VZCZCXRO3957
OO RUEHMA RUEHPA
DE RUEHUJA #2097/02 3240912
ZNR UUUUU ZZH
O 200912Z NOV 09 ZDK
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7524
INFO RUEHOS/AMCONSUL LAGOS 2321
RUEHJO/AMCONSUL JOHANNESBURG 0125
RUEHZK/ECOWAS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 02 OF 03 ABUJA 002097 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USAID AFR/SD FOR CURTIS, ATWOOD AND SCHLAGENHAUF 
STATE PASS TO USTDA-PAUL MARIN, EXIM-JRICHTER 
STATE PASS TO USTR-LAURIE-ANN AGAMA 
STATE PASS TO OPIC-BARBARA GIBIAN AND STEVE SMITH 
STATE FOR EEB/ESC/IEC/ENR-DAVID HENRY, CBA 
STATE PASS TO S/CIEA-DAVID GOLDWYN AND MICHAEL SULLIVAN 
JOHANNESBURG FOR JASON NAGY 
USDOE FOR GEORGE PERSON AND THOMAS SPERL 
TREASURY FOR ANTHONY IERONIMO, ADAM BARCAN 
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED 
 
E.O. 12958:  N/A 
TAGS: ENRG EPET EINV ETRD ECON NI
 
SUBJECT: S/CIEA GOLDWYN DISCUSSES NIGERIA'S POWER SECTOR WITH POWER 
AND FINANCE MINISTRIES 
 
*********************** 
* Missing Section 001 * 
*********************** 
 
 
ABUJA 00002097  002.2 OF 003 
 
 
expected to add 4,770 megawatts to the national grQ*Q^tional Gas Company (NGC).  The power sector needs 
1,730 million standard cubic feet of gas per day to adequately reach 
the 6,000 megawatt goal. 
 
------------------------------------ 
IMPORTANCE OF THE ELECTRICITY TARIFF 
------------------------------------ 
 
¶6. (SBU) Goldwyn said Nigeria's new Multi-year Tariff Order (MYTO) 
represented a good start towards a full-cost-recovery tariff, but 
more work needs to be done to encourage independent power producers 
(IPP) and alternative and renewable energy sources.  He said moving 
beyond the 10,000 megawatts goal to be completed by the end of 2011 
would require private sector projects and funding.  Goldwyn noted 
that the U.S. Department of Energy could provide expert advice on 
micro and distributed generation through the proposed Bi-National 
Committee on Energy and Investment.  Models from countries that have 
moved from underinvestment to fully self-sufficient utilities, like 
the Philippines, Thailand, and India, also could be provided. 
 
¶7. (SBU) Goldwyn underscored that deep gas reserves will be needed 
to support the post-2011 target and security of the national grid. 
Picking up associated gas from flaring for power generation might be 
a "short-term fix" but should not be relied on for a long-term 
source of power.  Gas prices should be market-based regardless of 
the Gas Master Plan.  The electricity tariff also needs to provide a 
lifeline provision for the poor and introduce incentives for 
renewable generation projects. 
 
 
¶8. (SBU) Goldwyn continued that independent power producers (IPPs) 
will not invest in power generation until the following conditions 
exist: 
-- Approved power purchase agreements (PPA); 
-- A designed "off-taker" (buyer) for generated electricity; 
-- Loan guarantees for payments to the IPPs; 
-- Access to gas, coal, and other fuel agreements without 
discrimination; and 
-- A new tariff model that reflects market-based prices and accounts 
for currency fluctuations because the current wholesale price in the 
Multi-year Tariff Order (MYTO) is not sufficient.  (NOTE: The GON 
required international oil companies to build and operate power 
plants (IPP) totalling about 4,000 megawatts by 2011 that they would 
not have built on their own.  END NOTE.) 
 
¶9. (SBU) Babalola said a standard power purchase agreement framework 
is being concluded.  This would be an international standard for all 
stakeholders coming into the Nigerian power sector.  He also said 
that a standard gas supply agreement framework for gas and power 
Qthat a standard gas supply agreement framework for gas and power 
producers is near completion, stressing that all the policy 
frameworks are essential to attract investors as well as boost 
accessibility to external funds for private sector participation in 
the power sector.  Babalola indicated that some of the proposed and 
licensed IPP projects are not viable.  He explained that many of the 
related firms have no experience in building or operating power 
plants. 
 
------------------------------------- 
RENEWABLES AND NEAR-TERM ALTERNATIVES 
------------------------------------- 
 
¶10. (SBU) Babalola said Nigeria's electricity capacity and customer 
service problems include distribution and transmission grid upgrades 
and an insatiable hunger for gas to produce electricity.  Babalola 
stated that some of the existing power plants will now be configured 
 
ABUJA 00002097  003.2 OF 003 
 
 
to run on either liquefied petroleum gas (LPG) or synthetic natural 
gas (SNG) instead of relying on natural gas that can only be 
supplied through pipelines.  He added that running these plants on 
Low Pour Fuel Oil (LPFO) is highly cost-inefficient.  He noted that 
power plants like Papalanto, Geregu, and Omotosho will be listed in 
the LPG/SNG conversion strategy so the GON can power idle plants in 
the absence of natural gas. 
 
¶11. (SBU) Babalola added that the GON would also explore potential 
mini-hydro power stations across the country to increase output. 
The GON would embark on coal-fired power plants in at least five 
states, including Enugu, Kogi, Nasarawa, Gombe, and Benue.  These 
states could each effectively run a 200 to 300 megawatt coal-fired 
power plant. 
 
¶12. (SBU) Following the meeting with Ministry of Power, Goldwyn met 
with Ministry of Finance Permanent Secretary Dr. Ochi Achi Niuv.  In 
contrast to the Power Ministry, Niuv agreed with the need to reform 
Nigeria's power sector and wean the majority of the population from 
unsustainable subsidies.  Niuv supported Goldwyn's arguments in 
favor of the need to: develop the "off-taker" for the distribution 
companies; implement a full-cost-recovery tariff that allows for 
fuel price adjustment; include lifeline pricing for the poor, and 
provide a market-based price for gas. 
 
¶13.  (SBU) Niuv welcomed the proposed U.S.-Nigeria Bi-National 
Commission on Energy and Investment.  Niuv said the Ministry wants 
to support the benefits of a market-driven power sector from the 
perspective of cost, liability, and associated economic growth. 
Goldwyn suggested the Nigerian Electricity Regulatory Commission 
(NERC) should be included in the Bi-National Commission 
participation to further these discussions.  Niuv appreciated 
Goldwyn's offer to assist in the energy sector and to share 
experiences from the U.S. transition from a state-regulated to a 
market-driven sector.  Niuv also asked for case studies of other 
countries that had moved from underinvestment to fully 
self-sufficient utilities. 
 
------- 
COMMENT 
------- 
 
 
¶14. (SBU) The ministries of Power and Finance have markedly 
different outlooks toward a fully market-driven power sector with 
help from the U.S. via the Bi-National Commission.  The Ministry of 
Power refuses to admit the urgency of Nigeria's power sector crisis 
and is reluctant to move too fast or outside the current sector 
organization, while the Ministry of Finance is open and eager to do 
what it can to assist this effort and lessen the budgetary burden of 
current system while also encouraging investment in this sector. 
Failure to implement the reforms for reasons of caution or 
corruption will delay the growth and prosperity expected from the 
achievement of the Ministry of Power's 6,000 and 10,000 megawatt 
goals. 
 
¶15. (U) This cable has been cleared by S/CIEA. 
 
SANDERS