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Cablegate: Nigeria: Africa Finance Corporation: Development Bank Or

VZCZCXRO5155
RR RUEHMA RUEHPA
DE RUEHOS #0201/01 1620630
ZNR UUUUU ZZH
R 100630Z JUN 08 ZDK
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 9934
INFO RUEHUJA/AMEMBASSY ABUJA 9643
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 03 LAGOS 000201

SIPDIS
SENSITIVE

COMMERCE FOR KBURRESS
ENERGY FOR CHAYLOCK
TREASURY FOR DFIELDS RHALL
STATE PASS USTR
STATE PASS OPIC FOR ZHAN AND MSTUCKART
STATE PASS TDA FOR PMARIN LFITTS
STATE PASS EXIM FOR JRICHTER
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ

E.O. 12958: N/A
TAGS: EFIN ECON PGOV NI

SUBJECT: NIGERIA: AFRICA FINANCE CORPORATION: DEVELOPMENT BANK OR
FRONT FOR SPECIAL INTERESTS?

REF: A. Lagos 143

B. 07 Lagos 549

LAGOS 00000201 001.4 OF 003


Sensitive But Unclassified; Handle Accordingly

1. (SBU) Summary: President Yar'Adua has ordered an investigation
into the Central Bank of Nigeria's (CBN) role in establishing the
Africa Finance Corporation (AFC), which was set up in 2007 as an
alternative to the African Development Bank (ADB). The AFC is owned
by African banks (44 percent), industrial conglomerates and
companies (16 percent), and the Central Bank of Nigeria(40 percent),
and has the Chairmen of Nigeria's industrial conglomerate Dangote
Group and China's Western Metal Production Company (WEMPCO) on the
board of directors. Media reports allege that the AFC wrote the
report of the "Presidential Commission on the Expansion of
Electricity Infrastructure", and thereby positioned itself and its
private stakeholders to benefit from the report's recommendations.
During the Federal Government (FG) probe of the CBN's authority to
invest in the corporation, the AFC is accelerating its divestment of
the CBN's shareholding. Critics call AFC a front for special
interests, and there is reason to be concerned as to whether the AFC
will operate in the most transparent fashion as regards to project
selection and investors. End Summary.

Self-Styled "Alternative to ADB"
--------------------------------

2. (U) The Africa Finance Corporation (AFC) was established in 2007
as a private sector-led investment bank and development finance
institution with a capital base of USD 1 billion. AFC, the
brainchild of CBN Governor Chukwuma Soludo, bills itself as an
alternative to the African Development Bank; it is headquartered in
Lagos. (Comment: In 2005, Nigeria lost its bid for the African
Development Bank's Presidency to South Africa. It has been
speculated that Governor Soludo set up the AFC so as to provide
Nigeria the opportunity to play a role in setting the African
development agenda. End Comment)

3. (SBU) In business proprietary materials shared with EconOff on
May 10, AFC describes its strategy as concentrating on industries
with attractive returns and high developmental impact. Priority
sectors include power, transport infrastructure, heavy industry, oil
and gas, mining, housing construction and mortgage finance, and
telecommunications. Describing itself as an investment bank with a
development mandate, AFC aims to control all aspects of a project's
value chain, from project procurement to development, financing,
execution, and operation. African banks hold 44 percent, and
industrial conglomerates and corporations hold 16 percent of AFC's
shares. (Note: It is not known whether the African banks holding the
44 percent equity include non-Nigerian banks. End Note) The CBN
holds a 40 percent share.

Board Includes Nigeria's Dangote Group, China's WEMPCO
--------------------------------------------- ---------

4. (SBU) AFC's membership is open to independent African states
represented by their central banks, African regional and
sub-regional financial institutions, African public and private
banks, financial institutions and private investors, and
international private investors. Guinea Bissau and Sierra Leone
formally joined the AFC in January and April 2008, respectively.
(Note: It is unknown whether their central banks have invested. End
Note) Other countries, including Liberia, Ghana, Gambia, Zambia,
Mozambique, are in various stages of discussion about membership.
AFC has a 21 member board of directors with CBN Governor Soludo as
Chairman. Three seats are allotted to Nigeria's Minister of
Finance, the CBN Deputy Governor, and the AFC's CEO. Oceanic Bank,
Zenith Bank, Intercontinental Bank, United Bank for Africa, and
Union Bank occupy five seats. Nigeria's Dangote Group, China's
WEMPCO Group, Zenon Petroleum and Gas, and Leadway Assurance Company
fill four seats. (Note: The AFC's First General Meeting prescribed
that shareholders with USD 50 to 100 million investments are
entitled to automatic representation on the board. End Note) The
final nine seats are reserved for shareholders from other African

LAGOS 00000201 002.4 OF 003


countries.

