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### Viewing cable 10LAGOS75, ASSISTANT SECRETARY CARSON MEETS OIL COMPANIES IN LAGOS

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
10LAGOS75 | 2010-02-23 08:08 | 2010-12-08 21:09 | CONFIDENTIAL | Consulate Lagos

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    VZCZCXRO0650
    OO RUEHPA
    DE RUEHOS #0075/01 0540820
    ZNY CCCCC ZZH
    O R 230820Z FEB 10
    FM AMCONSUL LAGOS
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 0051
    INFO ECOWAS COLLECTIVE
    RHEBAAA/DEPT OF ENERGY WASHINGTON DC
    RHMFISS/HQ USAFRICOM STUTTGART GE
    RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
    RUEHGV/USMISSION GENEVA
    RUEHTC/AMEMBASSY THE HAGUE 0009
    RUEHUJA/AMEMBASSY ABUJA

` `

    Tuesday, 23 February 2010, 08:20
    C O N F I D E N T I A L SECTION 01 OF 05 LAGOS 000075
    SIPDIS
    DEPARTMENT FOR AF/FO, AF/W, AF/RSA, AND INR/AA
    AMEMBASSY YAOUNDE PASS TO AMEMBASSY MALABO
    EO 12958 DECL: 2020/02/23
    TAGS EPET, ENRG, ECON, PGOV, PREL, NI
    SUBJECT: ASSISTANT SECRETARY CARSON MEETS OIL COMPANIES IN LAGOS
    CLASSIFIED BY: Donna M. Blair, CG, State, ConGen Lagos; REASON: 1.4(B), (D)
    -------
    SUMMARY
    -------
    ¶1. (C) Assistant Secretary (A/S) Carson met with members of the International Oil Companies (IOCs) on February 7. The A/S stressed the fact that Nigeria is the most important country in Africa for the United States. The IOC members noted that the A/S spoke mainly of issues in Northern Nigeria and did not dwell on Southern issues. The Petroleum Industry Bill is discouraging future investment mostly in deep-water fields where most of the remaining oil in Nigeria lies. If Nigeria raised the price of gas to two-thirds of the world price, the IOC’s would be at each others throats trying to cut the price by a penny or two. Nigeria has the possibility of becoming the next Pakistan within 25 years. A/S Carson allayed the IOCs concerns of the United States’ relationship with China. END SUMMARY.
    ¶2. (C) Assistant Secretary Carson met with members of the international oil community in Lagos on February 7. In attendance were the following: Shell Senior Vice President’s Ann Pickard and Ian Craig; Shell Vice President Peter Robinson; Chevron Managing Director Andrew Fawthrop; Chevron Public Affairs Manager Femi Odumabo; Exxon Mobil Managing Director Mark Ward; Hercules Manager Coleman McDonough; Schlumberger Manager Supply Chain Service Demi Adenusi; American Business Council (ABC) President Dick Kramer; Special Assistant to the Assistant Secretary; Economic Officer; Maritime Affairs Officer; Marine AttachC) and, Consul General Lagos.
    -----------------------------------------
    NIGERIA: MOST IMPORTANT COUNTRY IN AFRICA
    -----------------------------------------
    ¶3. (C) Fawthrop asked the A/S whether he was in Nigeria to deliver a message or was it more of a fact-finding trip? A/S Carson stated that he was in Nigeria for both reasons in that he wanted to listen and engage with Nigeria. Nigeria is the most important country in Africa for the United States due to: the size of its population; presence of hydro-carbons; peace keeping role in ECOWAS, especially in Sierra Leone and Liberia; its seat on the United Nations Security Council; along with the strength and size of its financial markets the A/S continued. Nigeria has enormous potential and is the seventh largest Muslim country in the world with an Islamic population that will eclipse Egypt by 2015 according to A/S Carson. Having no United States presence in Northern Nigeria is akin to having no presence in Egypt and is why the United States is considering opening a Consulate in Kano.
    ¶4. (C) The United States is concerned about the power vacuum in Nigeria and the state of health of President Yar A’dua, per A/S Carson. The president is “very, very, very, very ill” and Nigerians are under illusions regarding the state of their president. “Nigeria cannot afford to implode or run aground.” 30 years of military government was not good. The United States expects a stable, legal, democratic, constitutionally-based government with no “military involvement, full stop” A/S Carson stated. It is important for the GON to do a better job this time around in regards to elections. Only ten percent of Nigerians saw a ballot ticket in the 2007 elections. If Nigeria brings credibility to its democratic processes, its economic processes will improve.
    LAGOS 00000075 002 OF 005
    --------------------------------------------- -------------
    UNITED STATES PRESENCE IN SOUTHERN NIGERIA NEEDS ATTENTION
    --------------------------------------------- -------------
    ¶5. (C) Some places are more important than others within the Federal system of Nigeria and Lagos is one of the more important places, according to A/S Carson. Consulate General Lagos is bigger and more important than Embassies Benin and Togo together. Lagos is significantly more important than Cape Town even though the latter is 100 times better in terms of livability. The United States must be in Lagos in a significant way, A/S Carson declared.
