NIGERIA: U/S JEFFERY MEETING WITH MINISTRY OF ENERGY

UNCLAS SECTION 01 OF 03 ABUJA 001563 SENSITIVE SIPDIS DEPT PASS TO USTR- AGAMA AND USTDA - FITTS/MARIN DEPT OF ENERGY FOR CAROLYN HAYLOCK AND GEORGE PERSON E.O. 12598: N/A TAGS: ENRG EPET ECON PGOV EAID PREL NI SUBJECT: NIGERIA: U/S JEFFERY MEETING WITH MINISTRY OF ENERGY OFFICIALS REF: A. ABUJA 1311 ¶B. ABUJA 1082 ¶C. 07 ABUJA 1582 SENSITIVE BUT UNCLASSIFIED - NOT FOR DISTRIBUTION OUTSIDE USG ¶1. (SBU) SUMMARY. In a July 24 meeting with Under Secretary for Economic Affairs Reuben Jeffery, Energy Ministry officials requested urgent technical assistance and sought help from the USG to 1) find financing to close a $3.8 billion funding gap for new energy projects, 2) improve Nigeria's image in the global press, 3) determine natural gas pricing, and 4) build capacity in the power sector. The GON assesses its proven oil reserves at an estimated 40 billion barrels and plans to produce four million barrels per day (bpd) by 2010. The Ministry plans to restructure the Nigerian National Petroleum Corporation (NNPC) in line with a recently released Oil and Gas Industry Reform Implementation Committee (OGIC) report. Although President Yar'Adua's administration has been slow on results, its methodical approach may lead to improvements in the sector in the short term, which could positively impact the economy. End Summary. ¶2. (SBU) The Ambassador and Under Secretary (U/S) Reuben Jeffery hosted an energy roundtable July 24 with representatives from the Nigerian Ministries of Energy for Petroleum, Gas, and Power. The Minister of State for Energy (Petroleum) Odein Ajumogobia headed the Ministry's delegation which included Director Dr. Patricia Ogboru and Sr. Technical Advisor to the Minister Dan D. Kunle from the Ministry Energy (Gas),and Permanent Secretary Dr. Abdullahi Aliyu from the Ministry of Energy (Power). . Minister of State for Petroleum Requests USG Assistance -------------- . ¶3. (SBU) GON officials thanked the Embassy for its continued support in the energy sector and asked for assistance in the following areas: -- Closing the $3.8 billion funding gap between international and local banks for new energy projects; -- Managing Nigeria's image in the global press; -- Gas pricing; and -- Building capacity in the power sector. U/S Jeffery offered to work with the GON in these key areas and the Ambassador said she would follow up with the Ministry. ¶4. (SBU) Ajumogobia said Nigeria's biggest challenges were the economy, security, and corruption. He stated that while Nigeria was endowed with natural resources, it was globally ignored. Recalling a recent incident in the Niger Delta, he asserted it was blown out of proportion in the Financial Times. He requested help from the U.S. to improve Nigeria's image with the global press. ¶5. (SBU) The Ambassador offered to support a business exposition in the U.S. which could address current challenges. The U/S emphasized the USG's intense interest in Nigeria and cited President Yar'Adua's December 2007 visit to Washington when at a concurrent business event hosted by the U.S. Chamber of Commerce over 100 of the Fortune 500 companies were in attendance seeking information on business opportunities in Nigeria. . Minister Optimistic on Future Oil Production -------------- . ¶6. (SBU) Ajumogobia opined that in terms of proven reserves of crude oil and gas, Nigeria had entered a mature phase of petroleum exploration and production where reaching a 2010 crude oil production target of four million bpd was possible. The 2010 target was ambitious, but feasible, he said, because new information indicated Nigeria's proven oil reserves were actually 40 billion barrels as opposed to 36.2 billion as previously estimated. Most reserves are in the Niger River Delta and offshore in the Gulf of Guinea. Ajumagobia clarified that one million bpd currently were not in production because of security problems and technical and funding issues. He said acts of sabotage aimed at oil company installations and attacks on government targets in the Niger Delta had increased in recent months and expressed concern that companies eventually might find it easier to produce offshore and shutdown operations in the Delta as a result. . Joint Venture Progress ABUJA 00001563 002 OF 003 -------------- . ¶7. (SBU) Ajumagobia contended that despite setbacks (the NNPC failed to meet its share of development costs in all five joint-venture oil projects with international oil companies) joint ventures in general had made progress in resolving funding problems largely through the effort of the GON's partners. The GON has short, medium, and long term plans to raise funds in local and international capital markets to help fund joint ventures and avoid future shortfalls, he said. In the short term, a creative deal was made with private partners to loan the GON, through NNPC, over $6.1 billion ($2 billion from ExxonMobil, $1 billion from Total and $3.1 billion from Shell). NNPC's creditworthiness would determine how successful it would be in raising capital going forward, he said. Costs were