NIGERIA: ECONOMIC IMPACT OF DELTA UNREST WORSE

C O N F I D E N T I A L SECTION 01 OF 03 LAGOS 000382

SIPDIS

DOE FOR GPERSON, CHAYLOCK

E.O. 12958: DECL: 09/23/2018
TAGS: EPET ENRG PGOV PREL RS CH NI
SUBJECT: NIGERIA: ECONOMIC IMPACT OF DELTA UNREST WORSE
THAN NNPC PUBLICLY ADMITS

REF: A. LAGOS 77

B. LAGOS 368

C. ABUJA 643

Classified By: Consul General Donna M. Blair for reasons 1.4 (B) and (D
)


1. (C) Summary: In a September 20 meeting, Levi Ajuonuma
(strictly protect),Group General Manager for Public Affairs
for the Nigerian National Petroleum Corporation (NNPC) said
unrest in the Niger Delta is hurting oil revenues far more
than senior NNPC officials are publicly admitting. Because
it can't reliably deliver oil cargoes, NNPC is forced to sell
some of it crude oil at a discount to attract buyers.
Ajuonuma labeled the Russians as very active in seeking
Nigerian natural gas concessions and said they enjoy
considerable support from Northern Nigerian leaders. A
dispute may widen over President Yar'Adua's plan to take
blocks assigned to a Chinese oil company and give them to
NNPC. Ajuonuma believes the President will seek to
fast-track oil reform legislation. Ajuonuma is close to the
current Group Managing Director of NNPC and the Minister of
State for Petroleum and his statements may reflect their
views. End Summary.


2. (C) Levi Ajuonuma, NNPC's Group General Manager for Public
Affairs told Energyoff on September 20 that the impact of the
unrest in the Niger Delta on Nigeria's oil revenues is "far
worse" than senior NNPC officials are admitting publicly.
According to Ajuonuma, refinery operators worldwide are
increasingly reluctant to gear their production towards
Nigerian crude oil, fearing supply disruptions that would
result in costly refinery downtime and restarts. As a
consequence, NNPC's crude oil marketing department recently
had to sell some oil cargoes below the world market price for
the specific grade of crude oil in order to attract buyers.
Ajuonuma hinted that NNPC's Group Managing Director (GMD)
Abubakar Yar'Adua has made intentionally misleading
statements about Nigeria's current oil production. (Note: A
Canadian High Commission poloff relayed to Energyoff on
September 19 that GMD Yar'Adua told diplomats assembled for
an August 12 Gulf of Guinea Energy Security Strategy (GGESS)
meeting in Abuja that Nigerian oil production is up to 2.6
million barrels per day (bpd). NNPC officials and spokesmen
have made similar claims in the local press. International
oil company executives in Lagos and the International Energy
Agency estimate Nigeria's August 2008 production to be
slightly more than 1.9 million bpd. Recent violence in
Rivers State may have taken out 300,000 bpd, dropping
Nigeria's current production level to 1.6-1.7 million bpd.
End Note.)


3. (C) Ajuonuma lamented the Joint Task Force's (JTF)
inability to deal with the militants in Rivers State. NNPC
would like USG technical and intelligence assistance to the
JTF specifically to interdict the flow of arms to militant
groups. While NNPC sees the GGESS as the best avenue for
international cooperation in improving the security situation
in the Niger Delta, Ajuonuma said it does not have the
support of the Nigerian military.

Russians "Very Active", Enjoy Northern Support
-------------- -


4. (C) Ajuonuma agreed that a recently signed memorandum of
understanding between Russia's GAZPROM and the Government of
Nigeria (GON) lacked substance and details. However,
Nigerian political leaders took the MOU as a sign of Russia's
commitment to the Nigerian natural gas sector and he
described the Russians as "very active" in Abuja, with
GAZPROM moving quickly to acquire natural gas concessions in
Nigeria. Ajuonuma corroborated information we received from
a senior international oil company executive who recently
told us the GON may take oil blocks currently assigned to
international oil companies and turn them over to GAZPROM for
gas exploitation. Ajuonuma would not name specific
international oil companies that may be targeted; he did say

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it would be companies not "fully exploiting the gas resources
allotted to them." According to Ajuonuma, the Russians enjoy
considerable support from Northern Nigerian politicians,
particularly those close to President Yar'Adua (Refs A,B).
When asked, he affirmed that Venezuela has reached out to the
GON on oil issues, but he does not see them as playing as big
a role in the Nigerian petroleum sector as Russia, China,
India, or South Korea.

