US embassy cable - 03ABUJA1359

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