VZCZCXRO1522
RR RUEHMA RUEHPA
DE RUEHOS #0481/01 3331142
ZNR UUUUU ZZH
R 281142Z NOV 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0340
INFO RUEHUJA/AMEMBASSY ABUJA 9981
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 03 LAGOS 000481
SIPDIS
TREASURY FOR DFIELDS, AIERONIMO, RHALL, DPETERS
STATE PASS OPIC FOR DERB, ZHAN, MSTUCKART, JEDWARDS
STATE PASS TDA FOR LFITTS, PMARIN
STATE PASS USAID FOR NFREEMAN, GBERTOLIN, GWEYNAND, SLAWAETZ
STATE PASS EXIM FOR JRICHTER, KJACKSON, KJANIK
DOC FOR 3317/ITA/OA/KBURRESS
E.O. 12958: N/A
TAGS: EAID EFIN EINV PGOV NI
SUBJECT: NIGERIAN ECONOMIC SUMMIT II: PRIVATE PARTICIPATION, RESPECT
FOR CONTRACTS, MARKET PRICE FOR GAS ESSENTIAL TO GROW POWER SECTOR
1. (U) Summary: Participants at the Nigerian Economic Summit Group's
power sector forum held October 22 agreed that private sector
funding is crucial if Nigeria is to attain 70,000 megawatts of
electricity, projected to cost USD 50 billion, by 2020. Forum
participants concluded that Nigeria needs to review its electricity
laws, price gas properly, strengthen its electricity off-takers and
remove administrative bottlenecks to achieve its goal. They also
noted that over-regulation of the power industry and probes by
successive governments have stalled otherwise viable power projects.
They urged the Federal Government to create "islands of success" on
the Geometric Independent Power Project model. End summary.
2. (U) An interactive session on the state of the Nigerian power
sector was held on October 22, day two of the 14th annual Nigerian
Economic Summit in Abuja. Invited speakers were drawn from Britain,
India and Nigeria. The forum sought to identify strategies and
frameworks that Nigeria could copy or adapt to transform its power
sector, and to reach its goal of generating 70,000MW of power by
2020.
Private Sector Participation Essential
--------------------------------------
3. (U) Professor Barth Nnaji, CEO, Geometric Power Nigeria Limited
(GPNL) said that to achieve the goal of generating 70,000MW, Nigeria
must spend USD50 billion. Such a large expenditure requires the
participation of the private sector. Andrew Reicher, CEO of
Globeleq, a U.K. company, said that USD25 billion will be required
to build the generating plants and an additional USD25 billion to
improve transmission and distribution.
4. (U) According to Nnaji, GPNL, which will be commissioned in April
2009, had benefited from the decentralisation of the power sector.
Nnaji advocated for effective and sustainable decentralisation of
the system and the creation of what he called "islands of success",
consisting of local grids that serve industries in strategic
locations. These power producers should be independent of the
national grid, which is inadequate and vulnerable to vandalism, but
may themselves interconnect.
To Raise Needed USD 50 Billion
------------------------------
5. (U) Andrew Reicher, said Globeleq, whose major shareholder is
Actis, a private equity firm operating in Lagos, is interested in
Nigeria and is already partnering with the Akwa Ibom State
government to grow the assets of its Ibom Power Project. He warned
that while companies like his are willing to help in the design and
construction of plants, they can only put up one third of the
required funding; the rest must be sourced from institutional
lenders like the World Bank.
But Nigeria Must Honor Its Contracts
------------------------------------
6. (U) Onno Ruhl, World Bank Country Director for Nigeria noted that
Nigeria's plan to adopt Public Private Partnerships (PPP) in power
projects will require up to three years to mature; which means there
will be no improvement in the power situation in evidence before
Nigeria's next national election. He advised Nigeria to get some
projects off the ground now and to learn from them for future
projects. Nigeria does not need the World Bank, because it has both
the gas and money required to finance the projects, but the WB would
be willing to help on the technical side, he said. Reicher noted
that private companies like Globeleq will deliver on their part of
the bargain, but also will need to be paid. He therefore urged the
political class and consumers to accept that private equity
companies and institutional investors must make a profit if they are
to be part of infrastructure development. Ransome Owan, Chairman,
National Electricity Regulatory Commission (NERC) said there are
plans to issue bonds that can be bought and sold in the market place
to raise funds for required power projects in the short term.
Geometric Model Planned for North
---------------------------------
7. (U) GPNL, located in Aba, Abia State in Nigeria's south east, was
built at a cost of USD386 million. Nnaji said local banks Stanbic
IBTC and Diamond Bank provided the construction financing before
long term funding could be accessed from the International Finance
Corporation and World Bank. GPNL makes 100 percent of the 188MW
LAGOS 00000481 002 OF 003
power it generates available to industries in and around Aba. The
company has no sovereign guarantees from the Nigerian government.
