US embassy cable - 04ABUJA1663

C O N F I D E N T I A L SECTION 01 OF 03 ABUJA 001663 
 
SIPDIS 
 
E.O. 12958: DECL: 09/27/2014 
TAGS: BEXP, ETRD, ECON, PREL, NI, OIL 
SUBJECT: (U) GON DIRECTIVE COULD COMPEL HALLIBURTON TO 
WITHDRAW FROM NIGERIA 
 
(U) Classified by Ambassador for reason 1.5 (d). 
 
(U) This is a joint Consulate General Lagos - Embassy 
Abuja cable. 
 
1. (C) Summary:  Recent GON decisions banning 
Halliburton from receiving new government contracts 
and requiring it to export all of its radioactive 
resources from Nigeria threaten Halliburton's 
continued operations in the country.  Halliburton is 
doing all it can to reverse these decisions and has 
scheduled a series of high-level meetings over the 
next several days, including, it hopes, with President 
Obasanjo on September 30 or October 1 in New York. 
The proximate cause of the GON's displeasure with 
Halliburton is the company's failure to return to 
Nigeria two radioactive sources stolen from 
Halliburton facilities in December 2002.  The GON's 
grievances against Halliburton Nigeria (and an 
unrelated grievance against Halliburton's Kellogg 
Brown and Root (KBR) subsidiary) are multi-layered. 
This incident may be the proverbial straw that broke 
the camel's back.  End Summary. 
 
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GON Decisions Show Halliburton The Exit Sign 
-------------------------------------------- 
 
2. (C) On September 24, Remy Caulier, Vice President 
of Halliburton's Energy Services Group, Nigeria 
(HESN), called on Ambassador to relate the saga that 
has brought Halliburton to the brink of having to 
terminate its operations in Nigeria.  Caulier's senior 
colleagues had briefed ConGen Lagos earlier this week. 
Caulier's immediate concern is a notice that HESN 
received on September 10 from the Nigerian Nuclear 
Regulatory Authority (NNRA) informing HESN that NNRA 
is withdrawing its authorization that HESN use 
radioactive materials in Nigeria until it has taken 
steps to return the two radioactive sources stolen 
from Halliburton in December 2002.  The NNRA further 
demanded Halliburton to re-export from Nigeria all of 
its radioactive sources within 30 days.  This is 
significant, Caulier said, because HESN uses such 
materials in a third of its operations.  Compounding 
the problem, on September 16, the Secretary to the 
Government of the Federation, Chief Ufot Ekaette, 
issued a directive (which Halliburton was not sent, 
but which Caulier read at the office of NNPC Managing 
Director) banning Halliburton from future government 
contracts as a result of the company's "negligent 
conduct" concerning the stolen radioactive sources. 
 
3. (C) Caulier confirmed to Ambassador that these two 
decisions would put Halliburton out of business in 
Nigeria if implemented. Jim Mills, Halliburton 
Business Development Manager in Lagos, had told ConGen 
Lagos that government contracts account for 80-85 
percent of Halliburton's business. Caulier disclosed 
that such measures would cut Halliburton Nigeria's 
expected revenues by 50 percent in 2005 and by 80 
percent in 2006, two critical years with respect to 
new projects coming on line in the oil and gas 
sectors. The mere fact that the measures might be 
implemented, he said, is jeopardizing its conclusion 
of an $80 million deal with Shell in coming weeks, and 
other international majors are beginning to reconsider 
whether to continue to do business with Halliburton 
Energy Services.  Caulier, like Mills, has met with 
officials of NNPC's National Petroleum Investment 
Management Services (NAPIMS), but harbors little hope 
that NAPIMS will hold Halliburton contracts in 
abeyance pending resolution of these issues.  Both 
Halliburton officials believe its competitors could 
replace Halliburton within days if its contracts were 
abrogated. 
 
4. (C) Making matters worse, Caulier was informed on 
September 23 by Halliburton Nigeria's Human Resources 
Group that Nigeria's Immigration Service is now 
denying temporary work permits to Halliburton 
employees.  Caulier said many gray areas characterize 
the GON's recent decisions, the result being that 
Halliburton, its international partners, and even the 
NNPC are unsure whether the decisions affect only 
Halliburton Energy Services Nigeria (which accounts 
for 80 percent of Halliburton's actual activity in 
Nigeria) or other Halliburton affiliates as well. 
Caulier said it nonetheless seems that the decisions 
apply strictly to HESN since Halliburton's Kellogg 
Brown and Root subsidiary has not received anything 
from the GON suggesting that it, too, is being 
sanctioned. 
 
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Halliburton Requests Obasanjo Meeting; 
Scrambles to Walk-Back Decisions 
-------------------------------------- 
 
5. (C) While Halliburton Nigeria's attorneys Ola 
Alokalora and Oghogho Akpata told colleagues in Lagos 
that President Obasanjo has agreed "in principle" to 
meet Halliburton David Lesar, Caulier told Ambassador 
that Halliburton has no confirmation that the meeting 
requested will occur.  Caulier is cautiously 
optimistic, but Halliburton has received no word from 
Obasanjo's office.  Lagos colleagues were told that 
the meeting is tentatively scheduled for September 30 
or October 1, in New York.  Caulier, himself, hopes to 
meet next week with Nigeria's Attorney General and 
with the directors of the NNRA, NNPC, and NAPIMS. 
Caulier said HESN has also scheduled an emergency 
meeting of its board of directors next week to review 
the situation.  Meanwhile, according to Consulate 
Lagos, Halliburton has requested the major oil company 
managing directors to weigh in on its behalf.  In this 
vein, Caulier disclosed to Ambassador that HESN has 
asked Obasanjo's Energy Advisor Daukoru, NNPC Managing 
Director Kupulokun, and Vice President Atiku to assist 
in reversing the order that HESN re-export all of its 
radioactive sources within thirty days.  Caulier went 
on that if the order is not rescinded or if HESN does 
not receive a waiver from NNRA by October 10, HESN 
will begin to ship these items out of Nigeria at that 
time. 
 
