Identifier
Created
Classification
Origin
09ABUJA2097
2009-11-20 09:12:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Abuja
Cable title:
S/CIEA GOLDWYN DISCUSSES NIGERIA'S POWER SECTOR WITH POWER
how-toVZCZCXRO3957 OO RUEHMA RUEHPA DE RUEHUJA #2097/02 3240912 ZNR UUUUU ZZH O 200912Z NOV 09 ZDK FM AMEMBASSY ABUJA TO RUEHC/SECSTATE WASHDC IMMEDIATE 7524 INFO RUEHOS/AMCONSUL LAGOS 2321 RUEHJO/AMCONSUL JOHANNESBURG 0125 RUEHZK/ECOWAS COLLECTIVE RHEBAAA/DEPT OF ENERGY WASHDC RUEATRS/DEPT OF TREASURY WASHDC RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 02 OF 03 ABUJA 002097
SENSITIVE
SIPDIS
STATE PASS USAID AFR/SD FOR CURTIS, ATWOOD AND SCHLAGENHAUF
STATE PASS TO USTDA-PAUL MARIN, EXIM-JRICHTER
STATE PASS TO USTR-LAURIE-ANN AGAMA
STATE PASS TO OPIC-BARBARA GIBIAN AND STEVE SMITH
STATE FOR EEB/ESC/IEC/ENR-DAVID HENRY, CBA
STATE PASS TO S/CIEA-DAVID GOLDWYN AND MICHAEL SULLIVAN
JOHANNESBURG FOR JASON NAGY
USDOE FOR GEORGE PERSON AND THOMAS SPERL
TREASURY FOR ANTHONY IERONIMO, ADAM BARCAN
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED
E.O. 12958: N/A
TAGS: ENRG EPET EINV ETRD ECON NI
SUBJECT: S/CIEA GOLDWYN DISCUSSES NIGERIA'S POWER SECTOR WITH POWER
AND FINANCE MINISTRIES
***********************
* Missing Section 001 *
***********************
ABUJA 00002097 002.2 OF 003
expected to add 4,770 megawatts to the national grQ*Q^tional Gas Company (NGC). The power sector needs
1,730 million standard cubic feet of gas per day to adequately reach
the 6,000 megawatt goal.
--------------
IMPORTANCE OF THE ELECTRICITY TARIFF
--------------
6. (SBU) Goldwyn said Nigeria's new Multi-year Tariff Order (MYTO)
represented a good start towards a full-cost-recovery tariff, but
more work needs to be done to encourage independent power producers
(IPP) and alternative and renewable energy sources. He said moving
beyond the 10,000 megawatts goal to be completed by the end of 2011
would require private sector projects and funding. Goldwyn noted
that the U.S. Department of Energy could provide expert advice on
micro and distributed generation through the proposed Bi-National
Committee on Energy and Investment. Models from countries that have
moved from underinvestment to fully self-sufficient utilities, like
the Philippines, Thailand, and India, also could be provided.
7. (SBU) Goldwyn underscored that deep gas reserves will be needed
to support the post-2011 target and security of the national grid.
Picking up associated gas from flaring for power generation might be
a "short-term fix" but should not be relied on for a long-term
source of power. Gas prices should be market-based regardless of
the Gas Master Plan. The electricity tariff also needs to provide a
lifeline provision for the poor and introduce incentives for
renewable generation projects.
8. (SBU) Goldwyn continued that independent power producers (IPPs)
will not invest in power generation until the following conditions
exist:
-- Approved power purchase agreements (PPA);
-- A designed "off-taker" (buyer) for generated electricity;
-- Loan guarantees for payments to the IPPs;
-- Access to gas, coal, and other fuel agreements without
discrimination; and
-- A new tariff model that reflects market-based prices and accounts
for currency fluctuations because the current wholesale price in the
Multi-year Tariff Order (MYTO) is not sufficient. (NOTE: The GON
required international oil companies to build and operate power
plants (IPP) totalling about 4,000 megawatts by 2011 that they would
not have built on their own. END NOTE.)
9. (SBU) Babalola said a standard power purchase agreement framework
is being concluded. This would be an international standard for all
stakeholders coming into the Nigerian power sector. He also said
that a standard gas supply agreement framework for gas and power
Qthat a standard gas supply agreement framework for gas and power
producers is near completion, stressing that all the policy
frameworks are essential to attract investors as well as boost
accessibility to external funds for private sector participation in
the power sector. Babalola indicated that some of the proposed and
licensed IPP projects are not viable. He explained that many of the
related firms have no experience in building or operating power
plants.
