US embassy cable - 01ABUJA1374

UNCLAS SECTION 01 OF 02 ABUJA 001374 
 
SIPDIS 
 
 
SENSITIVE BUT UNCLASSIFIED 
 
 
E for U/S LARSON AND ANN PENCE 
EB/IFD/OMA FOR PREID 
 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PREL, NI 
SUBJECT:  DEBT SWAP FOR ENVIRONMENT CLEANUP INITIATIVE 
 
 
REF:  STATE 97771 
 
 
1.  (U) Action request and comment at para 6. 
 
 
2.  (U) TDY U.S. Treasury Advisor Lisa Cook and 
Economic Section Chief Stephen Carrig met June 11 with 
GON debt management officials for a review of the 
mechanics of a debt for environment clean-up swap 
first discussed in Washington during President 
Obasanjo's May 10-12 meetings with senior 
Administration officials. Ambassador was present for 
those meetings.  GON officials present for the 
subsequent Abuja meeting included: Mr. Steve Oronsaye, 
Principal Secretary to the President; Mr. A.S. 
Arikawe, Director General, Debt Management Office; 
Mrs. F.M. Yemidale, Deputy Director, Central Bank of 
Nigeria (CBN); and several technical support staff 
members. 
 
 
3.  (U) Ms. Cook made a thorough oral presentation of 
the mechanics of a debt for clean-up swap.  She 
provided a brief paper as well that outlined a typical 
arrangement step-by-step.  The Nigerians, in 
particular Yemidale, who has had eleven years of 
experience in CBN debt swap programs, quickly warmed 
to the proposal and engaged the U.S. side in a 
discussion of its specifics.  The GON team concurred 
in the USG observation that developing the proposal 
would be a time-consuming and complex undertaking; 
they volunteered that we should begin now. 
 
 
4.  (SBU) Three sets of issues emerged immediately: 
 
 
a) GON concern that the first purchaser of the 
dollar-denominated debt would receive the lion's share 
of the discount by buying the debt low and selling it 
(relatively) high, thus providing GON limited debt 
relief.  Oronsaye was particularly concerned about 
this issue.  USG replied that market dynamics, i.e., 
financial community valuation of Nigerian paper, 
indeed, would play an important role in the process, 
but i) that would exist even without a swap 
arrangement; ii) the GON discharge of dollar debt via 
naira payment was clearly advantageous to Nigeria; and 
iii) the swap enabled Nigeria to finance environmental 
projects it already publicly had endorsed as 
essential. 
 
 
b) GON concern that certain classes of project 
financing might be excluded by definition.  Arikawe 
asked, for example, whether committing the remaining 
discounted debt to financing the construction of 
facilities utilizing now-flared natural gas 
commercially would qualify as sufficiently 
"environmental" for the swap.  Oronsaye, 
notwithstanding the potential caveat on excluding 
infrastructure and poverty reduction uses mentioned in 
Reftel para 5, observed that wholly environmental 
programs would be acceptable to the GON.  Cook and 
Carrig both noted that although definitions were 
important, and there certainly would be a review, the 
objective of the swap was to be inclusive of 
environmental programs that were workable and 
beneficial to all parties. 
 
 
c) GON concern over restrictions on the location 
of acceptable projects or the "nationality" of third 
party participants.  Oronsaye asked that projects not 
be restricted to the Delta region; he noted that other 
parts of the country, e.g., the southeast, had their 
own serious environmental issues with erosion, for 
example.  Yemidale asked whether other-than-U.S. 
companies and NGOs would be eligible for the program. 
USG replied that, in principle, environmental projects 
country-wide could be eligible, provided they 
otherwise qualified, and that there were no known 
firms or NGOs ineligible ab initio. 
 
 
5.  (SBU) In a side-bar conversation with EconChief, 
Oronsaye noted that the Delta surely would benefit 
were projects undertaken, but that the GON, for 
political reasons, necessarily would initiate needed 
projects elsewhere as well.  He also said that the GON 
already had "heard" that both Shell and Mobile were 
interested in the swap potentials although, and as 
noted in Reftel para 6, the GON initially would prefer 
to deal directly with USG and only indirectly with 
potential private sector participants.  Oronsaye 
reiterated the GON team's earlier observation that we 
should begin the process as soon as possible, thereby 
maintaining the momentum gained by our two Presidents' 
interest in the proposal. 
 
 
6.  (SBU) Action Request and Comment.  Given the 
cooperative and upbeat tenor of these initial debt 
swap discussions with the GON at the working-level in 
Abuja, Embassy strongly recommends -- and seeks 
guidance regarding -- taking immediate next steps.  It 
appears to us that Reftel's para 8 mention of 
consultations with the Corporate Council on Africa 
(CCA) to gauge oil company interest might be 
complemented beneficially were we informally and 
simultaneously to sound out the Nigeria-based field 
headquarters.  Neither the international headquarters 
nor the field elements could commit without 
consultations among themselves.  USG could facilitate 
this were Embassy and the debt swap IAWG liaison to 
the CCA provided common talking points.  Similarly, it 
would be helpful were there a generic set of common 
talking points for use with NGOs.  Without any 
discussions beyond those described here, we have 
identified potential NGO participants and are prepared 
to approach them as well on instruction.  End Action 
Request and Comment. 
 
 
Jeter