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Cablegate: Nigeria: Economic Roundup December 19

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

UNCLAS SECTION 01 OF 03 ABUJA 003345

SIPDIS


SENSITIVE


STATE FOR AF/W
STATE PASS USTR
STATE PASS DEPARTMENT OF ENERGY


E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD ECPS NI
SUBJECT: NIGERIA: ECONOMIC ROUNDUP DECEMBER 19


REF: A. ABUJA 3323
B. ABUJA 2961
C. ABUJA 1194
D. LAGOS 655
E. 01 ABUJA 997


(U) 1. This periodic economic report includes:
--GON Announces Financial Bids to Privatize Five SOEs
--GON Plans for Debt Management in 2003
--Backroom Deals May Derail Another Motorola Bid
--Central Bank Scolds Banks on Lending Practices
--Supreme Court Says States Control Local Gov't Funding


GON Announces Financial Bids to Privatize Five SOEs
--------------------------------------------- ------
2. (U) Bureau of Public Enterprise (BPE) officials opened
financial bids for the privatization of five state-owned
enterprises (SOEs) December 12 at the NICON Hilton Hotel in
Abuja: National Trucks Manufacturers, Savannah Sugar,
Caterers Court (apartments), Nigeria Re-Insurance, and Abuja
International Hotel (built for, but never operated, by
Sofitel).


3. (U) Art Engineering and Construction Limited--with
technical partners Chinese Civil Engineering and Construction
Corporation, China FAW Corporation, and Dongfeng
Corporation--bid $6.4 million for a 51 percent share in
National Trucks Manufacturers. The reserve bidder was Danata
Investment and Security Company Limited, with technical
partner Eicher Group of India.


4. (U) Dangote Industries Limited was named the preferred
bidder for a 51 percent share in Savanah Sugar, with an offer
of $6.3 million. Sahara Energy Resource bid $5.1 million for
Caterers Court and was named the preferred bidder.
Reinsurance Acquisition Group Limited made a winning bid of
$7.8 million for 51 percent of Nigeria Re-Insurance. Both
bidders on Abuja International Hotel were disqualified for
failure to pay a mandatory $2 million bid bond.


5. (U) The opening of the financial bids was the third in a
four-step privatization process. The first was a
prequalification exercise that BPE conducted based on
potential investors' expressions of interest. Next, BPE
reviewed the technical bids of those investors who were
prequalified. The fourth step is for each winning bidder to
pay the full bid price to the BPE, based on a payment
schedule negotiated between BPE and each bidder.


6. (U) Comment: It is this fourth step, payment of the
winning bid price, where the privatization process often
breaks down. Privatization of Nigeria Telecommunication
Limited (NITEL), Niger Dock, and more recently the NICON
Hilton Hotel failed because winning bidders could not come up
with the funds to pay their bid prices. Septel will provide
more details on the privatization process. End Comment.


GON Plans for Debt Management in 2003
-------------------------------------
7. (U) Director General of the Debt Management Office (DMO)
Akin Arikawe on December 9 told Econoff that, after a
difficult year for debt repayment in 2002 due to budget
shortfalls, the GON plans to buydown all non-Paris Club debt
in 2003 and reschedule Paris Club debt in 2003 or 2004.
Decreased government revenues--together with confusion over
the division of Paris Club debt among the States and Federal
Government--means the GON will pay only $900 million of the
$1.5 billion budgeted for external debt in 2002. Arikawe says
the GON will use that $900 million to stay current with its
London Club, multilateral, and promissory note debt, but will
probably make no further Paris Club payments this year.


8. (U) The Central Bank has agreed to release $500 million
from the 2003 budget early so the GON can buy back most of
its London Club debt (par bonds) this year. This will reduce
next year's payment for this item from $130 million to
approximately $25 million. The Bank hopes for a similar
auction of promissory notes to reduce non-Paris Club annual
debt payments to approximately $400 million. Arikawe says
this scheme would leave the GON with about $1 billion to use
in its rescheduled debt payment program with the Paris Club.


9. (U) Comment: Arikawe may be overly optimistic (Ref. A).
There is a certain logic to his strategy, but it hinges on
budgetary discipline as well as the acquiescence of Paris
Club debtors to standing at the back of the line of Nigerian
creditors. End Comment.