--------------
RENEWABLES AND NEAR-TERM ALTERNATIVES
--------------
10. (SBU) Babalola said Nigeria's electricity capacity and customer
service problems include distribution and transmission grid upgrades
and an insatiable hunger for gas to produce electricity. Babalola
stated that some of the existing power plants will now be configured
ABUJA 00002097 003.2 OF 003
to run on either liquefied petroleum gas (LPG) or synthetic natural
gas (SNG) instead of relying on natural gas that can only be
supplied through pipelines. He added that running these plants on
Low Pour Fuel Oil (LPFO) is highly cost-inefficient. He noted that
power plants like Papalanto, Geregu, and Omotosho will be listed in
the LPG/SNG conversion strategy so the GON can power idle plants in
the absence of natural gas.
11. (SBU) Babalola added that the GON would also explore potential
mini-hydro power stations across the country to increase output.
The GON would embark on coal-fired power plants in at least five
states, including Enugu, Kogi, Nasarawa, Gombe, and Benue. These
states could each effectively run a 200 to 300 megawatt coal-fired
power plant.
12. (SBU) Following the meeting with Ministry of Power, Goldwyn met
with Ministry of Finance Permanent Secretary Dr. Ochi Achi Niuv. In
contrast to the Power Ministry, Niuv agreed with the need to reform
Nigeria's power sector and wean the majority of the population from
unsustainable subsidies. Niuv supported Goldwyn's arguments in
favor of the need to: develop the "off-taker" for the distribution
companies; implement a full-cost-recovery tariff that allows for
fuel price adjustment; include lifeline pricing for the poor, and
provide a market-based price for gas.
13. (SBU) Niuv welcomed the proposed U.S.-Nigeria Bi-National
Commission on Energy and Investment. Niuv said the Ministry wants
to support the benefits of a market-driven power sector from the
perspective of cost, liability, and associated economic growth.
Goldwyn suggested the Nigerian Electricity Regulatory Commission
(NERC) should be included in the Bi-National Commission
participation to further these discussions. Niuv appreciated
Goldwyn's offer to assist in the energy sector and to share
experiences from the U.S. transition from a state-regulated to a
market-driven sector. Niuv also asked for case studies of other
countries that had moved from underinvestment to fully
self-sufficient utilities.
--------------
COMMENT
--------------
14. (SBU) The ministries of Power and Finance have markedly
different outlooks toward a fully market-driven power sector with
help from the U.S. via the Bi-National Commission. The Ministry of
Power refuses to admit the urgency of Nigeria's power sector crisis
and is reluctant to move too fast or outside the current sector
organization, while the Ministry of Finance is open and eager to do
what it can to assist this effort and lessen the budgetary burden of
current system while also encouraging investment in this sector.
Failure to implement the reforms for reasons of caution or
corruption will delay the growth and prosperity expected from the
achievement of the Ministry of Power's 6,000 and 10,000 megawatt
goals.
15. (U) This cable has been cleared by S/CIEA.
SANDERS
SENSITIVE
SIPDIS
STATE PASS USAID AFR/SD FOR CURTIS, ATWOOD AND SCHLAGENHAUF
STATE PASS TO USTDA-PAUL MARIN, EXIM-JRICHTER
STATE PASS TO USTR-LAURIE-ANN AGAMA
STATE PASS TO OPIC-BARBARA GIBIAN AND STEVE SMITH
STATE FOR EEB/ESC/IEC/ENR-DAVID HENRY, CBA
STATE PASS TO S/CIEA-DAVID GOLDWYN AND MICHAEL SULLIVAN
JOHANNESBURG FOR JASON NAGY
USDOE FOR GEORGE PERSON AND THOMAS SPERL
TREASURY FOR ANTHONY IERONIMO, ADAM BARCAN
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED
E.O. 12958: N/A
TAGS: ENRG EPET EINV ETRD ECON NI
SUBJECT: S/CIEA GOLDWYN DISCUSSES NIGERIA'S POWER SECTOR WITH POWER
AND FINANCE MINISTRIES
***********************
* Missing Section 001 *
***********************
ABUJA 00002097 002.2 OF 003
expected to add 4,770 megawatts to the national grQ*Q^tional Gas Company (NGC). The power sector needs
1,730 million standard cubic feet of gas per day to adequately reach
the 6,000 megawatt goal.
--------------
IMPORTANCE OF THE ELECTRICITY TARIFF
--------------
6. (SBU) Goldwyn said Nigeria's new Multi-year Tariff Order (MYTO)
represented a good start towards a full-cost-recovery tariff, but
more work needs to be done to encourage independent power producers
(IPP) and alternative and renewable energy sources. He said moving
beyond the 10,000 megawatts goal to be completed by the end of 2011
would require private sector projects and funding. Goldwyn noted
that the U.S. Department of Energy could provide expert advice on
micro and distributed generation through the proposed Bi-National
Committee on Energy and Investment. Models from countries that have
moved from underinvestment to fully self-sufficient utilities, like
the Philippines, Thailand, and India, also could be provided.
