US embassy cable - 02ABUJA3345

NIGERIA: ECONOMIC ROUNDUP DECEMBER 19

Identifier: 02ABUJA3345
Wikileaks: View 02ABUJA3345 at Wikileaks.org
Origin: Embassy Abuja
Created: 2002-12-19 16:03:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: ECON EFIN EINV ETRD ECPS NI
Redacted: This cable was not redacted by Wikileaks.
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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