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Cablegate: Nigeria: Preliminary Reactions to U.S.

This record is a partial extract of the original cable. The full text of the original cable is not available.

171724Z Aug 01

UNCLAS SECTION 01 OF 02 ABUJA 002073

SIPDIS


E.O. 12958: N/A
TAGS: EFIN KTIA NI
SUBJECT: NIGERIA: PRELIMINARY REACTIONS TO U.S.
COMMENTS ON DRAFT BILATERAL DEBT RESCHEDULING
AGREEMENT


REF(S): (A) STATE 140051 (B) ABUJA 1914 (C) ABUJA 1374
AND PREVIOUS


1. On August 15, EconOff met with Debt Management
Office Director-General, Akin S. Arikawe, to discuss
USG reactions to Nigeria's proposals for the bilateral
debt rescheduling agreement as described Ref A.
Arikawe read through the entire document with EconOff
and provided immediate reactions to almost all
paragraphs. The following contains his preliminary
comments and do not necessarily reflect the formal
reply that will be forthcoming in the next 2 - 3
weeks.


2. Arikawe admitted that, although "they were worth a
try," he had not expected the USG to agree to the
proposed fixed interest rate of 4 percent, the
application of payments first to interest and then to
principal, or to reciprocal language on termination of
agreement. However, Arikawe felt other issues
warranted closer attention by the USG.


3. Per Ref A, USG wants to retain Article IV,
Paragraphs 1 and 2, which discuss comparable
treatment. Arikawe said this would be no problem as
long as the USG understands that Nigeria will likely
receive more favorable terms from other creditors.
Arikawe commented, for example, that he expects
Nigeria to receive a fixed interest rate from an Euro-
based country (he did not specify which one). He
stated that under the comparable treatment clause, the
USG could be bound to offer a comparable interest
rate.


4. Arikawe did not accept the USG's refusal to delete
Article IV, Paragraph 4 because, he said, the USG
holds no other claims other than those included by the
Agreed Minute. EconOff pointed out that, if the U.S.
holds no other claims, then the paragraph does no
harm. However, Arikawe continued to assert that there
is no need to include this paragraph. Arikawe
explained that with some creditors, such as Germany,
this clause is necessary because they hold debt not
covered by the Agreed Minute.


5. On the accrual of Additional Interest, Arikawe
exclaimed that the USG was being "very harsh." He
named five or six European countries, including Norway
and Germany, that had already agreed to grace periods
of between 15 and 45 days. Arikawe explained that
grace periods were sometimes necessary for political
reasons; the National Assembly may delay approval for
debt payments in order to maintain political leverage.
He commented that USG refusal to provide any grace
period also failed to meet the comparable treatment
terms described in the Agreed Minute.


6. Regarding debt swaps, Arikawe was surprised by the
USG's negative response since Embassy officers had
recently met with him to raise such a possibility
(reported in Ref C). Arikawe believed there was
strong interest on the part of third parties to buy
Nigerian debt. He provided an example of a private
power company that had expressed interest in assisting
Nigeria in reducing gas flaring through such an
arrangement. Arikawe promised to deliver EconOff a
letter providing more detailed information on these
third parties.


7. The following reactions pertain to Annex G of the
draft agreement:


-- Arikawe said the GON could not accept the accrual
of interest on payments due on a non-business day if
the payment is made on the following business day. He
explained that if a payment is due on a day that
happens to be a U.S. bank holiday, for example, then
Nigeria's payment could not be transferred into the
appropriate account until the following day. Nigeria
should not be held accountable for determining which
days in the U.S. are "non-business days," he stated.


-- Arikawe had no immediate comment regarding Annex G,
Paragraphs B.4, C, or D.


-- Regarding sovereign immunity, Arikawe explained
that the proposed language would be unacceptable if
the draft terms are more onerous than the original
contract terms.


-- Regarding Events of Default, Arikawe said he could
accept this clause only if it applies to a default on
Nigeria's U.S. debt, not if it applies to a default on
debt held by any other Paris Club member.


-- Regarding Disposition of Indebtedness, the GON
requests that they be notified before the USG takes
action to dispose of Nigeria's debt. The reason,
Arikawe said, is that if the USG proposes to sell to a
hostile third party that would impose more onerous
repayment terms, then the GON should be informed and
have the right to refuse.


-- Regarding Expenses, Arikawe explained, the courts,
not the agreement, should decide whether Nigeria is to
be held responsible for any costs associated with a
judicial claim.


8. Before concluding the meeting, EconOff emphasized
to Arikawe that the process for negotiating bilateral
debt agreements in the United States is bureaucratic,
not political; the USG's cookie-cutter approach makes
Nigeria's requested changes difficult to obtain.
Arikawe understood, commenting that this was a problem
Nigeria was encountering in many countries,
particularly Germany where the negotiations are done
completely by a private financial institution on
commission from the government.


9. Post will forward the GON's formal reply to Ref A
as soon as it is made available.
JETER

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