NIGERIA: POWER SECTOR TO GET $5.3 BILLION

UNCLAS SECTION 01 OF 02 ABUJA 002264 SENSITIVE SIPDIS DEPT PASS TO USTR- AGAMA, USTDA - FITTS/MARIN AND EXIM - JRICHTER DEPT OF ENERGY FOR CAROLYN HAYLOCK AND GEORGE PERSON USAID AFR/SD FOR MICHAEL CURTIS E.O. 12598: N/A TAGS: ENRG EPET ECON PGOV EAID NI SUBJECT: NIGERIA: POWER SECTOR TO GET $5.3 BILLION REF: A. ABUJA 1942 ¶B. ABUJA 1930 ¶C. ABUJA 1311 ¶D. ABUJA 1082 ¶E. 07 ABUJA 1607 ¶F. 07 ABUJA 1582 SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY ¶1. (SBU) SUMMARY: On October 30, 2008 the National Assembly approved the Federal Government's portion of $2.4 billion the required $5.3 billion for Nigeria's short-term power strategic plan. The funds will be used to rehabilitate the electricity grid and begin the completion of the National Independent Power Projects (NIPP). The rehabilitation of the existing plants will net additional power output, as much as 6,000 megawatts (MW),as many units are in need of repair. The funding is expected to be released by the first of December 2008, when an implementation oversight committee is inaugurated. The price tag for increasing electricity supply to 16,000 MW will cost has been estimated by the Ministry of Energy for Power at least $20 billion, and will require public private partnerships or some type of joint venture to accomplish. END SUMMARY. ¶2. (U) President Yar'Adua's 18 month long promise to declare a state of emergency in the power sector moved closer to fulfillment on October 30, 2008 as the final vote to approve the Federal Government's portion of $2.4 billion of a total of $5.3 billion power sector emergency implementation 2008 supplemental budget for the rehabilitation of the power grid was passed by both the House and the Senate. The total of $5.3 billion will be withdrawn from the Consolidated Revenue Fund as excess crude proceeds with the approval of all three levels of government, namely the local, state, and federal. . Next Steps -------------- . ¶3. (SBU) On November 01, 2008 Permanent Secretary of the Ministry for Power Dr. Abdullahi Aliyu told EconOff that agreement is expected to be reached by the end of November on the structure of how the implementation of the $5.3 billion will operate, including the new NIPPs. Currently the existing power plants are owned and operated by the Power Holding Company of Nigeria (PHCN),which is in reorganization and has a management oversight committee (reftel C). The vision for the formation of this second committee will be to �A;monitor and approve the implementation spending and benchmark the expected results of the $5.3 billion. The implementation oversight committee will be headed by the vice president with 19 planned members of the committee to include the following. Six governors, one from each of the six geo-political zones; three governors who were former ministers of power; the minister of state for gas and power (both sacked in the recent cabinet reshuffle); minister of finance; Attorney General of the Federation; Minister of National Planning; two representatives from banks, one from labor, one from the media, one from the oil operators. ¶4. (U) In 2008 a number of National Assembly committees executed detailed studies on the power sector. The Ministry of Power inaugurated task forces to undertake a site assessment of the Power Holding Company Nigeria's (PHCN) facilities. The Federal Executive Council commissioned the Presidential Committee on Accelerated Expansion of the Electricity Infrastructure to carry out due diligence studies covering technical, financial, and legal audits on the power sector. The Presidential Committee also hired KEPCO Energy Resources Ltd, a Korean firm, to execute the studies. The reports were reviewed and once the information was vetted, it was incorporated into the strategic plan, which is the basis of the supplemental budget. . Big Price Tag -------------- . ¶5. (SBU) The complete rehabilitation of the power sector and the new generation to satisfy demand for 16,000 MW will require an estimated $20 billion investment as noted in the Ministry's strategic plan for the power sector. The supplemental funding approved by the National Assembly for $5.3 billion will increase average electricity generation to 6,000 MW by December 2009. The 2008 budget and its supplemental supports the rehabilitation of the following existing power plants owned by PHCN: Egbin, Kainji Hydro, Sapele, Afam, Shiroro Hydro, Jebba, Delta, Geregu, and Omotosho; the rehabilitation of the existing transmission grid and distribution networks; completion of NIPP plants with Sapele expansion, Alaoji, Ihaovbor, and Egbema by December 2009; first year implementation of ABUJA 00002264 002 OF 002 the Multi Year Tariff Order; the first year costs toward the construction of the Zungeru and Mambilla Hydro projects; and the first year estimated costs toward the expansion of the transmission grid to handle 16,000 MW. (NOTE: Several NIPPs will come on line through 2011; some of their construction funding is in this supplemental for: Omotosho, Plant II; Papalanto Plant II; Geregu Plant II; Alaoji Plant II; Sapele Plant II; Calabar; Gbarain; and Omoku. END NOTE.) ¶6. (SBU) The 6,000 MW will be generated by: -- Existing plants 2,110 MW -- Rehabilitated plants 1,590 MW -- NIPP 1,140 MW -- Low-Pour Fuel(LPFO)40 MW (Used for firing boilers/ furnaces) The majority of plants will be run on natural gas - 79.9%, with the remaining mainly from hydroelectric - 19.3% and finally LPFO - 0.7. . Way Forward -------------- . ¶7. (SBU) COMMENT: Following President Yar'Adua's inauguration he placed increasing electricity supplies as a major goal of his administration. His Seven Point Agenda also focuses on electricity generation. Despite the President's best efforts, there has been no quick fix. The administration has been engaged in slow and deliberate discussions and have finally reached a point where its understanding of the problems, costs, and previous missteps in the Obasanjo's administrations are well understood. The approval of the $5.3 billion is a positive step forward. ¶8. (SBU) There are several risk factors for this rehabilitation and supplemental budget to be successful - whether funds will be executed as budgeted; will implementation continue on the steady path, which would attain the following benchmarks: (average of 4,100 MW output per day by March 2009; 4,600 MW by June 2009; 5,400 MW by September 2009; and 6,000 MW by December 2009). Additionally, is there enough natural gas available and can it be delivered to the gas fired plants? In October 2008 the U.S. Agency for International Development (USAID) commissioned a technical assistance program to examine whether current gas policies will result in sufficient natural gas supplies (reftel A). END COMMENT ¶9. (U) This cable was coordinated with Consulate Lagos. SANDERS