Cablegate: Nigeria: Infrastructure Conditions Hinder Export

VZCZCXRO7072
PP RUEHMA RUEHPA
DE RUEHUJA #2045/01 2901234
ZNR UUUUU ZZH
P 161234Z OCT 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 4191
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 0076
RUEHZK/ECOWAS COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DOC WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC

UNCLAS SECTION 01 OF 06 ABUJA 002045

SENSITIVE
SIPDIS

DEPT PASS TO USTR - AGAMA; USTDA - FITTS/MARIN; USITC -SCHLITT AND
EXIM - JRICHTER
DEPT OF ENERGY FOR HAYLOCK AND PERSON
USAID AFR/SD FOR CURTIS
TREASURY FOR PETERS AND HALL
DOC FOR 3317/ITA/OA/KBURRESS, 3130/USFC/OIO/ANESA/DHARRIS
USDA/FAS FOR C. MCKINNELL, R. VERDONK

E.O. 12598: N/A
TAGS: ETRD ENRG EAIR ELTN ECON PGOV EAID NI
SUBJECT: NIGERIA: INFRASTRUCTURE CONDITIONS HINDER EXPORT
COMPETITIVENESS

REF: A. ABUJA 1942
B. ABUJA 1794
C. STATE 85109
D. LAGOS 302
E. LAGOS 318
F. ABUJA 1563
G. LAGOS 240
H. ABUJA 1311
I. LAGOS 132
J. LAGOS 154
K. ABUJA 411
L. LAGOS 64
M. LAGOS 7
N. 07 LAGOS 768
O. 07 ABUJA 2059

SENTITIVE BUT UNCLASSIFIED - NOT FOR DISTRIBUTION OUTSIDE USG

1. (U) SUMMARY. The overall state of Nigeria's infrastructure is
poor. Rapid population growth and lack of investment and
maintenance have greatly deteriorated existing infrastructure. In
many areas of Nigeria, water supply, sewerage, sanitation, drainage,
roads, electricity and waste disposal are virtually non-existent.
Maintenance of the partially existing infrastructure has been
infrequent. The country's population is between 140-150 million
people with 92 million hectares of land and 853 kilometers (km) of
coastline, which supports eight major rivers and eight seaports with
annual freight through-put of 49 million tons. Roads carry a
vehicle population of 5.5 million and road freight at 50 million
tons per year. The railroad system is 4,660 km of standard and
narrow gauge track. There are twenty-one airports, four with
international flights, with passenger traffic at 5.4 million per
year. The national electricity grid reaches only 40% of the
population and much of that population has power only on a limited
basis each day. The Nigerian government (GON) is actively trying to
improve the situation by drawing up strategic plans for
transportation and electricity generation seeking public private
participation (PPP) to fund improvements. This cable is the second
of two responses to reftel C regarding Nigeria's current physical
infrastructure, capacity, state of repair and state of technology.
END SUMMARY.
.
TRANSPORTATION SECTOR WOEFULLY INADEQUATE
-----------------------------------------
.
2. (U) In furtherance of the U.S. International Trade Commission's
(USITC) preparation of three annual reports related to factors that
affect trade patterns of selected industries in sub-Saharan African
countries, Team Nigeria has put forward specific information to
better understand the Nigerian landscape. The transportation sector
comprises road, rail, water and air sub-sectors, and GON has
unveiled a plan for an inter-modal system that would effectively
link the different modes of transport to promote the socio-economic
development. Federal and State plans include railway expansion and
linkage with roads and airports. One plan is for the Federal
Capital Territory (includes Abuja) to be linked with the railway
system along with ports such as Warri, Lily Pond, Onne, and Tin Can
Island. Likewise the airports may be linked with the railway to
reduce congestion in intra-city transportation. The major framework
for implementing the transformation of the transport sector is
through concessions and PPPs aimed at attracting private sector
investments and participation.
.
ROADS - NOT PASSING THE GRADE
-----------------------------
.
3. (SBU) In a January 24, 2008 meeting with the Ambassador and
Africa Bureau Deputy Assistant Secretary Todd Moss, the Minister of
Transportation Diezani K. Allison-Madueke, said the road network is
unacceptable because of its serious negative economic impact and a
major safety concern to passengers and vehicles. The poor road
conditions greatly increase vehicle operating costs, lead to higher
fuel consumption, more frequent vehicle maintenance, depreciation of
vehicle values, longer travel times and increased accident rates.
She lamented that the Ministry therefore, bears the burden of high
road maintenance costs.

