US embassy cable - 01ABUJA1688

UNCLAS SECTION 01 OF 02 ABUJA 001688 
 
SIPDIS 
 
 
DEPT FOR EB/CBA AND AF/W 
DEPT OF COMMERCE FOR ADVOCACY CENTER 
DEPT OF ENERGY FOR OFFICE OF THE SECRETARY 
 
 
E.O. 12958: N/A 
TAGS: EINV, ENRG, PREL, ETRD, BEXP, ECON, NI 
SUBJECT: NIGERIA: LETTER FROM PRESIDENT OBASANJO EXPLAINS 
AWARD DECISION FOR DELTA II AND III POWER PLANT PROJECT 
 
 
REF: LAGOS 713 
 
 
1.  Summary.  In a July 6 letter addressed to U.S. Secretary 
of Energy Spencer Abraham (original forwarded to AF/W for 
transmittal to DOE), President Obasanjo provided the most 
comprehensive and clear explanation for the reasons behind 
the decision to award Marubeni/Hitachi the contract to 
rehabilitate the Delta II and III Power Plants.  The office 
of the President asked the Embassy to forward the letter, 
which asserts that Marubeni/Hitachi's technical 
specifications and delivery time best fulfilled the project 
requirements desired by the GON.  End Summary. 
 
 
2.  On July 6, President Olusegun Obasanjo presented the 
Embassy with a letter for Secretary of Energy Spencer Abraham 
regarding the rehabilitation of the Delta II and III Power 
Plant.  The six-page letter details the reasons behind the 
GON decision to award the contract to Marubeni/Hitachi, 
rather than to General Electric Energy Services or Babcock 
Electric Projects. 
 
 
3. The letter explains that Marubeni's proposal provided for 
the following: full replacement of the existing 5 GE turbines 
with 12 brand new Hitachi H-25 gas turbines; replacement of 
existing Hitachi generators and generator protection panels 
with new ones; a maintenance package including training and 
deployment of an on-site technical advisor for 12 months; 
replacement of the existing turbine control system with the 
GE Mark V speedtronic; and reinstallation of the Inlet Air 
System.  The entire proposal was scheduled for completion in 
24 months with a total cost of USD 123.75 million and 
included a deferred and staggered payment incentive. 
 
 
4. The letter says that General Electric's proposal offered 
three options.  At the low end, GE offered to maintain the 
current old technology by replacing parts with identical 
parts.  At the high end, GE proposed upgrading the technology 
by installing new gas turbine components, advanced seals, and 
the load gear box for an overall improvement in performance 
of 16 percent of output and 5.5 percent on heat rate over the 
current base load capacity of the units.  The proposal also 
included upgrading the control and protection system of each 
of the units, refurbishment of plant equipment, and an 
Operation and Maintenance (O&M) and Long Term Service  (LTSA) 
agreement.  The time-frame given for completion was 16 months 
for a total cost of USD 90 million.  The letter asserts that 
GE estimated that total replacement of existing generators, 
as offered by Marubeni/Hitachi would take 24-36 months (a 
potentially longer timeframe than the 24 months proposed by 
GE). 
 
 
5. Babcock Electrical Projects, the letter explained, 
proposed a solution that was considered technically 
inadequate to address the identified problems with the power 
plants.  The Babcock proposal included rebuilding the units 
to a condition comparable with that of a major overhaul and 
did not include long term maintenance.  The letter also 
mentioned that NEPA could not establish any record of 
Babcock's previous performance on a similar project. 
 
 
6. The letter also questions GE's ability to execute the 
contract on time.  In the letter, President Obasanjo notes 
that Delrohm/General Electric failed to execute on time the 
1998 contract to rehabilitate six gas turbine units in Delta 
IV.  The letter mentions that the NEPA Technical Board also 
had expressed concerns over the reported lack of commitment 
on the part of the Delrohm/GE experts deployed on the 
project.  Therefore, the letter infers that the decision to 
award the Delta II and III rehabilitation contract to 
Marubeni/Hitachi was based on that company's technical 
specifications and timeline as well as on the GON's past 
experience with General Electric in Nigeria. 
 
 
7.  The letter briefly explains why the GON decided to revise 
the Egbin Power Plant contract in favor of Marubeni/Hitachi 
and against NAIRDA.  According to the letter, the original 
award lacked credibility and transparency.  In addition, NEPA 
had identified NAIRDA as an air-conditioner retailer and 
maintenance company and, therefore, lacked experience in this 
area.  The letter states that there was no evidence of any 
affiliation between this company and General Electric and 
that GE was not party to the tender and was to participate 
only as a sub-contractor to NAIRDA, if NAIRDA so chose. 
 
 
8.  President Obasanjo closed the letter by writing "The 
Government of Nigeria appreciates the concerns of the 
American business community in ensuring the maintenance of 
transparency in our bidding and tender process in order to 
encourage investments by American companies in Nigeria.  In 
this regard, I assure you that my administration will 
continue to welcome to our country all genuine investors 
willing to do business with us in accordance with the level 
of business practices accepted internationally." 
 
 
9. Comment.  President Obasanjo's letter, in response to 
Secretary Abraham's March 2001 advocacy letter sent on behalf 
 
SIPDIS 
of GE, is the only written response we have received on any 
recent advocacy case and the most complete and comprehensive 
explanation we have received regarding this particular case. 
GE has claimed that, as the lowest bidder, it was more 
deserving of the contract and was convinced that the project 
award was influenced by the Japanese Prime Minister's visit 
to Nigeria, in addition to a visit by the CEO of Marubeni. 
Although President Obasanjo's letter admits that GE was the 
lowest bidder, it concludes that Marubeni was awarded the 
contract because it offered the best technical specifications 
and the fastest delivery time.  Post will pouch copy of 
letter to Secretary Abraham.  End Comment. 
Jeter