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Cablegate: Privatization of Gon Minority Shareholdings

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 001359

SIPDIS


SENSITIVE BUT UNCLASSIFIED


E.O. 12956: N/A
TAGS: EPET ENRG EINV BTIO KIDE NI
SUBJECT: PRIVATIZATION OF GON MINORITY SHAREHOLDINGS
IN FOREIGN OIL SERVICE COMPANIES POTENTIAL PROBLEM

1. Action request, para 8.


2. Summary. The Government of Nigeria (GON) wants to
privatize the approximately forty percent minority
share it holds in foreign oil service companies (OSCs)
operating in Nigeria; e.g., in Halliburton Nigeria.
The GON wants to divest itself by way of private
placement; the OSCs object and insist that they be
given right of preemption. The Bureau of Public
Enterprises (BPE) has suggested that the GON's
minority holdings be put into a special purpose
vehicle (SPV), which would divest the GON of its share
by way of public offers over time. The OSCs object
and may seek DOS and DOC intervention. We seek the
Departments' views to break the stalemate. End
summary.


3. Background. A little more than two years ago,
Nigeria's National Council on Privatization instructed
the BPE to sell the GON's minority shareholdings in
the foreign OSCs. As noted above, the GON prefers
divestiture by private placement; the OSCs, by
preemption; and the BPE, by public offer. Since April
2001, the industry has argued that Nigeria's
Commercial Activities and Allied Matters Act (CAMA) of
1990, the Investment Promotion Commission Act of 1995,
and the Public Enterprise Act of 1999 justify
preemption. As private companies, the OSCs argue that
they enjoy right of preemption, as can be inferred
from CAMA and convention. Moreover, since the GON
holds only 36-40 percent equity in the ventures, the
GON falls short of having the 75 percent required to
block preemption. These arguments notwithstanding,
President Obasanjo insists that the GON's minority
shareholdings be sold to Nigerian investors.


4. BPE constraints. On August 1, Econ Counselor met
with Mrs. Bola Onagoruwa and Mr. Eyo Ekpo, senior
officials of BPE's Oil and Gas Directorate. Ekpo
expatiated on the political pressure the President is
under to arrange for the sale of the GON's shares to
the Nigerian public, and argued that the President
will not cede on this principle. Ekpo expressed
confidence that Nigerian law will permit such a sale.
On the other hand, he dismissed an industry assertion
that the U.S. SEC will compel U.S. parent companies of
the majority stockholders to divest themselves of
their Nigerian subsidiaries if Nigeria sells its share
in the OSCs via a public offer.


5. BPE margin. Onagoruwa added that were the
President unconstrained, he would direct that BPE
divest the GON of its shares via private placement.
Well-connected Nigerians are urging him to do this.
BPE's preference is that the GON's shares in the OSCs
be sold to the majority stockholders, the foreign
companies, on a willing buyer willing seller basis.
BPE knows that such a sale would maximize the
proceeds. Given the distance separating the
President's and the industry's preferences, BPE has
concluded that it may be able to arrange an agreement
acceptable to the Presidency and the industry through
the establishment of an SPV. Ekpo suggested to Econ
Counselor that the details regarding the SPV could be
worked out by BPE and the industry in a way to ensure
that foreign companies' interests in the OSCs remain
secured.


6. OSCs position. The OSCs, through their KPMG
representative, have informed us that they dislike the
idea of further talks with BPE. They doubt that an
accommodation can be reached. The OSCs propose
instead that DOS and DOC and possibly the White House
get involved.


7. Comment. We are not optimistic about a quick
meeting of minds. The dispute has gone on two years.
The Presidency and the OSCs are 180 degrees apart, and
BPE is caught in the middle. Broad U.S. interests in
Nigeria may dictate that the Embassy help hold the
middle ground.


8. Action request. Post seeks specific guidance from
Department on the official USG position regarding this
issue and how active a role DOS, DOC, and White House
are likely to play. We would also appreciate the
Departments' independent views regarding the assertion
that the U.S. SEC will likely compel U.S. parent
companies of the majority stockholders to divest
themselves of their Nigerian subsidiaries if the GON
compels the sale of its shares in the OSCs via a
public offer.


LIBERI

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