US embassy cable - 05LAGOS1378

S E C R E T SECTION 01 OF 04 LAGOS 001378 
 
SIPDIS 
 
NOFORN 
 
DOE FOR DAS JBRODMAN AND CGAY 
TREASURY FOR ASEVERENS AND SRENENDER 
DOC FOR KBURRESS 
USAID FOR GWEYNAND AND SLAWAETZ 
STATE PASS TRANSPORTATION FOR MARAD 
STATE PASS OPIC FOR ZHAN AND MSTUCKART 
STATE PASS TDA FOR NCABOT 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USTR FOR ASST USTR SLISER 
 
E.O. 12958: DECL: 09/01/2015 
TAGS: EPET, PGOV, EINV, ECON, NI 
SUBJECT: CHEVRON MD DISCUSSES 2007 ELECTION AND GON 
DIATRIBES AGAINST OIL INDUSTRY WITH AMBASSADOR 
 
 
Classified By: Consul General Brian L. Browne for Reasons 1.4 (D & E) 
 
Summary 
-------- 
 
1.  (S/NF)  In a wide-ranging discussion with Ambassador 
Campbell, Chevron Nigeria Managing Director (MD) Jay Pryor 
expressed deep concern regarding "an underground PR campaign" 
by the GON against the petroleum industry.  He specifically 
mentioned public attacks by Minister of Solid Minerals 
Ezekwesili on the industry's tax compliance.  He indicated 
President Obasanjo remained fixated on downstream petroleum 
sector reform but is also concerned close allies may be tied 
to corruption in this arena.  The Ambassador and Pryor agreed 
despite public belligerence between Niger Delta rebel group 
leaders Dokubo Asari and Ateke Tom, they are capable of 
cooperation when its suits them.  They also agreed Delta 
State Governor Ibori is signaling a desire for closer ties, 
perhaps to pave the way for move to the U.S. after he leaves 
office in 2007 - or possibly to escape corruption charges. 
On the presidential election front, MD Pryor indicated 
politicians were now in peak season for amassing illegal 
profits from bunkering to fund their 2007 election campaign, 
with former President Ibrahim Babangida "amassing his chips." 
Finally, Pryor underscored the vigor with which Chinese and 
Indian delegations are attempting to secure access to 
Nigerian oil and minerals.  End Summary. 
 
Chevron MD Expresses Deep Concern with GON,s Public 
Attacks on Industry; Decries Underground PR Campaign 
--------------------------------------------- -------- 
 
2.  (S/NF)  During a recent conversation in Lagos with 
Ambassador Campbell, Chevron MD Jay Pryor expressed deep 
concern with "an underground PR campaign" by the GON against 
the petroleum industry in Nigeria.  He noted recent press 
statements by Minister of Solid Minerals/Nigerian Extractive 
Industries Transparency Initiative Chair Oby Ezekwesili, 
accusing international oil companies of tax fraud.  While the 
oil industry in Nigeria expects to be pilloried by a populist 
press, Pryor was surprised to find the industry publicly 
attacked by a leading GON official, whom according to Pryor, 
"should know better."  (Note:  MD Pryor and other industry 
figures repeatedly state over 90 percent of the oil revenues 
are retained by the GON as taxes and royalty payments - a 
point which GON officials are aware of, but do not publicize, 
since it puts them on the "hot seat" to explain the 
disposition of these revenues.  End note.)  Pryor believes 
senior GON officials malign the industry not because of its 
profitability, but because they fear disclosure of industry 
wage scales -- which would expose as mis-leading rhetoric by 
the popular press declaring the petroleum industry exploits 
all Nigerians, including those working in the industry. 
Pryor stated the wage scale in the Nigerian petroleum sector 
is, " ten times the wage scale in other industries," and 
comparable to U.S. wage scales in the sector. (Comment: 
While MD Pryor's analysis is usually on-target, his statement 
on the high wages in the industry provoking attacks by GON 
officials seems to be a bit self-serving.  Rather, it is 
likely GON officials find it politically expedient to attack 
the international oil companies because they earn substantial 
mileage with the press and public for doing so. 
Additionally, even officials at the ministerial level often 
lack the technical skills and knowledge to understand the 
complex financial arrangements between oil firms and the 
government.  End comment.) 
 
