US embassy cable - 04ABUJA371

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SENSITIVE BUT UNCLASSIFIED, NOT FOR PUBLICATION ON THE 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