US embassy cable - 01ABUJA2396

UNCLAS ABUJA 002396 
 
SIPDIS 
 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, NI 
SUBJECT: NIGERIA: NITEL PRIVATIZATION DELAYED 
 
 
REF: ABUJA 2301 
 
 
1.  Summary.  The GON recently announced a two-month delay in 
the privatization of Nigerian Telecommunications, Ltd. 
(NITEL) originally scheduled for September 2001.  According 
to BPE Advisor Michael Dan, NITEL's privatization would more 
likely be delayed until February-March 2002 and may not 
attract top-notch international telecommunications companies 
due to an uncertain regulatory environment.  End Summary. 
 
 
2. In August, press reports revealed that the GON had decided 
to extend the period for interested companies to conduct due 
diligence on NITEL's accounts.  As a result of the extension, 
the Bureau of Public Enterprises (GON privatization agency) 
released a statement that the GON would not choose an 
investor until early November.  On September 12, Econoff met 
with Michael Dan, who heads a five-person team of 
USAID-sponsored advisors to the Bureau of Public Enterprises 
(BPE) to discuss the delay. 
 
 
3. The extension, according to Dan, was granted because the 
information memorandum for investors was not ready.  This 
memo is to provide interested buyers with information on 
NITEL's accounts and other sale details.  Although the 
memorandum has now been sent to prospective investors, the 
audits of NITEL accounts are not finished.  Specifically, 
account information regarding receivables and pensions may 
not be accurate, said Dan. 
 
 
4. Dan insisted that these delays were technical and did not 
reflect a lack of political will to proceed with the 
privatization.  He asserted that the original schedule had 
been much too ambitious, commenting that "Nigerian officials 
would argue that the current timetable of November is still 
very accelerated."  In fact, Dan suggested that the November 
timeframe was not realistic either; "the privatization will 
not occur until February-March 2002," he said.  Once the 
buyer is identified, negotiations between the buyer and the 
GON regarding telecommunications regulations would ensue. 
Dan commented that these negotiations could stretch on for 
months due to Nigeria's uncertain regulatory environment. 
 
 
5. The regulatory structure for the telecommunications 
industry is in flux; a draft telecommunications bill is 
before the National Assembly and, therefore, subject to 
change.  Dan argued that the uncertain environment generated 
by the absence of a clear regulatory structure would make the 
negotiations between the GON and the buyer difficult; even a 
one Naira change in the maximum local telephone rate would 
have a major impact on the buyer's offer terms.  Moreover, 
Dan pointed out, once the GON had divested itself of NITEL, 
its only interest in telecommunications would be to keep 
prices low. 
 
 
6. Dan asserted that these uncertainties would likely 
dissuade first class international telecommunications 
companies from bidding on NITEL.  He anticipated that NITEL's 
sale price would end up much lower than the GON expected.  He 
also hypothesized that the buyer would likely be an insider 
who has been able to obtain assurances that the 
telecommunications bill would be favorable to their 
interests. 
 
 
7. Comment.  The GON has established an extremely ambitious 
privatization schedule in order to satisfy pressures from the 
IMF and international donor community.  Consequently, delays 
in the schedule are likely to occur frequently.  Moreover, if 
the IMF decides not to extend its program in Nigeria, the GON 
would likely lessen its focus on the privatization program in 
general.  End Comment. 
Andrews