    ¶6. (C) The statements of the A/S sounded wonderful from a Hausa viewpoint, but nothing was mentioned about Southern and Eastern Nigeria, Fawthrop pointed out. The A/S agreed that Fawthrop was correct. The United States is underrepresented diplomatically, economically, commercially, militarily and from a security standpoint. When the A/S served in Nigeria from 1969-1971, the United States had the Embassy in Lagos with Consulates in Ibadan, Kaduna, and briefly in Port Harcourt, before the Civil war, and also a USIS post in Kano. With the Nigerian population at 50 million the United States was better and more broadly represented in a Nigeria that produced almost no oil. With an Embassy in Abuja and a Consulate in Lagos, the United States has experienced a “huge loss” in Nigeria today, per A/S Carson. The United States must get back into Enugu and Port Harcourt. “No presence means no access, which leads to no influence. Without influence you have nothing.”
    ¶7. (C) Akwa Ibom governor Godswill Akpabio was singled out as an impressive governor by Mark Ward. Akpabio has built up infrastructure and industrial development. He is “one to watch” per Ward. Other Southern governors that were highlighted included were Rivers State governor Chibulke Amaechi and Edo State governor Oshiomhole. Fawthrop suggested that USAID has a lot to offer in the South in that if USAID makes a mistake it is OK. If a private company engages in a similar project and makes a mistake you have a FCPA investigation. The Consul General (CG) added that it might be possible to team up with security assets of the IOCs to arrange diplomatic trips to the Niger Delta. This arrangement would not happen “100 percent of the time,” but more often than not, per the CG.
    -------------------------------------
    STATUS OF THE PETROLEUM INDUSTRY BILL
    -------------------------------------
    ¶8. (C) The PIB is more about taking control and not a real solution, per Mark Ward. XXXXXXXXXXXX There are currently three versions between the Senate, House, and Interagency committee and it is unclear when and what will materialize, according to Ward. Fawthrop added that the PIB amounts to resource nationalization and stated that it costs more than 40 percent to develop the oil as opposed to leaving it in the ground. The current fiscals of the PIB estimate that is costs 25 percent to develop the oil, thereby creating a disincentive. If the oil stays in the ground then billions of development money will go away and the resulting slowdown will be a massive problem. The IOCs received a lecture from a team made up of various GON agencies (the interagency team) in Abuja In a recent meeting in an example of the current level of communication per Fawthrop. The whole group then went to the office of the Vice President where the interagency team stated that there was very good communication between them and the IOCs.
    ¶9. (C) The large fields, elephants, have all been developed in
    LAGOS 00000075 003 OF 005
    Nigeria per Fawthrop. What remains are fields one-quarter to one-third the size. The same costs are involved in producing the oil but the revenue will be less because there is less oil. The IOCs need more incentive, not less, in order to develop these fields profitably. What the PIB accomplishes is a disincentive. The downstream sector is very simple in Nigeria in that the refined gas is moved from one tanker to another, to a smaller tanker and then sold. The refining sector, exploration and production sectors are very complex. It is unrealistic for the PIB to try to change all of these areas in one tome of legislation, asserted Fawthrop.
    ¶10. (C) The gas side of the PIB tries to legislate the delivery of gas rather than incentivize it. “The donkey is tired and beaten. It will not go no matter what you tell it” stated Fawthrop. If the gas price went to two thirds of the world price the IOCs would “cut each others throat” to cut the price by one or two cents. The rest of the IOC members nodded in agreement to this statement by Fawthrop. European gas competition has gas developed on a cost plus basis adding about eight percent to the cost. The model should be based on rate of return and not forced upon operators by legislative decree.
    ¶11. (C) Whenever gas doubles the cost of electricity goes up by one quarter. Stable electricity will allow industry to flourish in Nigeria but this will not happen 15 months before the elections. Amateur technocrats run the oil and gas sector according to Shell’s Peter Robinson. They believe that they can control the industry via spreadsheets and pushing through the PIB. There are many emotional issues in the PIB with Nigerian politicians believing that they make no money on deep-water projects. Potential banker and businessmen partners do not understand the industry. The GON has made USD 2.5 billion with no investment in the past two years according to Robinson.
    ¶12. (C) A large problem will be the ten percent of equity that is to go to the communities argued Fawthrop. Equity going into the communities will make them explode. The recipients of the monies will be highly disappointed when they see the amount they will receive, a much larger sum will be expected. Kramer referred to the community equity as the “lawyer relief act” and wondered how one defines an actual community.
