US embassy cable - 03ABUJA472

UNCLAS SECTION 01 OF 02 ABUJA 000472 
 
SIPDIS 
 
 
E.O. 12598: N/A 
TAGS: EPET, ENRG, PREL, NI, OIL 
SUBJECT:  NIGERIA: MEETING WITH NNPC MANAGING DIRECTOR 
 
1. Summary:  On January 31, Ambassador Jeter and 
Econoff met with Nigerian National Petroleum 
Corporation (NNPC) Group Managing Director, Jackson 
Gaius-Obaseki, and NNPC Group Executive Director, 
Refining and Petrochemicals Directorate, Mansur Ahmed. 
Gaius-Obaseki told the Ambassador that the NNPC was 
concerned about financial transparency in the oil 
sector. Ahmed said the productivity of Nigeria's 
refineries has improved; however, Gaius-Obaseki added 
that the refineries should be privatized. 
Nonetheless, he went on to note that it would be 
politically impossible to raise motor fuel prices in 
order to earn more revenue through the sale of what 
most Nigerians see as their nation's patrimony. 
Gaius-Obaseki dismissed Presidential aspirant Buhari's 
promise of reform in the energy sector, should he be 
elected president. President Obasanjo deserves praise 
for implementing reforms, but he is only one man, and 
reform is slow.  Gaius-Obaseki pointed to expanding 
LNG production and timely NNPC cash calls to oil 
companies as positive developments, but acknowledged 
that the NNPC still owes money to oil companies 
arising from previous military administrations.  The 
Ambassador commended NNPC's ongoing efforts to resolve 
the problems.  End Summary. 
 
 
------------------------------- 
Transparency in the Oil Sector 
------------------------------- 
 
 
2. The Ambassador noted there was a growing movement 
in the U.S. and UK governments, NGOs, and the media to 
promote greater transparency in extractive industries. 
Gaius-Obeseki replied that the NNPC has made great 
progress in transparency. NNPC accounting is 
transparent, he said, and he referred the Ambassador 
to the NNPC webpage as an example of this effort. 
Gaius-Obaseki added that the NNPC's critics are mainly 
in the National Assembly.  "If you had been here in 
late 1998, to be honest, [you would have seen that] we 
NNPC officials were not sure then that we would be 
here today (still under democratic rule)," commented 
The Group Managing Director. Nigeria was lucky that 
democracy had taken root. 
 
 
------------------------ 
Status of Oil Refineries 
------------------------ 
 
 
3. Ahmed updated the Ambassador on Nigeria's state- 
owned refineries.  He said the refineries were doing 
better, but "they are not yet where they should be." 
He remarked that some of the refineries, such as 
Kaduna's, have raised their refining levels to 70% of 
capacity, but Nigeria's four refineries need major 
overhauls and constant maintenance.  Gaius-Obaseki 
said he would like to sell the refineries to private 
investors, but the GON probably had too much at stake 
to completely privatize the refineries.  Nigerians, 
especially before the general elections, will not 
accept motor fuel price hikes.  The Ambassador replied 
that the refineries would need major GON investment to 
make them attractive to private investors. Gaius- 
Obaseki agreed. 
 
 
----------------- 
Laughs for Buhari 
----------------- 
 
 
4.  The Ambassador disclosed that he had recently 
spoken with Presidential hopeful Buhari, who had said 
NNPC reform would be one of his main area of focus. 
Gaius-Obaseki laughed and remarked, as President 
Obasanjo had stated, that anyone can say he will 
reverse the years of neglect of military rule, but to 
do so is very difficult.  The Managing Director said 
the NNPC has improved dramatically under Obasanjo. 
Gaius-Obaseki advised everyone to be fair with 
Obasanjo; "the President cannot do it all alone." 
Resolving contracting irregularities (corruption and 
lack of transparency in bidding) in Nigeria is an 
uphill battle that is unlikely to be won soon, Gaius- 
Obaseki concluded. 
 
 
------------------------------------- 
Natural Gas Development Going Strong 
------------------------------------- 
 
 
5.  The Ambassador stated that he had seen some very 
optimistic numbers in the press, and wondered how much 
earnings from liquefied natural gas (LNG) sales might 
affect the GON's budget revenue in the mid- and long- 
term.  The NNPC Managing Director said that revenue 
from LNG would be considerable, but he did not have an 
idea of the projected revenue. 
 
 
-------------------------------- 
Cash Calls and New U.S. Business 
-------------------------------- 
 
 
6. The Ambassador noted that there were still 
disputes, dating from before 1999, about cash-call 
arrears to some U.S. oil companies. Gaius-Obaseki 
replied that the GON is current on cash calls after 
1999, and is slowly paying pre-1999 debt to joint 
venture (JV) companies. (Although the GON is now 
opting for Production Sharing Contract (PSC's) for the 
development of deep offshore fields, production from 
JV's currently account for nearly all of Nigeria's 
crude oil output.  NNPC holds an average 57 percent 
stake with JV partners such as ExxonMobil, Shell and 
ChevronTexaco, which hold an average 43 percent. 
During the Abacha era, the NNPC did not contribute its 
share to JV operations, which resulted in hundreds of 
millions of dollars in arrears. By the end of February 
2003, the NNPC had liquidated almost all of its cash 
call arrears.) The Ambassador told the Managing 
Director that this was good news and noted that 
several of the U.S. major oil companies also had 
commended NNPC for clearing up the arrears.  We were 
also very pleased about the recent successes of Ocean 
Energy and Cooper-Cameron's Ehra project.  On Ocean 
Energy, the GON had honored its 2001 commitment to us, 
which, in turn, sent a very positive signal to U.S. 
independent oil companies interested in doing business 
in Nigeria. 
 
 
--------- 
The Delta 
--------- 
 
 
7. The Ambassador asked for views on the political 
situation in the Delta. Gaius-Obeseki responded that 
"all is quiet."  He said the Niger Delta Development 
Commission (NDDC) was organized and was easing tension 
by providing support to the inhabitants in the Delta. 
The Ambassador said that it appeared that the NDDC has 
made little progress. Gaius-Obaseki then admitted that 
the NNDC has not been as visible as it should have 
been, and it should have engaged more with local 
communities.  The Ambassador asked Gaius-Obaseki what 
he thought about the recent battle between the 
National Assembly and President over the oil dichotomy 
bill. He responded that he was not a politician and 
was staying away from the battle. 
 
 
-------------- 
OPEC Oil Quota 
-------------- 
 
 
8. Gaius-Obeseki reported that Nigeria's crude oil 
production was almost at Nigeria's OPEC quota of 
around 2.1 million barrels a day.  The Ambassador 
asked whether Nigeria was looking for a change in the 
OPEC formula for calculating its member-states' 
quotas. Gaius-Obaseki responded obliquely by saying 
that Nigeria's quota remained small, given its 
population and production capacity.  He then suggested 
that all questions about Nigeria's quota be put to the 
Presidential Advisor on Petroleum and Energy Affairs, 
Rilwanu Lukman. 
 
 
------------------ 
NNPC fire in Lagos 
------------------ 
 
 
9.  The Ambassador said that he was saddened to learn 
about the fire that razed one of the NNPC's main 
buildings in Lagos in late December, and stated that 
we were very grateful that no one was hurt. He asked 
if the fire had affected NNPC operations. Gaius- 
Obaseki replied that NNPC workers were relocated to 
other offices and that overall operations were 
unaffected. Gaius-Obaseki ruled out arson, saying the 
fire was caused by an electrical malfunction. 
JETER