NIGERIA: USTDA VISIT ELICITS GON ASSISTANCE REQUESTS FOR

UNCLAS SECTION 01 OF 03 ABUJA 001209

SENSITIVE
SIPDIS

DEPT PASS AID AFR/SD FOR CURTIS, ATWOOD AND SCHLAGENHAUF
DEPT PASS TO USTDA-PAUL MARIN, EXIM-JRICHTER
DEPT PASS TO USTR-AGAMA
JOHANNESBURG FOR NAGY
USDOE FOR GEORGE PERSON
TREASURY FOR PETERS AND IERONIMO
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED

E.O. 12958: N/A
TAGS: ETRD EPET EINV ENRG EAGR EAID ELTN NI
SUBJECT: NIGERIA: USTDA VISIT ELICITS GON ASSISTANCE REQUESTS FOR
PETROLEUM SECTOR

REF: A. ABUJA 1050

B. ABUJA 549

C. ABUJA 262

ABUJA 00001209 001.2 OF 003



1. (SBU) Summary: The Ambassador met with Minister of Petroleum
Resources, Dr. Rilwanu Lukman; Minister of State for Petroleum Odien
Ajumogobia and Special Adviser to the President on Petroleum,
Professor Emmanuel Egbogah on June 8 to introduce U.S. Trade and
Development Agency (USTDA) Africa Manager Jason Nagy to discuss
possibilities for USTDA to assist oil and gas sector reforms and
related efforts. Lukman briefed on the petroleum sector reform
program and asked for help in establishing three oil and gas
regulatory authorities, technical assistance for refining, and other
capacity building. He underscored that sectoral reforms are meeting
resistance and U.S. assistance is urgently needed and said the
Ministry would submit a formal request in writing detailing priority
areas for assistance. (Reftel C). End Summary.

LUKMAN BRIEFS ON THE REFORM
--------------


2. (SBU) Ambassador met with Minister of Petroleum Resources, Dr.
Rilwanu Lukman, Minister of State for Petroleum Odien Ajumogobia,
and Special Adviser to the President on Petroleum, Professor
Emmanuel Egbogah on June 8 to introduce U.S. Trade and Development
Agency (USTDA) Africa Manager Jason Nagy and discuss oil and gas
sector reforms with the hope that USTDA will be able to assist
Nigeria in its effort. EconOff attended as notetaker.


3. (SBU) Lukman thanked the Ambassador for the efforts of the United
States Agency for International Development (USAID) on natural gas
policy and pricing. He emphasized that the work on gas delivery for
power plants and flaring is especially critical and welcomed USAID
to coordinate with USTDA and work closely with his staff. He also
thanked the U.S. Trade and Development Agency (USTDA) for its
technical assistance in the energy sector and especially for the
Liquefied Petroleum Gas (LPG) Framework Study. He noted that the
GON is currently planning the implementation of a new LPG policy and
any additional information toward implementation and incentive
programs from the USG is very welcome. The Ministry is working
toward a rollout of LPG for cooking as well as for vehicles. Help
is still needed in initial implementation, likely through a pilot
project in Lagos and Abuja. LPG efforts are planned for carbon
credit incentives, all proceeds to be used to entice the public to
use this alternate fuel to wood cooking fires and gasoline powered
vehicles.


4. (SBU) The Minister continued by briefing on the major sectoral
reform via the unbundling of the Nigerian National Petroleum
Corporation (NNPC),to transform it into an integrated,
international, commercial oil and gas corporation driven by revenue
and profit. The move is also expected to deter corruption. The
NNPC will become ten different groups. The oil and gas sector
reform seeks to transform NNPC into the new National Oil Company, to
be known as the National Petroleum Company of Nigeria (NAPCON). It
shall be a fully integrated oil and gas company, competing both
locally and internationally in all sectors of the industry. It
would be divorced from other conflicting roles in policy,
regulation, and national assets management, and would focus on its
commercial operations with the prime objectives of revenue
generation for its shareholder - the Federal Government of Nigeria.


The ten new groups are:

- The National Petroleum Directorate, a policy body charged with the
responsibility of detailed policy initiation, formulation and
development for optimum resource utilization. This is also expected
to serve as the secretariat for the Ministry of Petroleum
Resources.

-Three Regulatory Agencies:

--National Petroleum Inspectorate (NPI),which will be an autonomous
stand-alone technical regulator and will replace the Department of
Petroleum Resources (DPR);

ABUJA 00001209 002.2 OF 003


-- The National Petroleum Asset Management Agency (NPAMA) will
manage petroleum sector assets and be responsible for the commercial
regulation of all exploration and production activities in the
upstream sector including government owned assets (NNPC Ltd),
international oil companies and indigenous producers, whether
marginal or otherwise. Its span of control includes inland,
continental shelf and offshore.
--The Petroleum Products Regulatory Authority (PPRA) will regulate
the commercial aspects of the downstream sector of the industry.
PPRA will issue, renew, suspend or cancel permits or licenses and
also ensure that quality service is provided by the operators to the
consumers in conjunction with the consumer protection council.

- The Nigerian National Petroleum Company Limited, a commercial
center which will have strict commercial orientation and focus, and
be vertically integrated and capable of competing both locally and
internationally in all relevant segments of the oil and gas
industry.

- The National Petroleum Research Center (NPRC),a research and
development center which will promote capacity building and
maximizing local value addition.

- The Petroleum Training Institute, to train manpower.

- The Petroleum Equalization Fund and The Petroleum Technology
Development Fund.

And,

-National Frontier Exploration Services, to be responsible for
regulating and stimulating petroleum exploration activities in the
unassigned frontier acreages of Nigeria.