Backroom Deals May Derail Another Motorola Bid
--------------------------------------------- -
10. (SBU) Motorola Country Director for Nigeria Raphael
Udeogu expressed to Econoff concern that his company's $230
million bid to expand Nigeria Telecommunication Limited's
(NITEL) GSM infrastructure is not being treated fairly by the
GON. He claimed that NITEL initially disqualified two of six
companies competing for the contract--Siemens and Huawei--for
improper bid submission. Meanwhile, NITEL disclosed technical
and financial details from the four remaining bids.


11. (SBU) A few days later, NITEL re-instated the German and
Chinese companies' bids. According to Udeogu, NITEL officials
first gave the flimsy excuse that the bids were reinstated
because necessary forms could not be properly downloaded from
the internet. Later, when that explanation lost credibility,
officials simply said "the decision was from above," implying
the hand of the Minister of Communications Mohammed Bello.
Udeogu reports that NITEL purposefully modified contract
requirements to use Siemens' proprietary technology for some
technical specifications, giving that company a tremendous
and unfair advantage.


12. (SBU) Udeogu expects NITEL to announce the shortlist for
the contract in early January. He predicts NITEL will divide
the contract award among several companies, with the largest
share going to Siemens.


13. (SBU) Pursuant to Motorola's request, Post continues to
provide advocacy assistance for this bid. In a letter to
President Obasanjo dated December 2, Ambassador Jeter made an
overture for improved transparency in the privatization and
regulation of the telecommunications sector, specifically
mentioning the concerns of U.S. companies such as Motorola.
(Note: A copy of this letter has been faxed to AF/W. End
Note.)


Central Bank Scolds Banks on Lending Practices
--------------------------------------------- -
14. (U) Local press reported that ten banks will contest the
Central Bank over the latter's order that the banks refund
about 524 million naira ($4 million) to African Petroleum
Plc. (AP) for excess charges on loans to AP at a time when
that company was clearly a poor credit risk. AP has since
declared bankruptcy. A December 8 article in the Lagos-based
"Vanguard" newspaper said the Central Bank calculated these
charges amounted to 524 million naira on a 14 billion naira
($108 million) credit facility extended to AP.


15. (SBU) While the "Vanguard" implicated 17 financial
institutions, a senior banking executive told Lagos Econoffs
that two additional institutions are involved. Our source
stated that some institutions extended credit to AP exceeding
30 percent of their shareholder capital, thus contravening
Central Bank regulations. Our source added that some of the
credit was disguised as off-balance-sheet financing in the
form of loan commitments or guarantees that do not add debt
on a balance sheet.


16. (SBU) Our source reports another alarming aspect of these
transactions on which the Central Bank has not yet focused:
AP denies owing 11 billion ($85 million) of the 14 billion
naira credit facility extended to it. Essentially, that 11
billion naira is missing. Our source added that one of AP's
former principals now has about $37 million in two accounts
managed by a large U.S. investment firm, implying that some
of the missing 11 billion naira may be found there. A second
source says that both AP executives and banking principals
may have benefited from these transactions.


17. (SBU) Comment: Given the Central Bank's punitive leverage
over the financial sector and its willingness to use that
authority (Ref. D), the banks will likely repay AP rather
than risk sanctions. This controversy may presage a more
active role by the Central Bank in rectifying banks' improper
lending practices. However, we would not be surprised to see
those involved call in political favors to see that Central
Bank investigators are held at bay. End Comment.


Supreme Court Says States Control Local Gov't Funding
--------------------------------------------- --------
18. (U) The Nigerian Supreme Court in a December 13 unanimous
decision ruled that revenue now being passed directly to the
local governments by the federal government must first pass
through state governments. This will further strengthen the
political and economic control of state governors and weaken
central government influence over local government. In a blow
to states' attempts to enhance their revenues, however, the
Supreme Court rejected states' claim to a percentage of
proceeds from privatization, stamp sales, and other federal
government activities.
19. (U) Comment: Despite the April 5 Supreme Court decision
on resource and revenue allocation (Refs. C and E),
implementation has been slow and marked by efforts by "the
losers" on any given revenue allocation issue to restore the
status quo ante. There will be numerous political fights
before these issues are finally settled, so the financial
impact of these two rulings cannot yet be assessed. End
Comment.
JETER

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