NIGERIA: LETTER FROM PRESIDENT OBASANJO EXPLAINS

UNCLAS SECTION 01 OF 02 ABUJA 001688

SIPDIS


DEPT FOR EB/CBA AND AF/W
DEPT OF COMMERCE FOR ADVOCACY CENTER
DEPT OF ENERGY FOR OFFICE OF THE SECRETARY


E.O. 12958: N/A
TAGS: EINV ENRG PREL ETRD BEXP ECON NI
SUBJECT: NIGERIA: LETTER FROM PRESIDENT OBASANJO EXPLAINS
AWARD DECISION FOR DELTA II AND III POWER PLANT PROJECT


REF: LAGOS 713



1. Summary. In a July 6 letter addressed to U.S. Secretary
of Energy Spencer Abraham (original forwarded to AF/W for
transmittal to DOE),President Obasanjo provided the most
comprehensive and clear explanation for the reasons behind
the decision to award Marubeni/Hitachi the contract to
rehabilitate the Delta II and III Power Plants. The office
of the President asked the Embassy to forward the letter,
which asserts that Marubeni/Hitachi's technical
specifications and delivery time best fulfilled the project
requirements desired by the GON. End Summary.



2. On July 6, President Olusegun Obasanjo presented the
Embassy with a letter for Secretary of Energy Spencer Abraham
regarding the rehabilitation of the Delta II and III Power
Plant. The six-page letter details the reasons behind the
GON decision to award the contract to Marubeni/Hitachi,
rather than to General Electric Energy Services or Babcock
Electric Projects.



3. The letter explains that Marubeni's proposal provided for
the following: full replacement of the existing 5 GE turbines
with 12 brand new Hitachi H-25 gas turbines; replacement of
existing Hitachi generators and generator protection panels
with new ones; a maintenance package including training and
deployment of an on-site technical advisor for 12 months;
replacement of the existing turbine control system with the
GE Mark V speedtronic; and reinstallation of the Inlet Air
System. The entire proposal was scheduled for completion in
24 months with a total cost of USD 123.75 million and
included a deferred and staggered payment incentive.



4. The letter says that General Electric's proposal offered
three options. At the low end, GE offered to maintain the
current old technology by replacing parts with identical
parts. At the high end, GE proposed upgrading the technology
by installing new gas turbine components, advanced seals, and
the load gear box for an overall improvement in performance
of 16 percent of output and 5.5 percent on heat rate over the
current base load capacity of the units. The proposal also
included upgrading the control and protection system of each
of the units, refurbishment of plant equipment, and an
Operation and Maintenance (O&M) and Long Term Service (LTSA)
agreement. The time-frame given for completion was 16 months
for a total cost of USD 90 million. The letter asserts that
GE estimated that total replacement of existing generators,
as offered by Marubeni/Hitachi would take 24-36 months (a
potentially longer timeframe than the 24 months proposed by
GE).



5. Babcock Electrical Projects, the letter explained,
proposed a solution that was considered technically
inadequate to address the identified problems with the power
plants. The Babcock proposal included rebuilding the units
to a condition comparable with that of a major overhaul and
did not include long term maintenance. The letter also
mentioned that NEPA could not establish any record of
Babcock's previous performance on a similar project.



6. The letter also questions GE's ability to execute the
contract on time. In the letter, President Obasanjo notes
that Delrohm/General Electric failed to execute on time the
1998 contract to rehabilitate six gas turbine units in Delta
IV. The letter mentions that the NEPA Technical Board also
had expressed concerns over the reported lack of commitment
on the part of the Delrohm/GE experts deployed on the
project. Therefore, the letter infers that the decision to
award the Delta II and III rehabilitation contract to
Marubeni/Hitachi was based on that company's technical
specifications and timeline as well as on the GON's past
experience with General Electric in Nigeria.



7. The letter briefly explains why the GON decided to revise
the Egbin Power Plant contract in favor of Marubeni/Hitachi
and against NAIRDA. According to the letter, the original
award lacked credibility and transparency. In addition, NEPA
had identified NAIRDA as an air-conditioner retailer and
maintenance company and, therefore, lacked experience in this
area. The letter states that there was no evidence of any
affiliation between this company and General Electric and
that GE was not party to the tender and was to participate
only as a sub-contractor to NAIRDA, if NAIRDA so chose.



8. President Obasanjo closed the letter by writing "The
Government of Nigeria appreciates the concerns of the
American business community in ensuring the maintenance of
transparency in our bidding and tender process in order to
encourage investments by American companies in Nigeria. In
this regard, I assure you that my administration will
continue to welcome to our country all genuine investors
willing to do business with us in accordance with the level
of business practices accepted internationally."



9. Comment. President Obasanjo's letter, in response to
Secretary Abraham's March 2001 advocacy letter sent on behalf

SIPDIS
of GE, is the only written response we have received on any
recent advocacy case and the most complete and comprehensive
explanation we have received regarding this particular case.
GE has claimed that, as the lowest bidder, it was more
deserving of the contract and was convinced that the project
award was influenced by the Japanese Prime Minister's visit
to Nigeria, in addition to a visit by the CEO of Marubeni.
Although President Obasanjo's letter admits that GE was the
lowest bidder, it concludes that Marubeni was awarded the
contract because it offered the best technical specifications
and the fastest delivery time. Post will pouch copy of
letter to Secretary Abraham. End Comment.
Jeter