ABUJA 00002045 002 OF 006

4. (U) The Nigeria Federal Roads Maintenance Agency (FERMA) reports
that the GON completed 34,000 kilometers (km) of road infrastructure
between 1970 and 1982. The national network is currently estimated
at 194,200 km with an estimated 2008 asset value of $38 million out
of which 34,102 km (17.6%) is federal roads with asset value of
$18.8 million. State roads account for 30,500 km (15.7%) and the
local/rural roads cover 129,580 km (66.7%). The federal road
network carries 70% of freight and services 90% of the
socio-economic activities in the country. Between 2003 and 2007
FERMA assessed the condition of the federal roads network as
follows:
-- 50% of the road network was rated as collapsed and impassable;
-- 35% was rated as in poor structural condition;
-- 10% was rated in good condition;
-- 5% was rated very good.
The GON medium-term strategy plan targets improving the road network
to 82.4% in very good condition, 5.89% in good condition and only
12% in poor or bad condition by 2015. This major improvement plan
is estimated to cost $5 billion.
.
RAIL SYSTEM - DECAYING SINCE INDEPENDENCE
-----------------------------------------
.
5. (U) The railway infrastructure was inherited from the colonial
period and is virtually moribund with no history of upgrades or
systematic maintenance programs. In designing the Nigerian rail
system, the colonial administration came up with north-south lines
without linking east to west. The aim then was to convey
agricultural products from the north to the ports in the south. In
the post independence era, the railway system actively supported
economic activities as a bridge between the north and south. The
system consisted of 3,500 km of narrow-gauge (1.067 meter) rail
track. The system's basic elements were two main lines running
inland from the coast:
-- In the west from Lagos to Kano, opened in 1912;
-- In the east from Port Harcourt to a junction with the western
line at Kaduna, opened in 1926.

6. (U) Three major extensions were subsequently constructed:
-- A branch line from Zaria to Kaura Namoda (an important
agricultural area in the northwest) completed in 1929.
-- A branch from Kano to Nguru (a cattle-raising region in the
northeast) completed in 1930.
-- A 645- kilometer branch from the eastern line to Maiduguri,
completed in 1964.
-- A short spur to the mining areas at Jos and three short branches
from Lagos, Minna and Kaduna completed the system.
Inadequate maintenance and funding have contributed to the severe
deterioration of the entire system.

7. (SBU) According to Nigerian Railway Corporation Managing Director
Mazi Nwankwo, in a discussion with EconOff on September 15, 2008,
there is a plan to refurbish the entire system, including keeping
the narrow gauge system. Another plan to convert the entire system
to standard gauge (1.435-meter) by laying new track parallel to the
old was shelved in the early 1980s and again in 2008 for lack of
funding. Nwanko said the GON will purchase new locomotives, engines,
and rail cars and there are active discussions with General Electric
and others.

8. (U) In addition, the Ministry of Transportation is actively
proposing the following railway concessions: -- A western railway
from Lagos to Nguru and Kaura Namoda via Zaria;
-- An eastern railway from Port Harcourt to Maiduguri including the
Kaduna to Kafanchan link;
-- A central railway from Itakpe to Warri via Ajaokuta.
In an August 8, 2008 presentation on infrastructure, Minister for
Transportation Diezani Alison-Madueke said the estimated cost of
these proposed public private partnerships is US$ 1.303 billion.
.
MARITIME TRANSPORT HAS POTENTIAL TO GROW
----------------------------------------
.
9. (U) Nigeria is rich with waterways and the use of these waterways
would improve the movement of goods and people. However, very

ABUJA 00002045 003 OF 006

little planning or funding has been dedicated to the maritime
sector. Nigeria has over 10,000 km of navigable waterways from the
Nigeria/Niger and Nigeria/Cameroon borders to the Atlantic Ocean,
comprising rivers, creeks, 26 lagoons and lakes. In the
intra-Coastal waters the Nigerian main river system is a
Y-configuration suitable for North-South movement of people and
goods. Nigerian inland waterways transportation (IWT) development
is in its infancy. The inland waterways consist of 27 rivers, 36
lagoons/creeks/canals and two lakes. Two of the three largest
rivers in West Africa flow through Nigeria, thus providing
significant natural transportation advantages. The IWT in Nigeria
connects all major cities/commercial centers and major agricultural
belts. Most of the rivers are navigable only during the flood
season of June through mid October. The major rivers are the Niger
and Benue and both require constant maintenance/dredging to make
them passable. Landing facilities on the rivers are mostly absent.
The GON recently has made efforts to develop a master plan to guide
and direct the development of the IWT industry, but no progress has
been made.

