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Cablegate: Gos Will Likely Sell Company Shares As Part of Its Needed

VZCZCXRO8817
PP RUEHMA RUEHPA
DE RUEHDK #2091/01 2980753
ZNR UUUUU ZZH
P 250753Z OCT 07
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 9426
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEATRS/TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHLMC/MCC WASHDC

UNCLAS SECTION 01 OF 03 DAKAR 002091

SIPDIS

DEPT FOR AF/W, AF/EPS, EB/IFD/ODF
TREASURY FOR OASIA/RHALL

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON EAID ELAB BTIO PGOV SG
SUBJECT: GOS WILL LIKELY SELL COMPANY SHARES AS PART OF ITS NEEDED
ECONOMIC REFORM

REF: A) DAKAR 1987, B) DAKAR 1693

DAKAR 00002091 001.2 OF 003


1. (SBU) SUMMARY: The Government of Senegal has announced plans to
move forward on its much-touted privatization agenda and speed up
its divestiture from three key public-private companies by early
2008: Sonatel (Telephone Company), ICS (Fertilizer Company) and
Dakar Dem Dikk (public transportation). Organized labor has been
vocal in its opposition to these plans, particularly as job-loss
numbers -- potentially in the thousands -- circulate in the local
press. If the government sells all its shares in these firms it
could benefit from a USD 600-plus million windfall. Hopefully, that
sum will be used to significantly help Senegal deal with its budget
deficit, its current account deficit, or provide important support
to anti-poverty efforts. The concern is that the administration
will not assure the best value or application when cashing in these
state assets. END SUMMARY.

DIVESTITURE GATHERS MOMENTUM
------------------------------
2. (U) After numerous delays, the Government of Senegal's
privatization plan, part of its overall economic reform program,
seems to be gaining momentum. The major elements of the agenda for
the end of 2007 and the beginning of 2008 include the sale of its
remaining stakes at Sonatel (telecommunications), ICS (phosphates
and related products), and Dakar Dem Dikk, or 3D, (urban bus
company), as noted in Ref A. Both ICS and 3D have serious financial
difficulties.

3. (U) To date, Senegal's most important and strategic parastatals
have been privatized. They include:

-- Suneor, the peanut processing and vegetable oil importing
company, was privatized in 2005. Advens Group (a consortium that
includes a Belgian firm and the Senegalese cotton company Sodefitex)
now controls 66.9 percent of the shares, private individuals 10
percent, the employees 5 percent and GOS 5.1 percent. Advens
changed the name from Sonacos to Suneor n 2006 as a first step
towards boosting the image of the company;

-- the railroad operator Transrail was sold in 2003 to a Canadian
Company, Canac-Getma for USD 34 million;

-- the national airline company, Air Senegal International, was
privatized in 2000 with Royal Air Maroc now controlling 51 percent
of the company's shares while GOS retains 49 percent;

-- the water supply company SDE was privatized in 1996 with SAUR (a
subsidiary of the French Bouygues Group) controlling 51 percent,
private Senegalese individuals 39 percent, employees 5 percent, and
the GOS 5 percent; and

-- Sonatel was partially privatized in 1997, but the GOS retained 39
percent of Sonatel's shares, while selling 33 percent to France
telecom, 10 percent to the employees, and 18 percent to the public
through the regional stock exchange. In 1999, a capital
restructuring increased France Telecom's stake to 42 percent,
reducing the GOS shares to 30 percent.

4. (U) Other privatizations which took place in the 1990's included
SOTEXKA (textiles), SSPT (phosphates), Hamo (building construction),
and Dakar Marine (Vessel construction). To date, the privatization
programs have generated more than USD 400 million, largely from the
1997 sale of Sonatel shares (USD 212 million).

5. (U) With a push from the IMF, the World Bank, and other donors,
the GOS is considering the privatization of Senelec, the country's
heavily indebted electricity monopoly, and SAR, the country's
heavily indebted petroleum refinery. The GOS might also sell the
Meridien President Hotel, and perhaps even privatize the country's
Postal service.

THE GOVERNMENT'S STAKE AND TAKE
-------------------------------
6. (U) The sale of GOS's remaining stake (30 percent) in Sonatel
should happen before the end of December. Sonatel has some shares
listed on the regional bourse, and if all the shares (listed and
not) were sold at the company's current share price the GOS could
receive CFA 300 billion (USD 600 million), the equivalent of 20
percent of its original FY 2007 budget. According to local sources,
since only a portion of the GOS's Sonatel shares are listed, the
government plans to issue an international tender for most of its
holdings. France Telecom/Orange Senegal (Sonatel's Strategic
partner) is reportedly interested and ready to seize the offer to
gain an absolute controlling share of the company. Should it
acquire all the GOS shares, France Telecom would control 72 percent

DAKAR 00002091 002.2 OF 003


of the company. Local employees hold 10 percent, and private and
public representatives the final 18 percent.