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Is Returning the Sources Good Enough? 
Or Is it Too Little, Too Late? 
------------------------------------- 
 
6. (C) Ambassador asked Caulier what points would 
Halliburton's CEO Lesar make to Obasanjo should the 
two meet next week. Caulier said Lesar would probably 
try to give Obasanjo the full story of behind the 
return of the stolen radioactive substances to 
Houston, as well as to explain to him the consequences 
of Halliburton's withdrawal from Nigeria.   Ambassador 
replied that underscoring the number of jobs that 
could be lost (880 in all, 750 Nigerians), the decline 
in foreign investment ($100 million) that could occur, 
and the loss of related future tax revenue that would 
ensue, as well as the damper that such action would 
put on future investment are all considerations that 
Obasanjo might weigh seriously. 
 
7. (C) In reply to the Ambassador's question, Caulier 
said  he thinks the GON is pressing this issue in 
order to use it as leverage in unrelated discussions 
with the USG, for example, debt forgiveness or because 
the GON lost face as a result of the unauthorized 
return of the stolen radioactive sources to Houston 
and hence wants to regain its self-respect.  He 
explained that Halliburton had not worked with the GON 
in its early efforts to find and retrieve the stolen 
materials.  When found in Germany early in the year, 
Halliburton USA was notified by its office in Germany, 
which arranged for the items to shipped to Houston two 
days before a Nigerian delegation arrived in Germany 
to take possession of the items. (Comment. Obasanjo's 
Energy Advisor Daukoru told Econ Counselor September 
24 that Germany's and Halliburton's action "infuriated 
Obasanjo" inter alia because the Nigerian delegation 
had comprised the Attorney General, the Minister of 
Foreign Affairs, and the Director of the NNRA.  End 
comment.) Caulier affirmed, however, that Halliburton 
had invited the GON to inspect the source material in 
Houston in February, without success. 
 
8. (C) Caulier went on that if the decision calling on 
the HESN to re-export its radioactive sources were to 
be reversed, HESN would push for quick issuance of the 
import licenses that would allow Halliburton to ship 
the sources to Nigeria. In that event, Caulier said 
HESN would permit the radioactive source container to 
be presented as evidence in court against the several 
individuals who will be prosecuted for theft, provided 
that the source material can be safeguarded. 
 
--------------------------------------------- 
Finger-Pointing Begins, Starting With The USG 
--------------------------------------------- 
 
9. (C) Maybe because HESN is seeking USG intervention, 
Caulier said nothing to the Ambassador on September 24 
about HESN's views regarding past USG involvement, if 
any, in the recovery of the stolen radioactive 
sources.  His colleague Mills, however, told Consulate 
Lagos on September 22 that the "U.S. statement that it 
was not up to Halliburton to decide what to do with 
the sources," following their recovery in Germany, had 
not been helpful.  He further implied the USG had 
somehow delayed Halliburton's ability to return the 
sources promptly to Nigeria.  Citing the timing of the 
GON decisions (right before President Obasanjo's trip 
to the U.S.), Mills also wondered whether Obasanjo 
might be using Halliburton to "get something" from the 
USG. 
 
10. (C) Ambassador summarized the discussion by noting 
that it was hard to come to grips with the issue, in 
part because so much that has been said is unofficial. 
He repeated Caulier's assertion that the spate of 
anti-Halliburton articles in the Nigerian press may 
have been encouraged by the GON to advance its case. 
He advised Caulier that forward movement will hinge on 
the willingness of Halliburton to cooperate with the 
GON.  Halliburton should also highlight the adverse 
consequences of its being compelled to withdraw from 
Nigeria.  Lastly, Halliburton should work to improve 
its public image in Nigeria.  Caulier noted these 
points and said he will work closely with the Embassy 
and Consulate to right the situation. 
 
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Comment 
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11. (C) Consulate Lagos understands that when the GON 
initially requested that Halliburton return the 
sources to Nigeria, the firm replied that it would do 
so if the GON granted it additional import licenses. 
Should that be true, Halliburton clearly mishandled 
the matter.  HESN's previous tax liability and its and 
KBR's alleged bribery issues further complicate the 
matter. If this were not enough, Halliburton has 
submitted to the U.S. and Nigerian Justice departments 
its notes on the LNG affair.  We understand that these 
notes may implicate several prominent Nigerian 
politicians and businessmen, though not the key 
players involved in this affair--the President, the 
Attorney General, and the Director General of the 
NNPC.  Just when it needs all the friends it can 
muster, Halliburton is about to engender a long list 
of enemies who would just as soon see Halliburton exit 
the Nigerian market.  We need to weigh carefully any 
advocacy steps we may take on Halliburton's behalf 
given the complexity of the issues involved. 
 
 
CAMPBELL