    ¶13. (C) Peter Robinson stated after the meeting that Pedro Van Meurs, the oil consultant hired by the GON to help negotiate with the IOCs, is considering leaving. Van Meurs has been trying to show the GON officials that their fiscal math does not work with the PIB. Van Meurs does not agree with the IOC position completely but sees areas for improvement. One example given to Lagos Econoff by Exxon Mobil Project Manager Anh Tran concerned the levels of cost involved with deep-water projects. Exxon, and other IOCs, maintain that their capital costs are at least 40 percent of deep-water projects while the GON allows for 25 percent capital costs under the PIB. Van Meurs agreed that 25 percent was not adequate.
    --------------------------------
    WHERE DOES NIGERIA GO FROM HERE?
         --------------------------------
    ¶14. (C) It is possible that Nigeria could be a future Pakistan according to A/S Carson. In 25 years, there could be impoverished masses, a wealthy elite and radicalism in the North. The question is whether the oil wells will be dry as well and could Nigeria be on “sustainable and irreversible glide path to a new economic base” per the A/S. When you look at the 2020/20 plan by the GON you see that Nigeria needs to grow by 14 percent a year to
    LAGOS 00000075 004 OF 005
    be at the current level of Indonesia Fawthrop asserted. That is using today’s figures, which does not take into account Indonesia’s growth Kramer added. Nigeria is growing at five percent now and would need 20 percent growth per annum in energy and USD 22 billion investment in power plants Fawthrop stated. What would happen if Nigeria fell just short of their goals, would there be an alternative plan in place Fawthrop wondered? He cited the example of the 2009 6,000 Megawatt goal. It was apparent early on that the goal was not feasible and an alternative plan could have been devised. The GON insisted that they would reach their goal and did not develop alternatives. The same would hold true for 2020/20 Fawthrop assumed.
    ¶15. (C) The A/S offered that a forum could be organized in Nigeria with World Bank President Robert Zoellick speaking to a wide audience. Under Secretary for Economic, Energy, and Agricultural Affairs Bob Hormats would be invited as well to lend his knowledge of Africa. The forum would be shaped with the broader picture in mind, not just oil. This would not be sponsored by the IOCs. Members of the business community and individuals that were committed to making oil meaningful to Nigeria’s future would be asked to participate. Talk would center on “over the horizon” issues, where Nigeria has gone right and where it has gone wrong. Two or three fora would be defined with key people to spark debate. Religious tensions, North-South issues, the lack of capacity in the GON, narco-trafficking, the growing irrelevance of Nigeria, as Princeton Lyman has suggested, could be potential subjects. Nigeria is at a critical financial and political threshold and the entire nation could possibly tip backwards permanently, per A/S Carson.
    ---------------------------------------
    CHINESE - AMERICAN RELATIONS IN AFRICA
    ---------------------------------------
    ¶16. (C) What is the status of America’s influence in Africa and how does it compare to China, Fawthrop queried? The influence of the United States has increased in Africa, the A/S countered. The United States’ reputation is stable and its popularity is the highest in Africa compared to anywhere else in the world. Obama has helped to increase that influence. “We must manage the expectations of the Obama administration” offered the A/S. The United States does not consider China a military, security or intelligence threat. China is a very aggressive and pernicious economic competitor with no morals. China is not in Africa for altruistic reasons. China is in Africa for China primarily. A secondary reason for China’s presence is to secure votes in the United Nations from African countries. A third reason is to prove that Taiwan is not an issue. There are trip wires for the United States when it comes to China. Is China developing a blue water navy? Have they signed military base agreements? Are they training armies? Have they developed intelligence operations? Once these areas start developing then the United States will start worrying. The United States will continue to push democracy and capitalism while Chinese authoritarian capitalism is politically challenging. The Chinese are dealing with the Mugabe’s and Bashir’s of the world, which is a contrarian political model, A/S Carson stated.
    -------
    COMMENT
    -------
    ¶17. (C) A/S Carson effectively provided the IOCs with a rationale for the United States’ interest in Nigeria and its commitment to the country. This commitment seems more substantial than the IOCs given the prospect of the PIB and the current state of play in Nigeria. Providing the IOCs with statements of support through continuing if not increasing the USG presence in Nigeria will be important in determining the increasing, decreasing or non-existent role of the IOCs in the future in Nigeria. As the A/S stated, if we can have a substantial presence in Pakistan, why not Nigeria? END COMMENT.
    LAGOS 00000075 005 OF 005
    ¶18. (U) A/S Carson did not have an opportunity to clear this cable before departing post. BLAIR

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