US embassy cable - 03ABUJA1357

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 001357 
 
SIPDIS 
 
 
E.O. 12958: DECL 08/08/11 
TAGS: BEXP, ECPS, ETRD, PGOV, NI 
SUBJECT: CODEM ADVOCACY EFFORT STIFLED BY ALLEGED 
CORRUPTION INVOLVING MINISTRY OF COMMUNICATIONS 
 
Classified by Charge Dawn Liberi.  Reasons 1.5 (b) and (d) 
 
 
1. (SBU) Summary. Since spring 2003 Mission Nigeria 
has heen pursuing advocacy in behalf of CODEM Systems, 
Inc., a New Hampshire-based telecommunications firm. 
CODEM has tendered bids on three separate contracts, 
the aggregate value of which approximates $80 million. 
Its proposal to Nigeria's Ministry of Communications 
involves provision of radio monitoring stations and a 
spectrum monitoring system, a $35 million package. 
CODEM alleges that the Ministry has persuaded 
President Obasanjo to award the contract to CODEM's 
German rival despite its inferior equipment and 
questionable financial package.  Econ Counselor 
briefed the Director of the Budget and Price 
Monitoring Unit at the Presidency on August 1 and 
requested that it conduct due diligence.  We hope that 
our intervention will pay off.  End summary. 
 
 
2. (C) Background.  The bids for the project involving 
the Communications Ministry were opened on November 
16, 2001.  The two companies in the lead were CODEM 
and its German rival, Ferrostaal Nigeria, Ltd./Rhode & 
Schwarz.  CODEM quoted its bid in U.S. dollars; 
Ferrostaal, in euros.  CODEM asserts that when the 
bids were open, Ferrostaal's original bid in euros 
plus $5,225,928 on an unquoted part of the project 
raised its bid about a million dollars more than 
CODEM's.  In what CODEM purports to be an undated 
document from the Ministry of Communications 
(MC/ST.0247/Vol 1 that may have been released after 
March 2002), the latter recommended to President 
Obasanjo that CODEM be awarded the contract because 
its proposal was "more elaborate and properly 
defined." 
 
 
3. (C) Irregularities.  Notwithstanding the 
recommendation above, CODEM's Lagos-based agent gave 
us a copy of a letter purporting to be from the State 
House, Abuja, dated June 24, 2003 (PRES/81/36-1/93), 
which refers to the document mentioned immediately 
above but indicates that it was dated May 27, 2003. 
This document carries apparently the signature of 
former Minister of Communications Haliru Mohammed. 
This document, which recommends that the contract be 
awarded to Ferrostaal is strange on two counts.  One, 
the document may have been signed by the minister five 
days after the cabinet of the first Obasanjo 
administration was dissolved.  Presumably, Haliru 
Mohammed had no standing as a minister after the 
cabinet was dissolved on May 22.  Second, Ferrostaal's 
quotation appears in dollars in this document, not 
euros as originally quoted.  Despite these and other 
anomalies, a written annotation on the last page of 
the document suggests that Obasanjo approved the 
recommendation to award the contract to Ferrostaal on 
June 24. 
 
 
4. (SBU) Ferrostaal.  Apart from proposing older 
technology at higher cost than has CODEM, Ferrostaal 
seems singularly ill suited to execute the contract. 
Nigeria's Financial Standard of July 21 reported that 
the National Council on Privatisation has uncovered an 
over-payment of $100 million to Ferrostaal for work on 
Nigeria's Aluminum Smelting Company (ALSCON).  During 
an August 1 discussion with a key official of the 
Bureau for Public Enterprises (BPE), Econ Counselor 
was told that BPE had recently rejected Ferrostaal's 
bid for ALSCON, which BPE seeks to privatize, because 
Ferrostall attained merely 55 of BPE's minimum 70 
percent assessment benchmark to be designated core 
investor.  Ferrostaal not only could not produce the 
$5 million bond; its check of $15,000 that was to have 
been its bid qualification bond bounced.  To top it 
off, the Financial Standard of August 4 indicated that 
"competent Presidency sources said one of ALSCON's 
foreign partners, Ferrostaal AG of Germany, with about 
7.5 percent shareholding [in ALSCON], has not paid any 
tax on more than $3.1 billion (about N40.3 billion) 
paid to it by the government for construction of the 
plant."  The Standard added that Ferrostaal owes 
Nigeria N24.35.  The BPE official with we whom we 
discussed this matter on August 1 confirmed the 
accuracy of the Financial Standard's reports.  We have 
also read that German judicial authorities are 
investigating Ferrostaal and its CEO for alleged 
corruption involving Nigeria. 
 
