US embassy cable - 03ABUJA1936

UNCLAS ABUJA 001936 
 
SIPDIS 
 
 
SENSITIVE 
 
 
TREASURY PLEASE PASS TO OFFICE OF AFRICAN NATIONS (A. 
SEVERENS) 
STATE PLEASE PASS TO OPIC (J. WILLIAMS AND C. DUFFY) 
 
 
E.O. 12958: N/A 
TAGS: ENRG, ECON, EFIN, EINV, NI 
SUBJECT: AES: GON PUSHING FOR PPA RENEGOTIATION 
 
 
REF: ABUJA 1812 
 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
 
1. (SBU) Summary: Charge met October 29 with AES officials 
from London and Lagos, to discuss AES's ongoing attempts to 
collect from Nigeria's National Electric Power Authority 
(NEPA) arrears on the Ebute power plant PPA (reftel).  The 
AES officials said they had met and would meet with a number 
of high Nigerian officials and that they carried one message: 
they expected immediate, full payment on arrears, or 
operations at the Ebute plant would be suspended October 31. 
In fact, NEPA promised on October 31 to deliver a partial 
payment immediately and full payment within two weeks.  In 
return, it asked that AES seriously consider renegotiating 
the PPA, which AES privately told us it has no intention of 
doing.  AES backed down on its (dubious) threat to shut Ebute 
down.  On November 7, NEPA indeed came through with a partial 
payment of 5.2 million USD, or about one month's worth of 
payments, out of a total of 18 million (and growing) in 
arrears.  Power generation continued.  End summary. 
 
 
2. (SBU) John McClaren, AES Vice President of Operations for 
Europe and Africa, along with Mark Miller, AES's Ebute plant 
manager, and Tunde Gbajumo, AES commercial team leader in 
Nigeria, met with Charge October 29.  McClaren said that 
pressure from AES headquarters had built to the point where 
his colleagues and he felt drastic measures were unavoidable. 
 The three said that unless NEPA showed a change of heart and 
agreed to pay arrears in full, power from Ebute would be cut. 
 In reply to Charge, Miller said that he did not think a 
partial payment would suffice to calm headquaters. 
 
 
3. (SBU) According to Miller, Minister for Power and Steel 
Imoke had earlier in the day appeared unconvinced (or at 
least not overly concerned) by AES's threat to shut down the 
plant.  A meeting later in the day with NEPA fared little 
better.  Speaking in the evening of October 29 with ECONOFF, 
Miller said he anticipated a power shutoff on the evening of 
October 31. 
 
 
4. (SBU) ECONOFF spoke again with Miller on October 31. 
Miller said that an October 30 evening meeting with the 
Governor of Lagos State had gone quite well and that on Oct 
31 NEPA representatives had given AES a promise of immediate 
partial payment, to be followed within two weeks by full 
payment of the 18 million USD in arrears.  NEPA had, however, 
urged AES to seriously consider renegotiating the PPA, 
something Miller privately told ECONOFF AES was not about to 
do. 
 
 
5. (SBU) As of November 10, power continues to flow from 
Ebute.  AES has informed us that on November 7 it received 
5.2 million USD out of a promised initial payment of 8.7 
million.  NEPA has promised the remaining balance on the 
entire 18 million by November 14.  In the meantime, NEPA has 
failed to keep up with new amounts coming due on the PPA, to 
the tune of about 5 million a month.  For the record, Ebute 
provides roughly 13 percent of Nigeria's system (vice 
on-site) generating capacity. 
 
 
6. (SBU) Comment: AES clearly is in a bind, but the real 
problem here is that the GON, intent on squeezing AES for a 
renegotiation of the PPA, seems blinded to the potential 
damage to its credibility among investors.  Ebute is the 
first and only privately funded electric generation project 
in Nigeria.  Already, OPIC has indicated to us that, as a 
direct result of the AES case, it is uncomfortable proceeding 
in negotiations on political risk insurance for a power 
generation project currently under development in Akwa Ibom 
State. 
 
 
MEECE