Nnaji said sales to commercial customers have been negotiated based
on NERC's Multi Year Tariff Order (MYTO). He said GPNL is a model
for a joint power project in Kano, Kaduna and Katsina states, which
will entail building a power plant and gas pipelines.
Decentralized Grid Better for Nigeria
-------------------------------------
8. (U) Dr. V. S. Verma of the Indian Central Electricity Authority
(CEA) advised Nigeria to copy the Indian transmission model which
evolved from state and regional grids which later interconnected to
form the national grid. Although 45 percent of India's population
still lacks access to electric power, Verma said the gradual
evolution of the national grid ensured that a large number of people
did obtain access. He said this also enabled the reduction of
electricity theft from 40 percent to the current 28 percent. Verma
expects that theft will be further reduced to 15 percent by 2012
with the enactment of laws providing for severe punishment for
electricity theft. Verma said the Indian CEA is willing to help
Nigeria to design thermal, hydro, transmission and distribution
projects; to structure its regulatory affairs and to develop
standards, specifications, contract documents, demand forecasting
and generation, transmission and distribution planning, using
India's software models.
Price Gas Properly to Achieve Power Goal
----------------------------------------
9. (U) GPNL favors power plant concessions rather than joint
ventures with government so that efficiency is achieved more
quickly. Nnaji also advised that off-takers be made stronger and
more creditable through concessions, while generating companies must
be given real incentives such as rights to gas use and duty free
importation of turbines and components. He said the country's gas
infrastructure must be developed and the gas properly priced to
encourage production sufficient to satisfy domestic demand. Onno
Ruhl of the World Bank agreed that getting gas to current power
plants is critical to solving Nigeria's power problem. Ruhl noted
that the current price for gas is inadequate.
Removal of Administrative Bottlenecks Necessary
--------------------------------------------- --
10. (U) Bureaucratic delays can inhibit Nigeria from meeting its
target of power infrastructure development. Reicher said there is no
shortage of capital for Nigeria's power plans, but government's
administrative capacity to support the sector is the main problem.
For example, installing a turbine which ordinarily would take 28
months can take 10 years if bottlenecks in Nigeria's bureaucracy are
not eliminated, he said. The government must stop generating
complicated processes which slow down power plant construction and
create a regulatory regime that incentivizes development with a
market driven tariff structure in place, he said. Owan said NERC is
gradually growing in autonomy and experiencing only limited
political interference. Creating a level playing field for all
players, building an integrated system and making investment
decisions easier are priorities for NERC, said Owan.
11. (U) Reicher decried the financial weakness and slow functioning
of Nigeria's power off-takers. He said the India's Power Trading
Company helped to revolutionize the sector by improving off-takers'
credit quality. It also ensured open access to generating companies
so that customers in any location in the country can be served, a
model Nigeria should copy, Reicher opined. Owan noted Nigeria must
meet the challenge of building a sector that allows trading in
electricity just like other goods and services, a new concept for
Nigeria.
Probes and Over-Regulation Stall Power Sector Growth
--------------------------------------------- -------
12. (U) Participants at the forum noted that probes by successive
governments have stalled otherwise viable power projects. They
decried over-regulation of an industry still in its infancy and
called for allowing "islands of success" to grow before tightening
regulations.
Electricity Law Reforms Key to Indian Success
---------------------------------------------
LAGOS 00000481 003 OF 003
13. (U) Dr. Verma of India's CEA compared the current situation in
the Nigerian power sector to post-independence India in 1947 which
had only 1,362 megawatts (MW) capacity. He said Nigeria could copy
India which grew its capacity to 145,555MW in 2007 by constantly
reviewing and liberalizing its electricity laws. That allowed India
to provide reliable and quality energy at competitive rates and to
grow the economy at 8 to 9 percent.
14. (U) Although India modified the Indian Electricity Act of 1910
in 1948 to create State Electricity Boards and in 1998 to eliminate
government determined tariffs, create a Central Electricity
Regulatory commission, and allow states to create their own
Electricity Regulatory Commissions; it was the 2003 Electricity Act
revision that was the game changer in India's power sector. That Act
encouraged private sector participation in generation, transmission
and distribution. It de-licensed generation and introduced the
concept of non-discriminatory open access on transmission and
distribution networks. Shri Chandon Roy, Operations Director, NTPC
Limited, the largest power generating company in India, said the Act
ensured that government distanced itself from the sector and gave
the signal for interested private companies to enter. According to
Verma, India has greatly diversified its power sources with thermal
accounting for 92,893MW (64 percent of total), hydro 36,348 MW (25
percent), renewable energy sources (RES) 12,194 MW (8 percent) and
nuclear 4,120MW (3 percent).
15. (U) This cable has been cleared by Embassy Abuja.
BLAIR