Production Costs in Mid-Range, but Increasing; 
Industry Faces Financial Strain with $30/Barrel Revenue Cap 
--------------------------------------------- --------------- 
 
3.  (S/NF)  Ambassador Campbell queried MD Pryor about the 
comparative costs of oil production in Nigeria.  Pryor 
explained that Nigerian production costs were in the 
mid-range globally at about 5-6 dollars/barrel, about on par 
with those in Latin America or Indonesia.  In comparison, he 
cited production costs in Saudi Arabia at about one 
dollar/barrel, and costs in the U.S. at about 12 
dollars/barrel.  Industry figures express frustration that 
worldwide constraints in the supply chain (e.g., rig leases, 
salaries, and prices for oil service contracting) are driving 
up production costs.  However, while energy companies in most 
markets are reaping record revenues which compensate for 
their higher production costs, firms in Nigeria are still 
receiving the same revenue they did at $30/barrel, with NNPC 
collecting all the additional revenue from rising oil prices. 
 Shell Petroleum Development Corporation MD Basil Omiyi 
informed us of a recent decision by President Obasanjo to 
re-confirm the cap on the industry's portion of the revenue 
split with government.  As production costs continue to grow, 
absent a change by the GON, Nigerian petroleum projects will 
lose the battle for access to capital in favor of projects 
based in countries - including the U.S. - where returns on 
investment are higher. 
 
OBJ Increasingly Worried About Crisis in Nigerian 
Downstream, but Concerned Allies Could Be Implicated 
--------------------------------------------- --------- 
 
4.  (S/NF)  MD Pryor stated President Obasanjo was 
increasingly worried about how to solve the crisis in the 
Nigerian downstream petroleum sector, but was also concerned 
important political allies might be involved in corruption in 
the sector. 
 
Ambassador, Chevron MD Concur Asari 
and Ateke Tom Capable of Tactical Cooperation 
--------------------------------------------- ------ 
 
5.  (S/NF)  The Ambassador and Pryor discussed the security 
situation in the Delta.  In discussing the relationship 
between Niger Delta People's Volunteer Force leader 
Dokubo-Asari and Niger Delta Vigilantes leader Ateke Tom, 
Ambassador Campbell indicated the nature of their 
relationship - friend or foe? - seemed to be fluid and 
variable within an evolving security situation.  Despite 
public belligerence between the groups, MD Pryor endorsed the 
view that Asari and Ateke Tom were capable of tactical 
cooperation, noting, "if they wanted each other dead, they 
would be."  Ambassador Campbell concurred, adding "if the 
President wanted them in jail, then they would be in jail." 
 
Delta Governor Ibori Looking to U.S. to 
Escape Post-2007 Corruption Charges? 
----------------------------------------- 
 
6.  (S/NF)  MD Pryor told Ambassador Campbell that at a 
recent global Memorandum of Understanding (MOU) signing in 
Delta State, Governor James Ibori took the opportunity to 
"show off" his renewed relationship with Chevron (and MD 
Pryor) to the press and other state politicians.  MD Pryor 
stated Governor Ibori sees himself as a "new age" politician, 
with a limited window of opportunity to modernize Delta 
before leaving office in 2007.  Ambassador Campbell pointed 
out Gov. Ibori appears to be signaling -- on a variety of 
fronts -- his desire for a stronger relationship with the 
U.S., especially if he fails to emerge as a serious 
vice-presidential contender in 2007.  Discounting as not 
credible Gov. Ibori's recent mention of pursuing a graduate 
degree in the U.S., Ambassador Campbell noted Ibori 
nonetheless has properties there - implying he might look to 
the U.S. to escape possible prosecution for corruption after 
losing immunity in 2007 when he leaves office.  Pryor 
mentioned while Gov. Ibori has been somewhat helpful on 
resolving a few issues, 2-3 people on his staff were "very 
bad," i.e., extremely corrupt. 
 