7. (SBU) Goldwyn underscored that deep gas reserves will be needed
to support the post-2011 target and security of the national grid.
Picking up associated gas from flaring for power generation might be
a "short-term fix" but should not be relied on for a long-term
source of power. Gas prices should be market-based regardless of
the Gas Master Plan. The electricity tariff also needs to provide a
lifeline provision for the poor and introduce incentives for
renewable generation projects.
8. (SBU) Goldwyn continued that independent power producers (IPPs)
will not invest in power generation until the following conditions
exist:
-- Approved power purchase agreements (PPA);
-- A designed "off-taker" (buyer) for generated electricity;
-- Loan guarantees for payments to the IPPs;
-- Access to gas, coal, and other fuel agreements without
discrimination; and
-- A new tariff model that reflects market-based prices and accounts
for currency fluctuations because the current wholesale price in the
Multi-year Tariff Order (MYTO) is not sufficient. (NOTE: The GON
required international oil companies to build and operate power
plants (IPP) totalling about 4,000 megawatts by 2011 that they would
not have built on their own. END NOTE.)
9. (SBU) Babalola said a standard power purchase agreement framework
is being concluded. This would be an international standard for all
stakeholders coming into the Nigerian power sector. He also said
that a standard gas supply agreement framework for gas and power
Qthat a standard gas supply agreement framework for gas and power
producers is near completion, stressing that all the policy
frameworks are essential to attract investors as well as boost
accessibility to external funds for private sector participation in
the power sector. Babalola indicated that some of the proposed and
licensed IPP projects are not viable. He explained that many of the
related firms have no experience in building or operating power
plants.
--------------
RENEWABLES AND NEAR-TERM ALTERNATIVES
--------------
10. (SBU) Babalola said Nigeria's electricity capacity and customer
service problems include distribution and transmission grid upgrades
and an insatiable hunger for gas to produce electricity. Babalola
stated that some of the existing power plants will now be configured
ABUJA 00002097 003.2 OF 003
to run on either liquefied petroleum gas (LPG) or synthetic natural
gas (SNG) instead of relying on natural gas that can only be
supplied through pipelines. He added that running these plants on
Low Pour Fuel Oil (LPFO) is highly cost-inefficient. He noted that
power plants like Papalanto, Geregu, and Omotosho will be listed in
the LPG/SNG conversion strategy so the GON can power idle plants in
the absence of natural gas.
11. (SBU) Babalola added that the GON would also explore potential
mini-hydro power stations across the country to increase output.
The GON would embark on coal-fired power plants in at least five
states, including Enugu, Kogi, Nasarawa, Gombe, and Benue. These
states could each effectively run a 200 to 300 megawatt coal-fired
power plant.
12. (SBU) Following the meeting with Ministry of Power, Goldwyn met
with Ministry of Finance Permanent Secretary Dr. Ochi Achi Niuv. In
contrast to the Power Ministry, Niuv agreed with the need to reform
Nigeria's power sector and wean the majority of the population from
unsustainable subsidies. Niuv supported Goldwyn's arguments in
favor of the need to: develop the "off-taker" for the distribution
companies; implement a full-cost-recovery tariff that allows for
fuel price adjustment; include lifeline pricing for the poor, and
provide a market-based price for gas.
13. (SBU) Niuv welcomed the proposed U.S.-Nigeria Bi-National
Commission on Energy and Investment. Niuv said the Ministry wants
to support the benefits of a market-driven power sector from the
perspective of cost, liability, and associated economic growth.
Goldwyn suggested the Nigerian Electricity Regulatory Commission
(NERC) should be included in the Bi-National Commission
participation to further these discussions. Niuv appreciated
Goldwyn's offer to assist in the energy sector and to share
experiences from the U.S. transition from a state-regulated to a
market-driven sector. Niuv also asked for case studies of other
countries that had moved from underinvestment to fully
self-sufficient utilities.
--------------
COMMENT
--------------
14. (SBU) The ministries of Power and Finance have markedly
different outlooks toward a fully market-driven power sector with
help from the U.S. via the Bi-National Commission. The Ministry of
Power refuses to admit the urgency of Nigeria's power sector crisis
and is reluctant to move too fast or outside the current sector
organization, while the Ministry of Finance is open and eager to do
what it can to assist this effort and lessen the budgetary burden of
current system while also encouraging investment in this sector.
Failure to implement the reforms for reasons of caution or
corruption will delay the growth and prosperity expected from the
achievement of the Ministry of Power's 6,000 and 10,000 megawatt
goals.
15. (U) This cable has been cleared by S/CIEA.
SANDERS