7. (SBU) In fact, we have heard that GOS has already started
"secret" negotiations with France Telecom, and that the deal may be
finalized privately or France Telecom may be "pre-positioned" to win
any public tender.

8. (U) The sale of the GOS's remaining stake in ICS, Senegal's
largest industrial producer, is pending final resolution of an
agreement signed between Senegal and the Indian company IFFCO, in
which the latter will invest USD 160 million to reorganize and
modernize ICS (Ref B). The agreement with IFFCO should reduce the
GOS's stake in ICS from 46.38 percent to 10 percent. Thus, IFFCO
and other local and foreign partners will establish a consortium
that will control 90 percent of ICS's shares. Under this agreement,
the GOS would not receive financial compensation for its 36.38
percent stake in ICS, though some observers have claimed that the
GOS shares should be valued at around CFA 100 billion (USD 200
million). (Note: The GOS has been trying for almost two years to
negotiate a deal to get ICS back to significant production and the
value of GOS shares independent of such a negotiation is, in
reality, negligible. End note). After a deal is finalized, the GOS
could perhaps sell its remaining 10 percent stake in ICS for an
additional small windfall.

9. (U) The agreement between IFFCO and the GOS is currently on hold
since other creditors have balked at IFFCO's proposal that they
write off 50 percent of their debt holdings from ICS. IFFCO also
needs to reach agreement on the acquisition of shares from the
company's minority investors. The GOS hopes these "little" issues
are resolved by early 2008. [Note: ICS has arrears of over USD 180
million, in which USD 140 million is owed to local banks. ICS's
other shareholders include the Government of India - 6.97 percent,
Societe Commerciale Potasses et de l'Azote (SCPA) - 4.76 percent,
the Government of Nigeria - 3.95 percent, the Government of
Cameroon - 3.35 percent, the Islamic Development Bank (IDB) - 3.34
percent, and others - 7.92 percent. End note.]

10. (U) The privatization of the public bus company 3D is planned
for early 2008. The GOS controls 70 percent of the company,
Senecartours (another local transportation company) 15 percent,
Snart (an insurance company) 10 percent, and 3D employees 5 percent.
The value of the GOS holding is estimated at CFA 2 billion (USD 6
million).

ORGANIZED LABOR RESISTING
-------------------------
11. (U) Several reports in the local press have claimed that unions
from these companies oppose the GOS's divestiture plan. Sonatel's
union claimed it was "betrayed by the government" and faulted the
latter for having broken the "social consensus" by failing to
undertake extensive consultations before announcing its plans to
sell its stake in the company. During a press conference held on
September 13, Gabou Gueye, the head of Sonatel's union, stated,
"except in the U.S. and Great Britain, public authorities worldwide
always maintain a presence in the telecommunications sector." Gueye
noted that "telecommunications represent a sector of sovereignty and
pride for Senegal; therefore we will develop an awareness campaign
among the other unions to discourage the GOS." Regarding France
Telecom's likely absolute control of the Sonatel, Gueye stated, "we
cannot accept that and will do everything we can to discourage the
authorities."

12. (U) At ICS, union members have publicly faulted the GOS for not
having undertaken sustainable measures to solve the financial mess.
They have criticized the recapitalization plan, stating that it does
not offer a bright future for workers. The agreement with IFFCO
could lead to job losses of more than 750 full-time and 3,300
part-time/temporary workers, although the new private manager might
reemploy half that number once the firm increases its output to
historic levels.

13. (U) At 3D, more than 1,000 workers would reportedly lose their
jobs. UDT-3D, the firm's main union, criticized the privatization
plan and also blamed management for "embezzling money" and for not
having taken measures to solve the financial crisis of the company.


COMMENT: WHAT WILL HAPPEN WITH THIS WINDFALL?
--------------------------------------------- -
14. (SBU) Despite unavoidable social pressures, the government
appears intent on moving forward with its privatization agenda.
Hopefully, this is an indication of a renewed commitment to
much-needed economic reforms. While union leaders will continue to

DAKAR 00002091 003.2 OF 003


criticize these changes, their agitation can be seen as a necessary
exercise which is unlikely to lead to mass action or change the mind
of the Wade Administration. With the expected combined proceeds
from these sell-offs to reach at least USD 600 million, the
government could be much better financed to follow through on its
rhetoric to address the country's pressing poverty alleviation and
development needs. This assumes that the proceeds go into the
regular budget process and not to the opaque coffers of the
Presidency or to one of the country's quasi-public,
politically-constituted agencies. Another concern, as with every
aspect of this government's public finances, is that the
privatization exercise will not be transparent and will largely
benefit the administration's favored partners through privately
negotiated deals. These risks could be significantly reduced should
the GOS conclude its proposed Policy Support Instrument with the IMF
in the coming months.

SMITH

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