10. (U) Nigeria has a total of eight ports, which are delineated
into 25 terminal and concessions to private operators, of which
eighteen are located in Lagos and Rivers states and seven in Warri
and Calabar. The cargo through-put in tons in-bound is 31,937,804
and out-bound is 17,235,530 for a total of 49,173,324 tons. The
Ministry of Transportation has developed a long list of investment
opportunities for public private partnerships at the ports with
mixed results.

11. (U) The volume of exports via maritime transport is low.
Unprocessed cashew, cocoa, shea nuts, sesame nuts, and cotton
constitute the primary commodities shipped by sea. Currently only
20% of all shipping containers leave Nigeria filled with goods and
commodities. The U.S. Trade and Development Agency (USTDA) is
providing technical assistance to the Nigerian Ministry of Transport
in the development of an integrated computerization plan for the
operations and management of the Nigerian Ports Authority. This
project will help increase the productivity of the Nigerian Ports
Authority, and build human capacity to analyze, design and manage
information technology (IT) systems. This technical assistance is
expected to facilitate more efficient trade throughout the entire
region.
.
AVIATION - IMPROVING BUT MORE NEEDS TO BE DONE
--------------------------------------------- -
.
12. (SBU) The problems in the sector range from obsolete and
malfunctioning air navigation equipment, inaccurate weather
measuring instruments, and disrepair of fire tenders, runways,
conveyor belts and other passenger processing equipment. USTDA
conducted a definitional mission in June 2008, looking at potential
projects at airports and with the Nigeria Civil Aviation Authority
(NCAA), which has not been completed. Following several major air
crashes in 2005 and 2006 the GON has provided increased funding for
the sector. However, several public investigations in the National
Assembly have revealed that ministers and other high-level officials
may have diverted funds to their own pockets. Despite these issues,
the aviation sector remains the fastest and safest means of
transportation in Nigeria, due in large part to an on-going
partnership with the U.S. Federal Aviation Administration (FAA), the
World Bank, and others. In January 2008 an FAA team began the first
of many two-week visits, through 2010, to help Nigeria's aviation
industry achieve Category One certification. The team is
concentrating on eight key areas: legislation, regulation, civil air
authority structure and oversight functions, technical guidance,
qualified technical personnel, licensing and certification,
continued surveillance obligations, and resolution of safety issues.
The World Bank has provided $46.6 million in International
Development Association (IDA) credits for Nigeria under the West and
Central Africa air transport safety and security project. The funds
are providing an upgrade to the infrastructure and navigational aids
at airports. The upgrades will include an institutional study of
each aviation agency, aircraft and aircrew recertification exercise,
Port Harcourt and Abuja airports' operational perimeter fences and
patrol routes construction and rehabilitation, and installation of
wind shear detection systems for Lagos, Port Harcourt and Kano

ABUJA 00002045 004 OF 006

airports.

13. (U) Four (Lagos, Abuja, Port Harcourt and Kano) of the 21
airports in Nigeria operate international routes. Domestic
passenger traffic levels were six million in 2007, with another
three million for international flights. Annual numbers recorded
for the first three quarters of 2008 indicate passenger traffic
growing, especially internationally.

14. (SBU) During 2007 and 2008 discussion with EconOff, the Ministry
of Transportation Director Dr. Tunji Bolade and NCAA Director
General Dr. Harold Demuren contended that the GON's new policy
thrust is to follow up the National Civil Aviation Policy (NCAP) of
2001, which set in motion deregulation and privatization, to further
develop a privatized, autonomous, highly commercialized and
competitive aviation industry.

15. (U) The sector has shifted from a purely public driven sector to
a liberalized sector with private sector participation in the
airline business. The country presently has 17 private domestic
airlines with four private airlines operating international routes
and 20 foreign airlines operating in the country.

