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Cablegate: Solgas Update

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

040438Z Mar 04

UNCLAS ABUJA 000371

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON PGOV NI
SUBJECT: SOLGAS UPDATE

REF: 03 ABUJA 2161

SENSITIVE BUT UNCLASSIFIED, NOT FOR PUBLICATION ON THE
INTERNET OR INTRANET.

1. (SBU) Summary: Acting on petitions from Nigerian civil
society groups, Nigeria's House of Representatives Steel
Committee said February 19 that the U.S. energy company
SOLGAS did not have the technical ability to refurbish and
operate the GON's Ajaokuta Steel Complex, although it also
said that SOLGAS was not in violation of its contract with
the GON. Post had reported problems at Ajaokuta last
December (reftel), and the Nigerian public may now be coming
to similar conclusions. The House Committee recommended that
SOLGAS present copies of any MOUs it has for technical
assistance or the required outside funding for the project,
and that the GON should have at least two seats on the
Ajaokuta board of directors. End Summary.

2. (U) The House committee presented its report February 19
on the state of the SOLGAS project to run Ajaokuta, including
nine recommendations for ensuring that participation by any
private participation in the project will be profitable and
beneficial for Nigeria. The House in August 2003 had asked
committee chair Aliyu Omeiza Saiki (PDP-Kogi) to look into
several groups' questions that had come to House Speaker
Masari on the effectiveness of the SOLGAS initiative. The
African Iron and Steel Association, the Nigerian
Metallurgical Society, and the Steel and Engineering Workers
Union were listed in the press as three of the groups that
petitioned Masari.

3. (SBU) The committee report found that -- as an energy
company -- SOLGAS does not have the technical expertise to
run a steel plant. In a meeting with Econoff, Saiki said the
USD 60 million SOLGAS annual turnover and inability to come
up with US Ex-IM bank loan guarantees meant it would not have
the finances to complete the nearly $4 billion project.
Further, Saiki said the original Ajaokuta Russian-Nigerian
construction firm TPE was ready to work on Ajaokuta again, if
SOLGAS paid. Saiki told the press that other companies, like
Ukraine's ZSM and the American IBM Global (reftel), may be
interested but have not completed memorandums of
understanding with SOLGAS.

4. (U) Despite these questions about SOLGAS's ability to
operate Ajaokuta, the press reported that the committee
report had said the original agreement for SOLGAS to produce
steel at Ajaokuta has not been violated. The committee said
SOLGAS's focus on power generation was an understandable
function of its desire to run a successful steel plant, and
ultimately the project should go ahead regardless of all
these problems.

5. (SBU) Saiki told Econoff that he doubts SOLGAS can
actually produce steel, but that he is interested in
protecting Nigeria's interests. Perhaps to guard these
interests and help Nigeria -- and perhaps to save face and be
seen as trying to fix the Ajaokuta boondoggle -- the
committee's report presented nine recommendations:

-- SOLGAS should work with TPE.
-- SOLGAS should provide copies of all MOUs with its partners.
-- SOLGAS should hold the GON harmless for any losses it
incurs.
-- The composition of the monitoring team should be clearly
identified.
-- The period to recoup SOLGAS' investment should be explicit
in the agreement.
-- The GON should have at least two representatives on the
Ajaokuta board.
-- The SOLGAS agreement should include benchmarks to track
progress.
-- The Ajaokuta community should be involved in the project's
monitoring team.
-- The GON should expedite the rail line, river dredging and
iron ore mining projects needed to make Ajaokuta profitable.

6. (SBU) While the House filed its reports on SOLGAS, the
press reported February 23 that Federal Power and Steel
Minister Liyel Imoke has sent a memorandum to SOLGAS with a
deadline of May 29, 2004 (the anniversary of Obasanjo's
inauguration) to roll out iron and wire rods, and to produce
liquid steel by February 2005. Saiki confirmed these
deadlines, but the press reported that some ministry insiders
think the liquid steel may not come until 2006.
ANYASO

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