Dispute Between China and GON Over Oil Blocks
--------------


5. (C) On the question of Chinese activity in the Nigerian
oil sector, Ajuonuma confided that there is a major dispute
brewing between the GON and Chinese government over oil
blocks awarded to a Chinese firm during the Obasanjo
administration. He claims President Yar'Adua has decided to
pull oil blocks awarded to a Chinese company and turn them
over to NNPC's oil production unit as part of a reform plan
to make NNPC a viable, stand-alone company. (Note: President
Yar'Adua told the Ambassador this in her April 3 meeting with
him just after his return from a state visit to China. End
Note.) (Ref C). Ajuonuma said that the GON and Chinese
officials had a gentlemen's agreement on these oil blocks; if
after the change of Presidential administrations in 2007, the
new administration wanted to renegotiate the price, the
Chinese would be willing to sweeten the deal. Accordingly,
the Chinese were caught off guard by the plan to pull the
blocks all together and Ajuonuma characterized the Chinese
government as "very angry". He feared the dispute may have a
broader impact on the China/Nigeria relationship.
Interestingly, Ajuonuma said NNPC senior executives have
counseled against the plan, even though their company would
stand to benefit, fearing it will further erode investor
confidence at a time when the country is seeking outside
investment in the upstream oil and gas sector. (Comment:
Ajuonuma didn't name the Chinese company or oil blocks in
question. The local press reports that the GON is reviewing
the 2006 assignment of four oil blocks to the China National
Petroleum Corporation: Oil Prospecting License (OPL) 298 in
Delta State, OPL 471 near offshore Bayelsa State, and OPLs
721 and 732, both in the Chad Basin. China National Offshore
Oil Corporation acquired deep offshore block OPL 229 in 2006,
but sold its working interest this August. It retains the
largest equity share of the Total-operated deep offshore oil
block Oil Mining License 130. NNPC's production unit does
not have the technical capacity to operate in the deep
offshore environment, so OPLs 298, 471, 721, and 732, which
are either onshore on near offshore, would be the most likely
Chinese-owned fields to be handed over to NNPC. We have
heard that the GON will assign oil fields in Ogoniland
(fields recently pulled from Shell Petroleum Development
Corporation) to NNPC as part of this same reform plan. End
Comment.)

Yar'Adua to Fast Track Oil Reform Legislation;
Corrupt Regulator May Return
-------------- -


6. (C) Ajuonuma commented on a number of other ongoing issues
in the oil sector. He believed President Yar'Adua would
personally work out a deal with senior legislators to
fast-track a recently introduced bill aimed at reforming the
petroleum sector. Ajuonuma was hopeful the legislation could
be passed as written within the next few months. (Note:
Most industry insiders expect the process to take nine months
to a year at best and be extremely contentious. End note.)
NNPC has formed technical transition committees to transfer
the organization to its new structure. He commented that
Tony Chukwueke, the head of the Department of Petroleum
Resources who was placed on a leave of absence during a probe
of improprieties in the 2007 oil block bid round, may resume
his post if Minister of State for Petroleum Ajumogobia stays
on or moves up to become the Minister of Energy in the
cabinet shuffle.


7. (C) Comment: Ajuonuma survived last year's changing of

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guard at NNPC and he is thought to be close to both Minister
of State Ajumogobia and NNPC GMD Yar'Adua. He travels
internationally with both men and even well-connected
Nigerian oil executives will acknowledge he acts as a gate
keeper to the upper echelon of NNPC. His opinions likely
reflect the views of NNPC senior officials and the Minster of
State. The idea that oil reform legislation will quickly
pass through the National Assembly may be more wishful
thinking on the part of NNPC rather than an honest assessment
of political realities. President Yar'Adua has not proven
particularly effective at working the legislative process to
his advantage, although he has stated how this is one of his
objectives. End Comment.


8. (U) This cabled cleared by Embassy Abuja.
BLAIR