US embassy cable - 03ABUJA1386

C O N F I D E N T I A L SECTION 01 OF 03 ABUJA 001386 
 
SIPDIS 
 
 
E.O. 12958: 08/14/11 
TAGS: BEXP, ECPS, ETRD, PGOV, NI 
SUBJECT: CODEM PROVIDES FURTHER INDICATIONS OF 
POSSIBLE CORRUPTION HINDERING ITS BID FOR $35 MILLION 
CONTRACT 
 
REF: ABUJA 1357 
 
 
Classified by Charge Rick L. Roberts.  Reasons 1.5 (b) 
and (d). 
 
 
1. (C) Summary.  On August 12 CODEM's Nigeria-based 
representative gave us further documentation that 
suggests that the Ministry of Communications is 
grossly understating the bid of CODEM's competitor for 
the $35 million contract mentioned in reftel.  From 
the Ministry's understatement, as well as from Rhodes 
& Schwartz/Ferrostaal's own acknowledgment of the 
situation, we conclude that both are engaging in 
irregular business practices that encourage 
corruption.  While we plan to make one further 
demarche in CODEM's behalf, this time on the Secretary 
of the Federal Government; we would welcome guidance 
from EB and the DOC/Advocacy Center within the next 
few days.  End summary. 
 
 
Background 
 
 
2. (U) The easiest way to understand what is going is 
by going back a bit into the history of bids offered 
by CODEM and its German competitor.  Document "Phase 
11, Opening of Bid documents on IRME, Ministry of 
Communications, Friday, 16th November 2001," initialed 
by various officials, shows that Kabtel comm. 
Ltd./CODEM's initial bid price was $39,352,041. 
Ferrostaal/Rhode & Schwarz's was E29,862,332.  This 
was in fall 2001. 
 
 
3. (U) On February 8, 2002, the Ministry of 
Communications requested the bidders to submit their 
final discounts, as well as financing modalities 
(MC/ST/0247/1/147). 
 
 
4. (U) On March 14, 2002, CODEM offered a final 
$5,000,000 discount. Ferrostaal merely responded that 
its "final discount be subject of the [illegible word] 
of contract financial proposal buyers credit."  These 
terms appear in the annotated document, "Result of the 
Final Discounted Figure of Companies for the 
International Radio Monitoring Equipment System (IRMS) 
and National Spectrum Management System (NSMS), 
Thursday, 14th March, 2002, Ministry of 
Communications." 
 
 
5. (U) The document dated March 14, which is in the 
file CODEM passed to us, is followed by another three- 
page document that offered an interpretation of the 
bidders' financial proposals.  This document confirmed 
CODEM's final discount and recognized that its bid was 
then $34,352,041.  The document further indicated that 
CODEM's terms were such that "it will be a great 
advantage to consider the loan."  On the other hand, 
it noted that Ferrostaal's proposed financing required 
a "firm commitment to commence arrangement or 
financial package from the three banks."  The 
document's recommendation read as follows:  "Having 
considered the submissions of all the companies and 
analyzing their financing terms, the proposal given 
Kabtel Communications Limited [CODEM] is more 
elaborate and it clearly defined the terms and 
conditions of the loan.  It is therefore recommended 
that the price offer of $34,352,041 (offshore) and 
N184,225,000 (on-shore) by the company could be 
considered.  However, the company should be asked to 
give a further discount on its price considering the 
impact of cost of financing on the total contract cost 
as analyzed in table 2." 
 
 
6. (U) The table that follows this document indicates 
that the loan(s) that Ferrostaal may have been trying 
to arrange were from 100 to 350 basis points above 
that offered by CODEM (7.5 vice 4.0625 Libor). 
Ferrostaal's "fees and levies" were also more onerous 
(8-10 percent vice 7.0-7.75 percent).  Another table 
that follows, Financial Implications of Proposals 
Calculated on Straight-Line Basis and Period of Tenor, 
is specific with respect to CODEM, but indicates that 
the cost of interest in the loan(s) to be arranged by 
Ferrostaal were "not determinable as tenor is not 
stated."  The total cost of its financing package 
therefore was "not determinable."  Whereas CODEM 
stated a profit margin of 6.5 percent, Ferrostaal's 
margin was "not stated."  This was the situation in 
spring 2002. 
 