 
5. (C) Beneficiaries.  CODEM's Lagos-based agent 
believes that that Vice President Atiku Abubakar is 
siding with Ferrostaal in the affair.  Along with 
unidentified cronies, the VP is said to be working the 
issue through a Professor Barzindo, an Islamic scholar 
who was permanent secretary at Communications until 
recently but is now permsec at Transport.  Since the 
VP is most probably constituting a war chest in 
anticipation of the 2007 presidential elections, for 
Atiku solidarity committee apparently are being 
established, it should shock no one that he might find 
Ferrostaal congenial. 
 
 
6. (C) State of play.  During our August 1 meeting 
with Dr. Oby Ezekwesili, the director of the price 
monitoring office at the Presidency, she said she has 
yet to act on a recommendation that the contract be 
award to Ferrostaal or CODEM.  She said it is possible 
that the Ministry of Communications incorrectly 
recommended Ferrostaal to President Obasanjo, 
bypassing the Federal Executive Council in the 
process.  But she added that if Obasanjo had approved 
the award, she would have seen a presidential 
directive, which, she said, would have read: approved 
subject to due process certification.  She went on 
that she has not seen such a directive. 
 
 
7. (C) Mixed signal.  Notwithstanding Ezekwesili's 
assertion that the Federal Executive Council may have 
been bypassed, on August 8, CODEM's Lagos-based agent 
handed us a copy of a document classified secret (EC 
2003/August 2003) with a header that reads "this 
document is the property of the Federal Executive 
Council."  The "memorandum by the Minister of 
Communications" specifies that "the purpose of this 
memorandum is to seek Council's ratification of the 
anticipatory approval granted by Mr. President for the 
award of contract for the supply, installation, and 
commissioning of state of the art international radio 
monitoring stations (IRMS) equipment and national 
spectrum management system (NSMS) to Messrs. Rhode & 
Scwarz/Ferrostaal Nig. Ltd at a total contract sum of 
$29, 524,260.30 (off shore) and N384,681,190.61 (note: 
about three million USD) (on shore)."  Paragraph 14 of 
the memorandum reconfirms these figures, but notes 
that they "exclude customs duties and other clearing 
charges" that are not elsewhere specified. 
 
 
8. (C) Comment.  We are inclined to accept 
Ezekwesili's word, given the help she gave us to 
secure the $49 million contract for Motorola earlier 
this year, but CODEM's Lagos-based agent affirms that 
she is deeply in the Vice President's camp on this 
issue.  CODEM's agent may be right, for Econ Counselor 
recalls that Ezekwesili was rather abrupt in her 
affirmations with respect to the contract in question 
on August 1.  We nonetheless will give her more time 
to look into CODEM's allegations that the 
Communications Ministry has perpetrated "grave 
irregularities" directly or through third parties, to 
see what response our representation will have 
provoked.  Should we not hear news favorable to CODEM 
by the end of August, we will again raise the issue 
with Ezekwesili at that time.  We welcome views on the 
appropriateness of the Charge raising the matter with 
the Minister of Communications and the President at 
the earliest opportunity.  We continue to hope that 
our advocacy will pay off. 
 
 
LIBERI