Cablegate: Nigeria: Industry Hurting in the North

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PP RUEHMA RUEHPA
DE RUEHUJA #2191/01 2901229
ZNR UUUUU ZZH
P 171229Z OCT 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 1186
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 8067
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
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UNCLAS SECTION 01 OF 03 ABUJA 002191

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT PASS TO USTR (AGAMA)
DEPT OF TREASURY FOR RHALL, DPETERS
DEPT OF ENERGY FOR CAROLYN GAY
DOC FOR 3317/ITA/OA/KBURRESS AND 3130/USFC/OIO/ANESA/DHARRIS

E.O. 12958: N/A
TAGS: ECON EINV ENRG EPET PGOV PREL NI
SUBJECT: NIGERIA: INDUSTRY HURTING IN THE NORTH

REF: A. ABUJA 2059
B. ABUJA 1582

SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY

1. (SBU) Summary. Northern business leaders were unanimous in
voicing their displeasure with current economic conditions in the
region. The supply of electricity is epileptic, requiring expensive
generators run on expensive fuel to operate businesses. An energy
expert provided a dire overview of the state of the electric power
supplies. In order for a company to operate it must build and
maintain its own infrastructure due to years of neglect from federal
and state governments. Petrochemical, plastics and agriculture
sectors were cites to Emboffs as areas for potential growth.
Businessmen are cautiously optimistic that President Yar'adua will
address their concerns. End Summary.

2. (U) Embassy Abuja hosted Iftar dinners, to mark the breaking of
the Muslim Ramadan fast, in Kaduna and Kano on October 2 and 3. At
the dinners and other meetings Emboffs met with a wide range of
northern business leaders.
.
What Happened to Electricity
----------------------------
.
3. (U) In a conversation with a well-connected local business and
energy consultant, Emboffs were told that in 1999 the Nigeria
generated only 1,600 Megawatts (MW) of electricity compared to 5,000
MW in 1990. Former President Obasanjo assured the public in 1999
that electricity was a priority of his administration. The GON
invested $2.1 billion in the subsequent three years to rehabilitate
its power generation, transmission and distribution infrastructure.
In addition, in 2001 the GON invited the private sector to construct
ten independent power plants (IPPs).

4. (U) By mid 2006, the GON successfully completed the Shiroro
(Niger State) - Abuja line, adding 1,462 MW from power generation
plants at Geregu (Kogi State), Omotosho (Ondo State), Papalanto
(Ogun State), Alaoji (Abia State) and another 968 MW from five other
IPPs. Despite these efforts, it was estimated that in 2001 power
generating capacity was 4,000 MW and actual generation 2,500 MW,
with an actual distribution of 2,000 MW. At the end of 2006 all
three figures dropped - power generating capacity was 2,800 MW,
actual generation 2,000 MW and actual distribution 1,800 MW. In a
population of 130 million, 50 million citizens have no access to
power, 80 million citizens have access to interrupted power and no
one access to uninterrupted power from the national grid.

5. (SBU) The energy consultant contended that the failure of the GON
to provide adequate, uninterrupted and reliable electricity was the
direct result of the failure to fully privatize the Power Holding
Company of Nigeria (PHCN). His solution was for the PHCN to be
privatized and the price of electricity deregulated. Based on
figures provided by the consultant, PHCN charges are a fraction of
international rates, and due to subsidization the utility company
cannot generate revenue to operate efficiently.
.
Alternative Sources of Electric Power
-------------------------------------
.
6. (SBU) Over the past 40 years, unreliable energy has compelled the
public and private sectors to turn to alternative power supply in
the form of standby power generators. An estimated 14,000
generators were imported in 2005 alone at a value of $400 million.
Industry contacts suggest that at least 600,000 generators operate
in Nigeria at a total value of $9 billion with a combined generating
capacity of 19,200 MW - six times national supply of electricity
available via the national grid. It is estimated that these standby
generators, operating at an average of 8 hours per day and consuming
eight liters of diesel per hour, consume 13.8 billion liters
annually valued at $10 billion. Their maintenance costs add a
further $1.2 billion.

7. (SBU) Businessmen told us that the losses to industry reach the
billions of dollars for continuous production interruptions leading
to downtime, idle staff, alternative energy costs and opportunity
losses to the Nigerian manufacturing industry. The energy
consultant calculated that if 80 million Nigerians currently