increasing because NNPC's procurement process took two years from conception to approval. Ajumagobia thought the USG could provide assistance in raising capital. . NNPC Restructuring Needed -------------- . ¶8. (SBU) Ajumagobia lamented that the current arrangement - joint ventures funded through a budgetary allocation from the GON via the NNPC - was not working. In part to address this problem in September 2007, as part of a new oil and gas policy, President Yar'Adua ordered the restructuring of NNPC. NNPC restructuring would likely be based on draft recommendations from a report by the Oil and Gas Sector Reforms Implementation Committee (OGIC),but the next step would be to submit draft legislation to the National Assembly. Ajumagobia stressed that ensuring the full transformation of the oil and gas industry and the implementation of the OGIC report was his number one priority. . Electricity Production Woeful But GON Has A Plan -------------- . ¶9. (SBU) Permanent Secretary for the Federal Ministry of Energy (Power) Dr. Abdullahi Aliyu said Nigeria's electricity supply as inadequate and characterized by frequent interruptions and countrywide load shedding. As of June 3, 2008 only 3,966 megawatts (MW) per day were potentially available from an installed capacity of up to 7,982 MW. However, actual power generation had decreased and by June 22, 2008 was as low as 850 MW per day because of insufficient gas supply and low water levels at hydro plants. ¶10. (SBU) Aliyu reported that the Ministry had a strategic plan (reftel A) through which it expects to expand distribution and transmission networks. In addition, the plan calls for increasing power generation from existing and new plants by December 2009 to a peak of 7,982 MW and an average of 6,180 MW. The medium phase would add new power generation for a peak of 14,737 MW and an average of 11,540 MW by December 2011. . Where is the Natural Gas to Power the Plants? -------------- . ¶11. (SBU) According to Aliyu, the current total domestic gas supply in the country is 700 Million Standard Cubic feet per day (MMSCF/d) which would equal a total power generation capacity of 2,000 MW per day for gas-fired power plants. According to the GON's gas supply plan, available natural gas will increase to 1,400 MMSCF/d by the end of 2008, to 2,042 MMCF/d by the end of 2009, and then to 3,600 MMSCF/d by December 2011. The increased gas supply will come from reduced flaring, existing/new reserves, production efficiencies, and expanded infrastructure. ¶12. (SBU) The plan is based on four supply sources: --Source 1: gas supplied into the Escravos-Lagos-Pipeline System (ELPS) directly and transported to various power plants and industries along the ELPS. --Source 2: gas supplied in a dedicated manner to specific power plants. This applies specifically to the National Integrated Power Project (NIPP) or Joint Venture Independent Power Producers (JV IPP) power plants. --Source 3: gas supplied in the Eastern part of the country, to be fed into the Nigeria Liquefied Natural Gas -jointly owned by NNPC, Shell, Total, and Agip (NLNG). --Source 4: gas supplied into the existing Nigeria Gas Company (NGC) Eastern Pipeline Network. . Ministry of Power Seeks Technical Assistance ABUJA 00001563 003 OF 003 -------------- . ¶13. (SBU) According to Aliyu, the most important requirement of the strategic plan, which calls for the creation of seven training centers, is in-country technical training. He requested USG assistance in identifying qualified trainers to train instructors and develop course curricula and a mentoring program. (Note: The Ministry has identified 39 PCHN employees for substation operation and maintenance training in the United States. Aliyu reported that PHCN has a staff of 3,700 and needs ongoing training for at least 185 technical positions. End note). The Ministry also seeks contact information for U.S. power sector equipment manufacturers and contractors. Aliyu expressed appreciation to the U.S. Trade Development Agency for the technical assistance provided to the Nigerian Electricity Regulatory Commission (NERC) to develop a National Electricity Health and Safety Standard and associated training toward the implementation and enforcement of the standard. . Comment -------------- . ¶14. (SBU) Nigeria's 2010 oil production goal implicates a significant investment upstream which has not yet begun although the GON has a detailed plan for how it will reform NNPC and increase investment. Plans to repair the electricity grid and promote new generation power plants began during the Obasanjo administration but netted little or no results. President Yar'Adua has taken a much slower approach and has had at least three different committees working on identifying problems in the power sector. Improvements in power generation and distribution would have an enormous positive effect on the economy. While the USG cannot be responsive to all the roundtable requests, the GON's openness to U.S. input provides an opportunity to steer policies in more market compatible and stable directions. End Comment. PIASCIK