The reform plan also provides for the conversion of all existing
joint ventures into incorporated joint ventures (IJVs). Each IJV
will be a corporate entity to be incorporated under the laws of the
Federal Republic of Nigeria, and the incorporation process,
including capitalization and restructuring, will be carried out
through negotiations with the respective International Oil Companies
(IOCs),during the reform transition period.

(Note: Egbogah told EconOff in a separate conversation on May 22
that the Minister of Petroleum Resources would not be the apex
authority in the new institutional structure of the oil and gas
industry. Sitting at the top of the reformed oil and gas sector
will be the National Energy Council, a supra-ministerial council
chaired by the President, and charged with the responsibility for
broad, long term policies of the nation's oil and gas industry.
Under the NEC comes the Minister of Petroleum Resources, who
supervises the National Petroleum Directorate. The Minister of
Petroleum Resources shall also be responsible for broad policy
initiation, formulation and development in the oil and gas sector,
though subordinate to the NEC. The National Petroleum Directorate,
which subsumes regulatory functions of the Ministry of Energy, would
be responsible for detailed policy development, policy
implementation and resource management. It would also be in charge
of planning and production activities in the industry. End Note).

LUKMAN UNDERSCORES IMMEDIATE HELP IS NEEDED FOR SUCCESS
-------------- --------------


5. (SBU) The Ambassador asked Lukman to discuss his top priorities
his sector. Lukman asked if USTDA could help with technical
assistance in setting up the three independent regulatory bodies
(NPI, NPAMA, and PPRA) that will be separated from the commercial
"for profit" organization. Current pending legislation, the
Petroleum Industry Bill (PIB),allows for this important separation.
The bill is expected to pass into law this year and the regulatory
bodies will be launched. There is no current structure, experience,
or human capacity for this type of regulation. Lukman expressed a
need to establish a mentoring effort between Nigeria and the U.S.
with like entities to address organizational structure, procedure,
processes, and generally how to regulate. Lukman reminded the
Ambassador that the road to implementation is a tough one; and again
lamented that there is a lot of opposition to the reforms. He said

ABUJA 00001209 003.2 OF 003


he "needs the strength of the U.S." to be successful.


6. (SBU) Another component of the reform is the deregulation of
gasoline, which also faces opposition. Lukman clarified that from a
budget perspective the government literally cannot continue the
subsidy and the implementation of the deregulation is likely to be
sooner than later. In February the GON announced that it would stop
the subsidy it paid to the independent licensed companies that
import and distribute gasoline and diesel. Product importers say
the landing cost of gasoline is between 85 and 90 naira (57 and 61
U.S. cents) per liter. Without a guarantee of a subsidy importers
cannot sell at the government-controlled price. The subsidy keeps
the cost of gasoline down to a government-controlled 65 naira (44
U.S. cents) per liter. Nigeria exports the vast majority of its
crude oil and imports over 60 percent of refined petroleum products.
Corruption, inefficiency and lack of maintenance have crippled the
four state-owned refineries which struggle to produce less than half
of the 30 million liters of gasoline the country needs each day.
(Reftel B). Lukman also requested USTDA technical assistance to
enable existing refineries to provide more gasoline and other
petroleum products at market rates. Lukman welcomed USG input to an
integrated approach toward refining efficiency that includes
environmental concerns.


7. (SBU) Egbogah added that the GON would like assistance in
implementing the Synfuels Gas to Liquid (GTL) process developed by
Texas A&M University. The process is proven, but to implement the
U.S. technology in Nigeria successfully requires technical
assistance. Egbogah explained that the Synfuels process focuses on
efficient high-temperature natural gas conversion into acetylene,
which is then converted into ethylene at moderate pressures and
temperatures. After the ethylene passes through a catalytic
reactor, it is converted into products such as gasoline and jet
fuel. He noted that Synfuels processes are also designed to be
located upstream, in the field where gas can be converted
efficiently, at its source, into transportable gasoline product or
an ethylene based product.

GON ASKS FOR IMMEDIATE ASSISTANCE WITH REFINING, MAINTENANCE, AND
CAPACITY BUILDING
-------------- ---


8. (SBU) Lukman thanked the Ambassador for the efforts of the USG in
support of Nigeria's energy sectors. The Ambassador complimented
Lukman on the work he has done in planning the reform efforts and
now managing the reform and the change it brings. She also noted
that it might not be possible for USTDA to respond to all his
suggestions but that we would look to get a written request from the
Ministry that prioritizes 2-3 projects for USTDA to review. Lukman
also added that Nigeria will be upgrading the teaching facilities at
the Petroleum Training Institute in Effurun - Warri, Delta State and
that curriculums will need to be developed for LPG technology
applications, oil and gas regulation, and efficient refining
technologies and operation.


9. (SBU) COMMENT: The Ministry has over the course of meetings in
the last five months with EmbOffs consistently said that they want,
trust, and prefer U.S. engineering, project management, training,
goods, services, and policy guidance as the anchor for the
implementation of rebuilding a sustainable energy infrastructure.
Improvements in the power, oil and gas industries would have an
enormous positive effect on the Nigerian economy. While the USG
cannot be responsive to all Nigeria's needs, the GON's openness to
U.S. input provides an opportunity to steer policies in more market
compatible and stable directions. We await the Ministry's
prioritization of 2-3 projects for USTDA to review and decide where
they can best add value. END COMMENT.


10. (U) This cable was coordinated with ConGen Lagos and cleared by
USTDA and the USAID Mission in Abuja.

SANDERS