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receiving only interrupted electricity could receive an
uninterrupted supply there would potentially be a 31 GDP increase.
.
How the Rural Population Suffers Without Electricity
--------------------------------------------- -------
.
8. (U) Over 70 of Nigerians rely on agriculture for their income
and welfare. Agriculture contributes 40 of the GDP. Since 1999,
of 774 local government areas (LGAs) nearly all of them - 717 - have
been connected to the national power grid. Despite this progress,
the same number of MW is shared leading to increased outages. It is
estimated that rural areas experience more than 70% down time in
electricity, hindering basic necessities such as drawing water from
local wells, simple irrigation systems, and milling seeds. Rural,
isolated areas are unable to take advantage of remote communications
because mobile phones and computers cannot be recharged.
.
Manufacturers Need Help
-----------------------
.
9. (SBU) During a meeting with Manufacturers Association of Nigeria
(MAN) President Bashir Borodo, he agreed that the main problem his
members face is the shortage and unreliability of electric power.
He said electricity availability had declined in the last five
years. As a result, companies are concentrating on establishing
private sources of electricity. The MAN chief lamented how poor
macroeconomic policies and high GON deficits for most of the period
since 1993 have harmed Nigerian manufacturers. Borodo said it
remains difficult for MAN members to obtain needed replacement
machinery or spare parts because of previous or existing government
policies.
.
Manufacturers Take Independent Action
-------------------------------------
.
10. (SBU) Returning to Nigeria's chronic electricity problems,
Borodo said domestic manufacturers have no confidence whatsoever
that the GON will address successfully the power issue, so his
constituents are concentrating on establishing private sources of
electricity. The MAN chief noted that at many companies in Nigeria,
employees spend the entire day at their workplace unable to do any
work because of a lack of electricity. He commented on the
"psychological cost" of repeated power outages and said outages
occurring in the middle of domestic manufacturers' decreasing
production is particularly ruinous.

11. (SBU) Borodo said recent laws streamlining the electricity
sector will aid Nigerians in establishing private electricity
companies. He noted that MAN is negotiating with a UK and South
African company for development of a MAN power plant in the Lagos
area. The Lagos area has access to natural gas and MAN members are
trying to take advantage of that. He complained that MAN members
operating natural gas powered generators have been affected by
vandalism to pipelines yet the pipelines transporting natural gas to
Bonny LNG for export curiously have been unaffected. Another
complaint was the GON hiking the natural gas price per cubic meter
15 cents in 2007 without notice. Borodo maintained the industry is
willing to pay higher prices as long as supply is guaranteed, which
it is not.
.
Manufacturing Challenges
------------------------
.
12. (SBU) Over and over we heard from businessmen lamenting that in
order to manufacture, you must provide for everything yourself -
build the factory, buy the machines, dig the water borehole,
construct the road leading to your factory, pay for connection to
the national electricity grid, then purchase generators and pay the
90 naira per liter fuel costs and maintain the generators that will
run nearly 100% of the time. All the while, the company must pay
multiple taxes for services that do not exist. The manufacturing
industry also suffers from damage to industrial machinery and basic
equipment from power surges, ranging from electric motors, pumps,
compressors and electric lights. Large sums must be invested in
power stabilizers, voltage regulators and uninterrupted power supply
units to protect equipment.

13. (SBU) Industry representatives expressed unhappiness with the

ABUJA 00002191 003 OF 003

lack of access to credit and when credit is available interest rates
range from 20 to 30 . Lebanese industrialists who have been in the
region for as long as 100 years are divesting and leaving the region
due to the poor economic conditions. Experts contend that in
northern Nigeria only 20 of industrial capacity is used. The
deterioration of infrastructure has hurt businesses that rely on
transportation. Several companies complained about the high cost to
ship and receive products to and from Lagos due to deteriorating
roads, increased highway banditry and unreliability of old trucks.
The railway is dormant and air shipments are rare and expensive to
Kaduna and Kano.

14. (SBU) Borodo reported that in the last 20 years, the
petrochemical and plastics sector has had the fastest growth rate,
particularly in Lagos, Aba and Kano. When asked why the GON has
been unsupportive of industry, Borodo responded that GON officials
view manufacturers as "thieves" only interested in subsidies. He
acknowledged that some businessmen have abused government
concessions.
.
Textile Industry Hard Hit
-------------------------
.
15. (SBU) Another major issue touched upon by industry was smuggled
goods. Borodo said he has seen a huge influx of smuggled cheap,
substandard Chinese goods into Nigeria. He commented that the
textile industry has been hit hardest, even though there is a total
ban on foreign textile importation. In 1982, 800,000 workers were
employed in 72 textile factories, and by 2007 less than 300,000
workers labored in 12 textile factories. In September, United
Nigeria Textile, the last textile firm operating in Kaduna, closed
with the loss of 4,000 jobs.

16. (SBU) At night, trucks cross Nigeria's porous borders and unload
banned goods from China into Kano and other cities. Borodo
contended that the authorities were fully aware of the actors
involved but chose not to punish them.
.
Comment
-------
.
17. (SBU) The lack of power remains the biggest hurdle to industry
with transportation and infrastructure next in line. There was
general agreement among industry experts that agriculture was a way
forward and that a good policy environment and GON/donor assistance
can lead to rapid economic development in the north. Yar'adua's
administration has said that power is a priority and -- despite
bitter experiences -- industry leaders in the north were generally
optimistic that the President would follow through.

PIASCIK

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