US embassy cable - 05LAGOS537

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000537 
 
SIPDIS 
 
STATE PLEASE PASS TO USTR 
 
E.O. 12958: DECL: 04/08/2015 
TAGS: ENRG, ECON, ECPS, EWWT, EINV, PINR, NI 
SUBJECT: NIGERIA ECONOMIC UPDATE, MARCH 2005 
 
Classified By: Consul General Brian Browne for reasons 1.4 (b) and (d) 
 
1. (SBU) Summary: The GON's privatization program may 
accelerate as a result of the power sector reform bill signed 
into law March 11, and the new Maersk operating concession of 
the Apapa (Lagos) port container terminal.  The GON has also 
contracted the Italian firm, Grimaldi Group, to build a USD 
60 million port terminal in Lagos.  However, doubts remain 
about the political will to conclude sales of key public 
enterprises like NITEL.  The recent sacking of NITEL's Dutch 
managers, Pentascope BV, who, the GON claims, has retarded 
NITEL's privatization, has been attributed to a political 
vendetta against Nigeria's Vice President, a purported ally 
of the Dutch firm.  At the Nigerian American Chamber of 
Commerce annual Businessman's Day, Ambassador Campbell gave 
a no-nonsense speech urging further economic reform in order 
to spur trade and investment. End summary. 
 
2. (U) This economic update includes: 
 
-- Power Sector Reform Bill Signed 
-- Ports Concession Update 
-- Political Undertones of Pentascope's Sacking 
-- U.S.P.S. Money Order Counterfeiters Arrested 
-- Ambassador Campbell Addresses Chamber of Commerce 
 
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Power Sector Reform Bill Signed 
------------------------------- 
 
3. (U) On March 11, President Obasanjo signed the power 
sector reform bill to privatize the National Electric Power 
Authority (NEPA).  The new law may speed up the unbundling 
of NEPA into 18 companies comprising generation, transmission 
and distribution companies.  The law will permit the 
establishment of a Nigerian Electricity Regulatory Commission 
to regulate the companies to be created from the unbundling 
process, and the future private power providers yet to be 
licensed. 
 
4. (C) If properly implemented, the law is expected to 
encourage investment in existing or new independent power 
plants (IPPs).  IPPs will now be allowed to sell electricity 
to NEPA, other IPPs, and directly to consumers.  IPPs such as 
the Ibom power project (Akwa Ibom State), the AES Barge 
(Lagos), and the NNPC-Agip IPP (Kwale-Okpai), will no longer 
have to sell their power to NEPA through power purchase 
agreements.  (Comment: NEPA's unreliable power supply is a 
main reason for Nigeria's private sector non-competitiveness, 
since business firms generally depend on expensive electric 
generators for power supply.  The law gives some hope that 
Nigeria has taken a step toward addressing the systemic 
deficiencies in the national power grid.  However, this will 
be a long process that cannot be resolved quickly.  This 
process will take years. End comment.) 
 
----------------------- 
Ports Concession Update 
----------------------- 
 
5. (U) In line with plans to privatize Nigeria's ports, the 
Government of Nigeria (GON) signed a memorandum of 
understanding with Grimaldi Group (Italy) for construction of 
a port terminal at Tin Can Island (Lagos).  The GON also 
selected AP Moller SA (Denmark) as concessionaire of the 
Apapa Port's main container terminal (Lagos). 
 
6. (SBU) Grimaldi is expected to complete the USD 60 million 
terminal in 18 months and to manage it for 25 years.  A 
Grimaldi representative told us the firm aims to complete the 
project ahead of schedule.  He added the company wants to 
ensure it recovers costs early enough to hedge against policy 
changes that might affect its investment. (Comment: Though 
the concessioning process seems to be on track, the National 
Assembly has declared the exercise illegal, since it has yet 
to pass a law that explicitly authorizes the program. End 
comment.) 
 
----------------------------------------- 
Political Undertones of Pentascope's Sack 
----------------------------------------- 
 
7. (U) The GON recently terminated the management contract 
between the Nigerian Telecommunications Limited (NITEL) and 
the Dutch company, Pentascope BV, alleging the latter's 
incompetence in meeting the target date set for NITEL 
privatization.  The early termination came amid allegations 
of political backstabbing among NITEL, Pentascope, and the 
GON. 
 
8. (C) Ken Igbokwe, a Managing Partner of 
PricewaterhouseCoopers (PWC) Nigeria, the firm that 
recommended Pentascope to the Bureau of Public Enterprises 
(BPE), has alleged the Nigerian legislature's preoccupation 
with management contract reflected a political vendetta rather 
 than a business decision.  Central to the alleged vendetta 
is the belief that Vice President Atiku Abubakar had a stake 
in Pentascope and had used his influence with Nasir el-Rufai, 
a former BPE boss and now minister of the Federal Capital 
Territory, for the contract to be given to Pentascope. 
According to Igbokwe, bad relations between President 
Obasanjo and the Vice President, and between the Legislature 
and el-Rufai, led to the political machinations over 
Pentascope, to the detriment of NITEL's privatization.  Due 
to animus for his Vice President, Obasanjo backed the 
investigation of Pentascope despite the attendant cost of 
significantly delaying NITEL's privatization, asserted 
Igbokwo. 
--------------------------------------------- ----------- 
Other News: U.S.P.S. Money Order Counterfeiters Arrested 
--------------------------------------------- ----------- 
 
9. (SBU) Together with the U.S. Legal Attache's and FBI office 
 in Nigeria, Nigeria's Economic and Financial Crimes 
Commission (EFCC) uncovered a counterfeit U.S. Postal 
Service (USPS) money order ring.  During an investigation 
conducted in March, the Nigerian police arrested three 
persons in possession of 120,000 blank counterfeit USPS 
money orders, the potential value of which was USD 1.2 
million.  In a second independent investigation, the EFCC 
raided a house in which the EFCC discovered fake USPS money 
order printing plates.  The EFCC is looking into whether the 
two incidents are linked.  Interpol also recently arrested 
persons possessing counterfeit USPS money orders.  Blank 
money 
orders are sold for between naira 1000 (USD 8) and naira 3000 
(USD 23) on the Nigerian black market. 
 
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Ambassador Campbell Addresses Nigerian-American Chamber of 
Commerce 
--------------------------------------------- ------------- 
 
10. (U) Ambassador John Campbell presented a well-received 
keynote address March 31 about the challenges facing U.S. 
investors in Nigeria at the Nigerian-American Chamber of 
Commerce's Businessmen's Day 2005.  Speaking on the 
"Nigerian-American Trade and Investment Relationship: 
Opportunities and Challenges," the Ambassador told the 
200-plus audience that improvements must occur in three 
areas in order for U.S. companies to invest more in Nigeria: 
1) better security of personnel and property, now threatened 
by oil bunkering, kidnappings, personal violence, and 419 
financial fraud scams; 2) reliable and robust public and 
private institutions that promote good governance and the 
rule of law; and 3) improved micro- and macroeconomic 
fundamentals, such as interest rates, exchange rates, and 
labor costs, to raise Nigeria's production competitiveness. 
Among the attendees were Lanre Balogun, Lagos State 
Commissioner of Commerce and Industry; Bode Sumonu, Chief 
Advisor to Ondo State Governor on Investment and Financial 
Matters; and Chief I.O. Dada, National President, Nigerian- 
American Chamber of Commerce. 
BROWNE