US embassy cable - 04LAGOS2399

UNCLAS SECTION 01 OF 02 LAGOS 002399 
 
SIPDIS 
 
PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON, NI 
SUBJECT: NIGERIA ECONOMIC UPDATE, NOVEMBER 2004 
 
 
1. (U) Summary: The National Electric Power Authority 
(NEPA) generated significantly less power in November 
than normal due to poor planning, maintenance and 
repair issues.  The World Bank recently estimated 
Nigeria loses $496 million per year from power 
failures. The Nigeria-Sao Tome and Principe joint 
development authority is offering five deep offshore 
oil blocs for sale, ahead of Nigeria's sale of about 27 
onshore and offshore blocs in early 2005. The GON's 
local content campaign got a boost as Schlumberger 
began working with indigenous firms to raise funds for 
local marginal field operations. Nigerian 
Telecommunications Limited (NITEL), the state-owned 
telecommunications company, owes GSM operators millions 
of dollars; operators have begun terminating services 
for some subscribers. End summary. 
 
2. (U) This economic update includes: 
-- A Power Sector Update 
-- Offshore Oil Blocs Up for Licensing 
-- Schlumberger Helps Indigenous Operators 
-- State-owned NITEL Highly Indebted to GSM Companies 
 
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Power Sector - Massive Loss of Generation; Electricity 
Tariffs May Rise; US Firm to Build State Plant 
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3. (U) NEPA's power generation declined from 4,000MW to 
2,566MW.  This resulted in massive load shedding across 
the country. Much of Lagos has been without electricity 
the majority of the past several weeks.   Businesses 
and residents, who have the wherewithal, have been 
forced to rely on auxiliary power sources throughout 
most of November.  Those less fortunate have had to 
suffer through long periods without power and light. 
The World Bank recently estimated that Nigeria loses 
$469 million a year from power failures. 
 
4. (U) NEPA reported that three hydropower stations 
(Kainji, Shiroro and Jebba) are operating at about 55 
percent capacity, due to low water levels.   (Comment: 
With rainy season just now ending, if water levels are 
already a problem, this difficulty is only likely to 
escalate as Nigeria moves further into dry season. 
NEPA said it "used up" all the water, anticipating a 
"big flood," which never materialized.  End Comment.) 
The Egbin thermal plant in Lagos is also operating 
below its 1,320MW, due to repair and maintenance work. 
(Comment: Technicians from Japan arrived about a week 
ago to work on the Lagos plant. End comment.) NEPA said 
it hopes to increase generation to at least 3,000MW 
early December.  However, that would still be less than 
50% of total installed capacity of 6,654MW and well 
short of the GON's target to increase installed 
capacity to 10,000MW by 2007.  Press reported that NEPA 
plans to increase electricity tariffs from between 40% 
and 194% to achieve full cost recovery.  The 
subsidization of NEPA and NEPA's resultant lack of 
popularity have been major impediments to NEPA's 
privatization and to attracting increased private 
investment to the struggling sector. 
 
6. (U) Meanwhile, U.S. firm Black and Veatch announced 
plans to partner with an indigenous company and the 
Kwara State Government to build a gas-fired Independent 
Power Plant (IPP) worth $275 million.  About $170m of 
the total sum is projected for constructing a gas 
pipeline to fuel the plant. In what may be a harbinger 
of things to come, the arrangement will exclude NEPA 
from the sale of electricity, and allow direct sale 
from the IPP to industry.  The plant, which should be 
completed in 2006, has an estimated output of 105 
megawatts. (Comment: GON plans to increase power 
generation from current 3,000MW to 10,000MW by 2005 
appear unachievable, despite the number of ongoing IPP 
projects of various state governments, which are at 
different levels of completion. End comment.) 
 
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Oil: Blocs Up for Licensing 
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6. (U) The Nigeria-Sao Tome and Principe Joint 
Development Zone (JDZ), November 15, opened a call for 
bids for the award of five deep offshore oil blocs in 
the zone. Bidding in this second JDZ licensing round is 
expected to close December 15, with winners announced 
December 31. 
7. (U) Edmund Daukoru, presidential adviser on 
petroleum and energy, said Nigeria would award 27 
onshore and offshore oil blocs the first quarter of 
2005.  The GON is aiming for $29 billion in petroleum 
revenue by 2007 and 40 billion barrels of oil reserves 
while producing 4.5 million barrels per day by 2010. 
Daukoru said the allocation and exploration of the 
blocs in 2005 would be critical in meeting these 
targets. (Comment: Stakeholders at a recent forum in 
Lagos opposed the GON's "rush" to license new blocs in 
2005. They claimed the country has yet to fully benefit 
from previously licensed blocs, most of which are not 
yet operational. End comment.) 
 
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Schlumberger Helps Indigenous Operators of Marginal 
Fields 
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9. (U) Schlumberger announced plans to work with a 
consortium of four indigenous oil companies to develop 
four marginal fields, believed to have high prospects. 
(Note: In 2003, 31 indigenous companies were awarded 
licenses to operate 24 marginal fields - those oil 
fields which are no longer profitable for production 
for major oil firms, but which can present attractive 
opportunities for smaller companies. However, a large 
number of these companies had been unable to work these 
fields due to insufficient start-up capital. End note.) 
 
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State-owned NITEL Incur Enormous Debts to GSM Companies 
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11. (U) State-owned, Nigerian Telecommunications 
Limited (NITEL), and some private telecom operators 
(PTOs) owe major GSM operators (MTN, Vmobile and 
Glomobile) an estimated $97.7 million.   NITEL alone 
owes about $82.7 million. As a result of these mounting 
debts, MTN has cut off subscribers on some PTO 
networks. (Comment: Industry watchers speculate the 
high level of indebtedness may cause some PTOs to 
liquidate or lead to consolidation within the telecom 
industry. This would further simplify the introduction 
of Unified Telecom Licenses in 2006, when some PTOs 
will have approval to provide mobile services. End 
comment.) 
 
 
Browne