16. (SBU) According to Demuren, Nigeria has 100 aircraft that are
less than 10 years old among which are mainly newer Boeing 737-700
models. The implementation of the Cape Town Convention by the GON
has enabled several domestic airlines such as Arik Air, Chanchangi,
Bellview, IRS and Virgin Nigeria to acquire new aircraft. Another
benefit of the Convention is the possibility of lower insurance
premiums for Nigerian operators. Similarly, Nigeria has signed an
Open Skies Agreement on direct flights with the USG. (NOTE: In early
2008, the Department of Transportation approved Virgin, Arik, and
Bellview to wetlease flights to the U.S.; meaning that they are
leasing airplanes including crews, maintenance and insurance. END
NOTE). The designated Nigerian carriers are Virgin Nigeria, Arik
Air and Bellview while the American carriers are Delta and
Continental Airlines.

17. (SBU) Also the aviation sector has embraced the PPP model such
as the partnership at the new modern domestic airport terminal
(MMA2) by a private company Bi-Courtney Aviation Services Limited
through the Build, Operate and Transfer (BOT) arrangement which was
inaugurated in 2007. The GON has appropriated funds in the 2008
budget for the provision of state-of-the-art equipment at several
airports. Concurrently, the Ministry of Transportation is
reportedly modernizing two control towers at the Lagos and Abuja
international airports, while plans are in the works to modernize
the Port Harcourt and Kano airports.

18. (U) Unreliable electricity supplies are a major problem for
airports. As a result, new generators have been installed by the
Federal Airport Authority of Nigeria (FAAN) at the Kano (1,000
kilovolt amp generator) and Abuja (dedicated dual line 33 Kilovolt
power supply, from the National grid) international airports to deal
with frequent power outages.

19. (U) New Meteosat (MSG-2) Satellite Receivers have been
reportedly installed at the four international airports across the
country to improve weather forecasting. The most recent
commissioning was May 2, 2008 at the Abuja airport. In addition,
the Total Radar Coverage of Nigeria (TRACON) and communication
equipment V-SAT are on-going projects of the Nigeria Airspace
Management Agency (NAMA). The V-SAT is to provide ground to ground
and ground to air communication from every part of Nigeria while the
TRACON project is to provide total radar coverage for the Nigerian
airspace

20. (U) Building human capacity is another GON priority. The
Nigerian College of Aviation Technology (NCAT) in Zaria provides
aviation training in Nigeria and is being restructured and
repositioned to improve its mandate of providing manpower
development for the sector.
.
ELECTRICITY PROBLEMS PERSIST
----------------------------
.

ABUJA 00002045 005 OF 006

21. (SBU) At the Nigerian Infrastructure Summit on August 7, 2008
President Yar'Adua emphasized that Nigeria's chronic lack of power
is holding back its economic development. (NOTE: Only 40% of
Nigerians have access to the national electricity grid and those
connected to the grid often go weeks without electricity or have it
for only a few hours each day. Businesses and residences must
generate their own electricity via diesel generators, or use
renewable power such as solar. END NOTE). In a July 24, 2008
meeting with Under Secretary for Economic Affairs Reuben Jeffery and
Ambassador (reftel F), the Permanent Secretary for the Federal
Ministry of Energy (Power) Dr. Abdullahi Aliyu commented that
Nigeria's electricity supply is inadequate and characterized by
frequent interruptions and countrywide load shedding. As of June 3,
2008 only 3,966 megawatts (MW) per day were potentially available
from an installed capacity of up to 7,982 MW. However, actual power
generation had decreased and by June 22, 2008 was as low as 850 MW
per day because of insufficient gas supply and low water levels at
hydro plants.

22. (SBU) Aliyu reported that the Ministry had a strategic plan
(reftel H) through which it expects to expand distribution and
transmission networks. In addition, the plan calls for increasing
power generation from existing and new plants by December 2009 to a
peak of 7,982 MW and an average of 6,180 MW. The medium phase would
add new power generation for a peak of 14,737 MW and an average of
11,540 MW by December 2011. A major issue in providing added
megawatt output through new and refurbished power plants is
"perceived" insufficient natural gas supply (reftel A). (NOTE: The
GON is unwilling to purchase gas for domestic use at a price which
is sufficient to compensate companies for their production costs.
END NOTE).

23. (SBU) According to Aliyu, total domestic gas supply is 700
Million Standard Cubic feet per day (MMSCF/d) which would equal a
total power generation capacity of 2,000 MW per day for gas-fired
power plants. According to the GON's gas supply plan, available
natural gas will increase to 1,400 MMSCF/d by the end of 2008, to
2,042 MMCF/d by the end of 2009, and then to 3,600 MMSCF/d by
December 2011. The increased gas supply will come from reduced
flaring, existing/new reserves, production efficiencies, and
expanded infrastructure. At the request of the Minster of State for
Energy (Gas) Odusina, USAID (Reftel A) has commissioned assistance
to the Government of Nigeria through the Ministry to review plans
and policies in support of the World Bank partial loan guarantees,
gas supply to power turbines, and gas flare reduction.

