US embassy cable - 01ABUJA2073

UNCLAS SECTION 01 OF 02 ABUJA 002073 
 
SIPDIS 
 
 
E.O. 12958: N/A 
TAGS: EFIN, KTIA, NI 
SUBJECT: NIGERIA: PRELIMINARY REACTIONS TO U.S. 
COMMENTS ON DRAFT BILATERAL DEBT RESCHEDULING 
AGREEMENT 
 
 
REF(S): (A) STATE 140051 (B) ABUJA 1914 (C) ABUJA 1374 
AND PREVIOUS 
 
 
1. On August 15, EconOff met with Debt Management 
Office Director-General, Akin S. Arikawe, to discuss 
USG reactions to Nigeria's proposals for the bilateral 
debt rescheduling agreement as described Ref A. 
Arikawe read through the entire document with EconOff 
and provided immediate reactions to almost all 
paragraphs.  The following contains his preliminary 
comments and do not necessarily reflect the formal 
reply that will be forthcoming in the next 2 - 3 
weeks. 
 
 
2. Arikawe admitted that, although "they were worth a 
try," he had not expected the USG to agree to the 
proposed fixed interest rate of 4 percent, the 
application of payments first to interest and then to 
principal, or to reciprocal language on termination of 
agreement.  However, Arikawe felt other issues 
warranted closer attention by the USG. 
 
 
3. Per Ref A, USG wants to retain Article IV, 
Paragraphs 1 and 2, which discuss comparable 
treatment.  Arikawe said this would be no problem as 
long as the USG understands that Nigeria will likely 
receive more favorable terms from other creditors. 
Arikawe commented, for example, that he expects 
Nigeria to receive a fixed interest rate from an Euro- 
based country (he did not specify which one).  He 
stated that under the comparable treatment clause, the 
USG could be bound to offer a comparable interest 
rate. 
 
 
4. Arikawe did not accept the USG's refusal to delete 
Article IV, Paragraph 4 because, he said, the USG 
holds no other claims other than those included by the 
Agreed Minute. EconOff pointed out that, if the U.S. 
holds no other claims, then the paragraph does no 
harm.  However, Arikawe continued to assert that there 
is no need to include this paragraph.  Arikawe 
explained that with some creditors, such as Germany, 
this clause is necessary because they hold debt not 
covered by the Agreed Minute. 
 
 
5. On the accrual of Additional Interest, Arikawe 
exclaimed that the USG was being "very harsh."  He 
named five or six European countries, including Norway 
and Germany, that had already agreed to grace periods 
of between 15 and 45 days.  Arikawe explained that 
grace periods were sometimes necessary for political 
reasons; the National Assembly may delay approval for 
debt payments in order to maintain political leverage. 
He commented that USG refusal to provide any grace 
period also failed to meet the comparable treatment 
terms described in the Agreed Minute. 
 
 
6. Regarding debt swaps, Arikawe was surprised by the 
USG's negative response since Embassy officers had 
recently met with him to raise such a possibility 
(reported in Ref C).  Arikawe believed there was 
strong interest on the part of third parties to buy 
Nigerian debt.  He provided an example of a private 
power company that had expressed interest in assisting 
Nigeria in reducing gas flaring through such an 
arrangement.  Arikawe promised to deliver EconOff a 
letter providing more detailed information on these 
third parties. 
 
 
7. The following reactions pertain to Annex G of the 
draft agreement: 
 
 
-- Arikawe said the GON could not accept the accrual 
of interest on payments due on a non-business day if 
the payment is made on the following business day.  He 
explained that if a payment is due on a day that 
happens to be a U.S. bank holiday, for example, then 
Nigeria's payment could not be transferred into the 
appropriate account until the following day.  Nigeria 
should not be held accountable for determining which 
days in the U.S. are "non-business days," he stated. 
 
 
-- Arikawe had no immediate comment regarding Annex G, 
Paragraphs B.4, C, or D. 
 
 
-- Regarding sovereign immunity, Arikawe explained 
that the proposed language would be unacceptable if 
the draft terms are more onerous than the original 
contract terms. 
 
 
-- Regarding Events of Default, Arikawe said he could 
accept this clause only if it applies to a default on 
Nigeria's U.S. debt, not if it applies to a default on 
debt held by any other Paris Club member. 
 
 
-- Regarding Disposition of Indebtedness, the GON 
requests that they be notified before the USG takes 
action to dispose of Nigeria's debt.  The reason, 
Arikawe said, is that if the USG proposes to sell to a 
hostile third party that would impose more onerous 
repayment terms, then the GON should be informed and 
have the right to refuse. 
 
 
-- Regarding Expenses, Arikawe explained, the courts, 
not the agreement, should decide whether Nigeria is to 
be held responsible for any costs associated with a 
judicial claim. 
 
 
8. Before concluding the meeting, EconOff emphasized 
to Arikawe that the process for negotiating bilateral 
debt agreements in the United States is bureaucratic, 
not political; the USG's cookie-cutter approach makes 
Nigeria's requested changes difficult to obtain. 
Arikawe understood, commenting that this was a problem 
Nigeria was encountering in many countries, 
particularly Germany where the negotiations are done 
completely by a private financial institution on 
commission from the government. 
 
 
9. Post will forward the GON's formal reply to Ref A 
as soon as it is made available. 
JETER