NIGERIA: MEETING WITH NNPC MANAGING DIRECTOR

UNCLAS SECTION 01 OF 02 ABUJA 000472

SIPDIS


E.O. 12598: N/A
TAGS: EPET ENRG PREL NI OIL
SUBJECT: NIGERIA: MEETING WITH NNPC MANAGING DIRECTOR


1. Summary: On January 31, Ambassador Jeter and
Econoff met with Nigerian National Petroleum
Corporation (NNPC) Group Managing Director, Jackson
Gaius-Obaseki, and NNPC Group Executive Director,
Refining and Petrochemicals Directorate, Mansur Ahmed.
Gaius-Obaseki told the Ambassador that the NNPC was
concerned about financial transparency in the oil
sector. Ahmed said the productivity of Nigeria's
refineries has improved; however, Gaius-Obaseki added
that the refineries should be privatized.
Nonetheless, he went on to note that it would be
politically impossible to raise motor fuel prices in
order to earn more revenue through the sale of what
most Nigerians see as their nation's patrimony.
Gaius-Obaseki dismissed Presidential aspirant Buhari's
promise of reform in the energy sector, should he be
elected president. President Obasanjo deserves praise
for implementing reforms, but he is only one man, and
reform is slow. Gaius-Obaseki pointed to expanding
LNG production and timely NNPC cash calls to oil
companies as positive developments, but acknowledged
that the NNPC still owes money to oil companies
arising from previous military administrations. The
Ambassador commended NNPC's ongoing efforts to resolve
the problems. End Summary.


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Transparency in the Oil Sector
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2. The Ambassador noted there was a growing movement
in the U.S. and UK governments, NGOs, and the media to
promote greater transparency in extractive industries.
Gaius-Obeseki replied that the NNPC has made great
progress in transparency. NNPC accounting is
transparent, he said, and he referred the Ambassador
to the NNPC webpage as an example of this effort.
Gaius-Obaseki added that the NNPC's critics are mainly
in the National Assembly. "If you had been here in
late 1998, to be honest, [you would have seen that] we
NNPC officials were not sure then that we would be
here today (still under democratic rule)," commented
The Group Managing Director. Nigeria was lucky that
democracy had taken root.


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Status of Oil Refineries
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3. Ahmed updated the Ambassador on Nigeria's state-
owned refineries. He said the refineries were doing
better, but "they are not yet where they should be."
He remarked that some of the refineries, such as
Kaduna's, have raised their refining levels to 70% of
capacity, but Nigeria's four refineries need major
overhauls and constant maintenance. Gaius-Obaseki
said he would like to sell the refineries to private
investors, but the GON probably had too much at stake
to completely privatize the refineries. Nigerians,
especially before the general elections, will not
accept motor fuel price hikes. The Ambassador replied
that the refineries would need major GON investment to
make them attractive to private investors. Gaius-
Obaseki agreed.


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Laughs for Buhari
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4. The Ambassador disclosed that he had recently
spoken with Presidential hopeful Buhari, who had said
NNPC reform would be one of his main area of focus.
Gaius-Obaseki laughed and remarked, as President
Obasanjo had stated, that anyone can say he will
reverse the years of neglect of military rule, but to
do so is very difficult. The Managing Director said
the NNPC has improved dramatically under Obasanjo.
Gaius-Obaseki advised everyone to be fair with
Obasanjo; "the President cannot do it all alone."
Resolving contracting irregularities (corruption and
lack of transparency in bidding) in Nigeria is an
uphill battle that is unlikely to be won soon, Gaius-
Obaseki concluded.


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Natural Gas Development Going Strong
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5. The Ambassador stated that he had seen some very
optimistic numbers in the press, and wondered how much
earnings from liquefied natural gas (LNG) sales might
affect the GON's budget revenue in the mid- and long-
term. The NNPC Managing Director said that revenue
from LNG would be considerable, but he did not have an
idea of the projected revenue.


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Cash Calls and New U.S. Business
--------------



6. The Ambassador noted that there were still
disputes, dating from before 1999, about cash-call
arrears to some U.S. oil companies. Gaius-Obaseki
replied that the GON is current on cash calls after
1999, and is slowly paying pre-1999 debt to joint
venture (JV) companies. (Although the GON is now
opting for Production Sharing Contract (PSC's) for the
development of deep offshore fields, production from
JV's currently account for nearly all of Nigeria's
crude oil output. NNPC holds an average 57 percent
stake with JV partners such as ExxonMobil, Shell and
ChevronTexaco, which hold an average 43 percent.
During the Abacha era, the NNPC did not contribute its
share to JV operations, which resulted in hundreds of
millions of dollars in arrears. By the end of February
2003, the NNPC had liquidated almost all of its cash
call arrears.) The Ambassador told the Managing
Director that this was good news and noted that
several of the U.S. major oil companies also had
commended NNPC for clearing up the arrears. We were
also very pleased about the recent successes of Ocean
Energy and Cooper-Cameron's Ehra project. On Ocean
Energy, the GON had honored its 2001 commitment to us,
which, in turn, sent a very positive signal to U.S.
independent oil companies interested in doing business
in Nigeria.


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The Delta
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7. The Ambassador asked for views on the political
situation in the Delta. Gaius-Obeseki responded that
"all is quiet." He said the Niger Delta Development
Commission (NDDC) was organized and was easing tension
by providing support to the inhabitants in the Delta.
The Ambassador said that it appeared that the NDDC has
made little progress. Gaius-Obaseki then admitted that
the NNDC has not been as visible as it should have
been, and it should have engaged more with local
communities. The Ambassador asked Gaius-Obaseki what
he thought about the recent battle between the
National Assembly and President over the oil dichotomy
bill. He responded that he was not a politician and
was staying away from the battle.


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OPEC Oil Quota
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8. Gaius-Obeseki reported that Nigeria's crude oil
production was almost at Nigeria's OPEC quota of
around 2.1 million barrels a day. The Ambassador
asked whether Nigeria was looking for a change in the
OPEC formula for calculating its member-states'
quotas. Gaius-Obaseki responded obliquely by saying
that Nigeria's quota remained small, given its
population and production capacity. He then suggested
that all questions about Nigeria's quota be put to the
Presidential Advisor on Petroleum and Energy Affairs,
Rilwanu Lukman.


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NNPC fire in Lagos
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9. The Ambassador said that he was saddened to learn
about the fire that razed one of the NNPC's main
buildings in Lagos in late December, and stated that
we were very grateful that no one was hurt. He asked
if the fire had affected NNPC operations. Gaius-
Obaseki replied that NNPC workers were relocated to
other offices and that overall operations were
unaffected. Gaius-Obaseki ruled out arson, saying the
fire was caused by an electrical malfunction.
JETER