24. (SBU) Aliyu said the most important requirement of the strategic
plan is the creation of seven training centers, for in-country
technical training. He requested USG assistance in identifying
qualified train-the-trainers instructors and to develop course
curriculum.
.
POOR INFRASTRUCTURE CRIPPLES EXPORTS
-----------------------------------
.
25. (U) Nigeria is one of the largest growers of cashews in the
world; however, because of the power deficit and the state of other
infrastructure, 90% of the cashews are shipped to India and Vietnam
where it is processed and then exported to the United States. The
high costs of electricity, labor, and transportation leave the
Nigerian processing and exporting cashew industry uncompetitive.
Experts contend that the cost of shipping cashews to India or
Vietnam for processing is actually lower than that of establishing
and operating a processing factory locally.

26. (U) According the Nigerian National Bureau of Statistics,
Nigeria's manufacturing industry accounts for 4% of GDP. The
textile industry has been particularly hit hard by Nigeria's
decaying infrastructure. The industry claims high transportation
costs, infrequent electricity supply, inconsistent government
industrial policies, and multiple taxation, have created a high cost
of doing business that hinders their ability to compete. The GON
has responded with several bail out plans and the latest is for $594
million; however, none of the plans have been implemented. During
this time 35,000 textile workers have lost their jobs as a result of
at least 12 textile mills closing (reftel O).

ABUJA 00002045 006 OF 006

.
PORTS AND CUSTOMS ANOTHER BARRIER
---------------------------------
.
27. (SBU) Exporters contend that exporting from Nigeria via maritime
carriers is costly given the lack of port infrastructure, absence of
an inter-modal transport network across the country, security risks,
and non-transparent custom procedures. Roads coming in and out of
the ports are decaying, and over-usage results in around-the-clock
traffic congestion. Despite the Nigerian Custom Service's (NCS)
recent claimed adoption of a 48 hours custom clearance policy,
congestion leads to ships queuing up to berth at cargo terminals and
containers waiting to be transported out of the ports. The
chokepoints resulting from the lack of infrastructure at and around
the ports affect the efficiency at which goods can be processed.
The absence of an inter-modal transport network where the various
modes of cargo transport (rail, road, and maritime) are linked
together makes the transportation of goods from the hinterland to
the ports capital and time intensive. Cargo robberies and thefts
are common. Cargo trucks often never make deliveries or are seen
overturned and abandoned by the side of the road.

28. (SBU) Due to problems associated with transporting goods,
freight forwarders do not operate inland container depots or offer
cross-country transport services. As a result, exporters are solely
responsible for delivering goods from the production points to the
ports and loading them into containers. In addition, the poor state
and lack of equipment and facilities contributes to port
inefficiency, adding delays and costs, and increased incidences of
damaged goods. Custom clearance procedures and congestion at/around
the ports are another major contributor to inefficiency.

29. (SBU) Another hazard is providing NCS with proper documentation.
Exporters must provide on average five to six documents to NCS.
Often the required documentation is not readily known or available
to Nigerian exporters, therefore they then incur middlemen fees and,
in most cases, arbitrary charges imposed by custom officials.

30. (SBU) One positive improvement has been that port
concessionaires have increased maintenance, and purchased new and
improved equipment, which have benefited efficiency. For instance,
four new cranes were evident in the skyline at the APM terminal in
recent months.
.
COMMENT
-------
.
31. (SBU) The "resource curse" has played a major impact in
Nigeria's infrastructure development. In the first years after
independence in 1960 through the 1970s oil boom, the GON spent
sufficient funds on infrastructure. In the last 30 years budget
planning and execution have been poor. The result is a decrepit
infrastructure base that greatly hinders economic development.
Since President Yar'Adua took office in May 2007, the GON and
National Assembly have done much talking about what the problems are
and have made pledges to marshal all the resources available to at
least meet the challenge of increasing electricity supply. Despite
all the proclamations and reams of new plans, little has been
accomplished.

32. (SBU) The Ministries of Transportation and Energy continue to
put forward strategic plans and the associated requests for
additional funding. The USG can play a positive role in response to
the GON requests for technical support, contractors, products, and
training.

This cable was coordinated with Consulate Lagos.

PIASCIK

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