State Revenue Flows a Black Box, but Chevron MD 
Asserts Breakdown Begins at the Federal Level 
--------------------------------------------- ------ 
 
7.  (S/NF)  Pryor stated the United Kingdom had recently 
approached Chevron to support a revenue tracking study in 
three states.  However, he indicated this type of study is 
difficult for Chevron to support directly, since the 
Governors would see this as an insult.  Ambassador Campbell 
noted once revenue was allocated to the states, we have no 
idea where it goes.  (Note: Head of the Ministry of Finance 
Oil and Gas Accounting Unit (and IMF-secondee), Dr. Bright 
Okogu, recently told us 52 percent of the federal budget is 
now allocated to the states, in addition to the 13 percent 
oil revenue derivation taken "off the top" for distribution 
to the oil producing Delta states.  End note.)  The 
Ambassador remarked that international institutions such as 
the World Bank make a fundamental flaw when they assume the 
accuracy of the reports of the various overlapping accounting 
structures.  MD Pryor added the breakdown in fiscal control 
originates at the federal level, noting the GON never seemed 
to have problems financing pet projects which are not in the 
budget. 
 
Chevron MD:  Pipeline Figures indicate Bunkering, 
Elections Riding on Bunkering Lucre; IBB Amassing Chips 
--------------------------------------------- ---- 
 
 8.  (S/NF)  The Ambassador asked MD Pryor how much oil 
revenue was not "on the books," or, in other words, was being 
bunkered.  MD Pryor responded with a description of his 
personal effort to get a better handle on pipeline issues. 
When comparing input and output data for pipelines, he "can 
never make the numbers match; it is not even close."  Pryor 
has concluded the GON and NNPC know about the practice of 
illegal diversion of oil from the pipelines.  He suggested 
proceeds were likely split between a GON slush fund and 
payoffs to individuals who knew about the diversions. 
Ambassador Campbell concurred, noting "the distinction 
between public and private funds is vague."  MD Pryor noted 
from now until mid-2006, efforts to amass illegal funds to 
support 2007 election campaigns would be at their height -- 
and this money would determine the elections.  He stated, "he 
who has the most money will win, and IBB (former President 
General Ibrahim Babangida) is amassing his chips."  However, 
Ambassador Campbell explained IBB is "extremely cautious," 
and would only run if he was virtually assured he could win. 
Ambassador Campbell cautioned unanticipated events could also 
change the scenario. 
 
Emergent Evangelical Leadership Threatens Top 100's 
Consensus on Presidency Alternating b/t North-South 
--------------------------------------------- ------ 
 
9.  (S/NF)  MD Pryor raised the issue of challenges to the 
"top 100" who have controlled Nigeria,s interaction with the 
outside world since the Biafra crisis.  In an effort to keep 
the peace in Nigeria, Ambassador Campbell observed the top 
100's "rules" required alternating southern Christian and 
northern Muslim presidents.  MD Pryor noted, however, 
evangelical Christians are now trying to change these 
"rules."  MD Pryor explained Chevron was looking into the 
role of evangelical Christianity at Chevron, since many of 
their Nigerian managers, with high economic and educational 
status, were prominent ministers or lay church leaders. 
Ambassador Campbell remarked Nigerians seem to be turning to 
evangelical Christianity for its emphasis on personal honesty 
and no tolerance for sin.  MD Pryor speculated that after 
years of corruption in Nigeria, the rise in such evangelical 
groups seemed a sort of self-correction in the system. 
However, he pointed out this trend could lead to a much less 
predictable outcome in the election.  Ambassador Campbell 
also noted the diplomatic community does not tend to know the 
leaders of such evangelical groups. 
 
MD Pryor: Chinese, Indians, Seek Access to 
Nigeria's Oil, Mineral Resources 
-------------------------------------------- 
 
10.  (S/NF)  MD Pryor spoke of increasing competition for 
Nigeria,s energy resources, with Chinese and Indian 
delegations approaching Nigeria "from all directions", 
seeking access to oil and minerals.  Pryor said Chinese and 
Indian delegations were "all over (Minister of State for 
Petroleum Resources) Daukoru and his henchmen."  He noted the 
Chinese and Indians had indicated their willingness to invest 
in refineries, independent power plants, and other downstream 
assets.  (Note:  Concerned with regulated prices in the 
downstream sector, the oil majors, including Chevron - have 
been unwilling to invest in Nigeria,s downstream sector. 
End note.)  Ambassador Campbell agreed, pointing out the 
Chinese Embassy in Abuja was large and its diplomats 
skillful.  Ambassador Campbell and Pryor agreed Indian 
delegations tended to interact well with Nigerians, 
especially in the north of the country.  Ambassador Campbell 
added Vice-President Atiku would lean towards the Indians in 
preference to the Chinese. 
 
11.  (U)  This cable has been cleared by Embassy Abuja. 
BROWNE