared with Embassy Abuja. 
 
Blair