 
Recent Developments 
 
 
7. (C) Although the last table mentioned immediately 
above indicates that the cost of Ferrostaal's 
financing was "not determinable" as of spring 2002, a 
document originating at the Presidency (PRES/81/36- 
1/93, June 24, 2003) indicates that the cost of 
financing proposed by Ferrostaal was only 
$1,511,927.24 as opposed to CODEM's approximate 
$15,000,000.  We cannot explain how the Presidency 
arrived at the figure associated with Ferrostaal, for 
as mentioned in para 9 below, as of early May 2003, 
Ferrostaal probably still had not arranged a financial 
package.  Although the document of the Presidency 
refers to the last table mentioned above, the 
Presidency's document clearly has incorrect financing 
charges for Ferrostaal, for the loan that it proposed 
was for E24,302,882.55 at interest ranging from 5.1 to 
7.0 percent for possibly five years.  The difference 
in dollars between the financing cost that the 
Presidency mentioned and that that would result if 
Ferrostaal's terms were respected is far too large to 
overlook.  Ferrostaal's true financing cost at least 
equals and probably exceeds CODEM's.  Since Ferrostaal 
quoted in euros, it also likely that the cost of its 
overall financial package exceeds CODEM's offer. 
 
 
8. (C) The Presidency's June 2003 document further 
notes that Ferrostaal's offer excludes customs duties 
and other clearing charges that total $7,024.893.04. 
This point is particularly revealing.  In an undated 
memorandum given to us by CODEM's representative on 
August 12 and probably drafted this month in response 
to our last demarche, it is noted in the section on 
pricing that "CODEM did not offer to take care of 
clearing and forwarding of the equipment.  In fact, 
they added a special clause which reads: `Total quoted 
prices are restrictively understood as CIF, Lagos. 
Please be advised that there is no provision for 
CUSTOM DUTIES.  The Ministry of Communication shall 
take the appropriate action to exempt the said 
commodities..'   It is not understood how this quoted 
condition would save $7.5 million for the Ministry if 
CODEM won the contract." 
 
 
9. (C) In its consideration of "optional funding," the 
group that produced the undated memo quoted above (Re 
Grave Irregularities on International Radio Monitoring 
Stations (IRMS) and National Spectrum Management 
System (NSMS), Project for the Federal Ministry of 
Communications) restated the figure of $30,103,530.24 
as being Ferrostaal's final price, and noted that "the 
difference is too wide [in its favor] to ignore."  But 
as noted in para seven above, that figure grossly 
understates Ferrostaal's financing charge.  Moreover, 
this memo overlooks a critical acknowledgement that 
Ferrostaal made on May 8, 2003.  In a letter of that 
date to President Obasanjo, the Managing Director of 
Rhodes & Schwarz Ferrostaal apparently wrote that "We 
would wish for the Ministry to inform us of our 
achievement."   He went on that "even if it is stated 
in their [the Ministry of Communications'] letter that 
`financing is yet to be put in place.  And that 
implementation will be subject to financing being 
available.'  A (sic) least we and the Ministry would 
then have a common goal and work jointly to finding a 
way to finance the project."  This letter to Obasanjo 
was forwarded to the Ministry of Communications by the 
Presidency on May 23 (PRES/93), four days before the 
former Minister of Communications recommended that the 
contract be awarded to Ferrostaal (noted in para 3 of 
reftel). 
 
 
10. (C) The penultimate and last paragraphs of the 
most recent memo suggest that our demarches in behalf 
of CODEM have had and may continue to have little 
effect.  Despite Ferrostaal's questionable reputation, 
as noted in reftel, the memo notes that "Suffice it to 
say that CODEM does not have as good a past record as 
some of the others.  If the American government 
patronizes CODEM, it may not necessarily follow that 
the Nigerian government must do the same irrespective 
of the manner in which the company bided (sic).  In 
conclusion, it is important to state that the entire 
process of bidding and evaluation was as transparent 
and unbiased as it could possibly have been.  All 
bidders were given equal opportunities on a level 
playing ground.  The bid chosen by the Ministry was by 
any standard the best under the circumstances of the 
bidding process." 
 
 
11. (U) Comment.  The irregularities mentioned above 
and those indicated in reftel suggest that some people 
in the federal government are engaged in corrupt 
practices.  We would welcome guidance from EB and 
DOC/AC with respect to our future demarche. 
 
 
Roberts