AFC Partners with Shareholders for Power Project
--------------------------------------------- ---

5. (SBU) Since its launch, AFC has landed projects throughout
Nigeria and in at least 10 other African countries. In Nigeria,
projects include a USD 700 million ring road for Port Harcourt, USD
1 billion deep sea port project in Olokola with Ondo and Ogun
States, a 3600 Megawatt (MW) coal fired power plant in Kogi State in
partnership with Dangote and WEMPCO Groups, an independent power
project (IPP) with Rivers State government, and a mortgage financing
scheme for 10,000 homes in Lagos. (Note: According to a contact at
AFC, as of May 10, AFC had not finalized the financing of any of
these projects. End Note)

AFC Writes Presidential Commission on Energy Report
--------------------------------------------- ------

6. (U) In February 19, 2008, President Yar'Adua set up the
Presidential Commission on Accelerated Expansion of Electricity
Infrastructure to draw up a plan to deliver 6,000 Mega Watts of
electricity in 18 months (Ref B). The Commission submitted its
report in late March 2008. Recommendations included that, over a
transition period of two years, the Federal Government establishes a
"Special Purpose Vehicle" (SPV) to oversee the 18 companies created
in 2006 by the unbundling of the Power Holding Company of Nigeria,
and raise over USD 2 billion from private sector resources to
complete the National Integrated Power Projects.

7. (SBU) AFC has been closely involved with the Commission. The
AFC's CEO and two other board members, Nigerian billionaire Aliko
Dangote of Dangote Group and China's Lewis Tung of WEMPCO, were
members of the Commission. (Note: The Dangote Group is arguably
Nigeria's largest industrial conglomerate. Its business operations
extend across West Africa and include food processing, cement
manufacturing, and sugar refining. Forbes listed Aliko Dangote as
the 334th wealthiest man in the world in 2008. Under the Obasanjo
administration, Dangote was a founder of the controversial
Transnational Corporation (TransCorp), a collective of disparate
interests close to former President Obasanjo. TransCorp is widely
perceived as having been a vehicle through which participants
profited from the disposal of government assets, including the Nicon
Hilton hotel, telecommunications firm Nitel and oil blocks. End
Note) The news media reported that AFC wrote the Commission's
report and recommended itself as the adviser to the Federal
Government during the transition period; it is unclear whether the
opportunity to participate was offered to other entities, whether
AFC had the requisite expertise, or whether the recommendations were
subject to any public scrutiny. After the report's formal approval
by President Yar'Adua and the Federal Executive Council, AFC
reportedly kicked off the initiative in late April by conducting the
financial due diligence for establishment of the SPV. Pointing to
AFC's extensive involvement in both the Commission and the
initiatives coming out of the report, some media outlets and
industry watchdogs have raised questions about the AFC's
nontransparent role and influence. (Note: AFC issued a news release
in mid February, touting its role in the Commission as a sign of
private sector leadership in a public-private partnership. End
Note) The media has questioned whether AFC was created as a
development bank or as a front vehicle for special interests.

Probe of CBN Shareholding Underway
----------------------------------

8. (SBU) The AFC commenced operation in September 2007. In response
to AFC's request for the conferment of diplomatic legal status as a
multilateral financial institution, President Yar'Adua, on April 16,
established a Presidential Committee to determine whether the CBN
acted within the law and regulations in setting up AFC, and to
verify CBN's authority to invest USD 462 million equity in the
institution. The probe has triggered a firestorm of controversy.
AFC's supporters said the probe is a politically-motivated move to
bring down Soludo and his policies. Opposition parties railed

LAGOS 00000201 003 OF 003


against Soludo's allegedly extralegal commitment of CBN assets. To
counter the latter, Soludo said the CBN Act of 2007 empowered him to
invest in growth-promoting businesses; he also said no legal
provision prohibits him from sitting on the AFC's board. The AFC
contact told EconOff on May 10 it has always been in the CBN's plan
to draw down its holdings in AFC from 40 to 5 percent. In light of
the ongoing probe, AFC is speeding up the divestment of CBN funds in
order to take the heat off Soludo, said the AFC contact.

9. (U) President Yar'Adua, in a May 19 interview with the Britain's
Financial Times, called Soludo's decision to set up the AFC a
mistake. Nigeria's membership in AFC, which purports to be a
multilateral financial institution, must be approved by the Federal
Executive Council and Senate, the President said.

"Economically Correct, Commercially
Shady, Politically Wrong"
-----------------------------------

10. (SBU) In May 22 meetings with EconOff, a knowledgeable contact
with extensive experience working for U.S. corporations in senior
management positions in the energy sector called the selection and
involvement of private partners such as Dangote and WEMPCO into AFC
opaque at best. He said no one knew how these private groups were
identified and selected, and whether other groups were offered the
opportunity to participate. This process falls in line with former
President Obasanjo's modus operandi, he said. A well-respected
Lagos financial investor described AFC as "economically correct,
commercially shady, and politically wrong."

11. (SBU) Comment: Even without the CBN investment, the AFC's
intimate involvement in the "Presidential Commission on Accelerated
Expansion for Electricity Infrastructure" smacks of cronyism. The
real danger is that the AFC will use its considerable insider access
to cherry pick the best public projects for investment. Some have
speculated that the Commission and its report would do no more than
transfer public assets into private hands (ref A). AFC's inception,
structure, and method of operating lend some credence to these
predictions. End Comment.

12. (U) This cable was cleared with Embassy Abuja.

Hudson

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