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Cablegate: Nigeria: Updates On Alscon and Ajaokuta

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

UNCLAS SECTION 01 OF 02 ABUJA 003180

SIPDIS


E.O. 12958: N/A
TAGS: EINV ECON PREL PGOV NI
SUBJECT: NIGERIA: UPDATES ON ALSCON AND AJAOKUTA
PRIVATIZATIONS


1. (U) Summary. The Bureau of Public Enterprise (BPE) has
confirmed that the GON was going forward with the Aluminium
Smelter Company of Nigeria (ALSCON) and Ajaokuta Steel
Company Limited (ASCL). U.S. manufacturer Aluminum Company
of America (ALCOA) is one of three companies expressing
interest in the ALSCON purchase (a 51 percent stake). The
other companies are Glencore (a Swiss company) and Russian
Aluminum. The BPE has scheduled a late-January selection of
a core investor from the interested bidders. Only one
company expressed interest in the purchase of the Ajaokuta
Steel Company Limited leading to an extension of the deadline
to November 21. End Summary.


2. (U) ALSCON, a 2.36 billion dollar capital investment, is
one of the world,s most expensive smelters. Located at Ikot
Abasi, Akwa Ibom State, the company occupies roughly 100
hectares with direct access to the Imo River. The company was
incorporated in 1989 but only produced aluminum ingots
between 1997 and 1999, and never exceeded half of its
projected 193,000 ton-a-year capacity. The BPE listed a)
inadequate working capital; b) the high price of natural gas;
c) the need to re-dredge the Imo River; d) a hostile local
community; and e) non-completion of the project as the
problems which led to the May 1999 closure of the plant.


3. (U) Reynolds Aluminum initially served as the plant's
technical advisor and held a ten percent equity stake until
the company was bought out by ALCOA. (The Government of
Nigeria retains a 70 percent equity interest in ALSCON and
the German company Ferrostaal AG, a division of the MAN
group, holds 20 percent.) After ALCOA's initial negotiations
with the GON proved unsatisfactory, the U.S. company
announced it would divest itself of its ten percent ownership
of ALSCON and abandon its role as technical advisor.


4. (U) Since ALSCON shut down production in 1999, the GON has
not stopped investing money in the project. According to
Abiodun Wright, the BPE official supervising the ALSCON
privatization, more than half a million dollars a month is
spent to maintain a skeleton staff of 700 to keep the
machinery in working order. Ms. Wright called the
expenditures necessary to keep the facility in a
"preservation mode", to make it more attractive to potential
investors and so that the eventual winning bidder can
commence operations immediately.


5. (U) ALCOA now seems poised to re-enter the negotiation
for ALSCON. "This Day" newspaper quoted a GON source as
saying ALCOA had decided not to divest but was looking to
increase its equity in ALSCON. Recent news articles suggest
ALCOA may have the inside track of winning the bid.


-------------------------------------
Ajaokuta Steel Company Limited (ASCL)
-------------------------------------


6. (SBU) After her update on ALSCON, Wright asked how BPE
could more effectively advertise to the U.S. to find a core
investor for the Ajaokuta steel complex. Earlier in the
month, the BPE extended the submission date to November 21
for those interested in a 51 percent stake in the Ajaokuta
Steel Company. The uncompleted plant has been regarded
internationally as the quintessential "white elephant"
project. The World Bank reportedly advised the GON to
abandon the dream of producing steel and consider converting
the complex into an industrial estate or power plant.
(Comment: Ajaokuta,s technology is several generations
behind. It is difficult to envision a scenario where the
plant could be more profitable. Perhaps because of this,
only one company has expressed interest in becoming the core
investor. End Comment.)


7. (SBU) When asked why the GON continued committing funds
into the Ajaokuta although it was going to be privatized,
Wright confided that the Ministry of Power and Steel had
until very recently maintained the hope of running Ajaokuta
as a State-owned enterprise.


-------
Comment
-------


8. (SBU) Perhaps the general lack of budget resources --
as much as BPE's Privatization Act -- led to the Power and
Steel Ministry's losing its battle to build and run this
steel city that stretches for miles, costs billions of
dollars, and never produced a single bar of steel. Agagu has
reportedly just resigned as Minister of Power and Steel to
run for Governor of Ondo State in the Southwest. Before
leaving, he made a public statement predicting the steel
plant would be completed soon and that Nigeria would realize
its goal of becoming a steel-producing industrial nation.
This appears to be an exaggeration of Ajaokutan dimensions.
Meanwhile, the Guardian newspaper (Lagos-based) of November
21 reports that Siemens Limited won a contract worth $390
million Euros to build a power generating and transmission
facility at Ajaokuta, as recommended by the World Bank.
JETER

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