US embassy cable - 05LAGOS1063

UNCLAS SECTION 01 OF 02 LAGOS 001063 
 
SIPDIS 
 
STATE PLEASE PASS FCC 
 
E.O. 12958: N/A 
TAGS: ECPS, ECON, EINV, NI 
SUBJECT: THE ONGOING NITEL - PENTASCOPE SCANDAL 
 
 
1. (U) Summary: Privatization of the Nigerian 
Telecommunications Ltd. (NITEL) has faltered for the 
second time.  Amid great controversy, the GON fired the 
Dutch management company, Pentascope, appointed to 
shepherd the process. Though the GON terminated the 
Pentascope contract in March 2005, the matter still 
captures headlines, National Assembly members continue 
to target the combative former Bureau of Public 
Enterprises (BPE) boss   and current Minister of the 
Federal Capital Territory, Nasser El-Rufai.  Back to 
the drawing board, the BPE is reviewing potential 
investors in hope of selecting a core investor by 
September 2005. Experts say a privatized NITEL possibly 
could compete in certain "core services," such as rural 
telephony, international gateways, fixed lines and data 
support. However, having missed the GSM boat, NITEL 
would be swimming against the current in an attempt to 
capture a share of the lucrative and expanding GSM 
market. End summary. 
 
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NITEL Privatization: Two Strikes, But Still in the 
Batter's Box 
--------------------------------------------- ----- 
 
3. (SBU) NITEL privatization looked close in 2001 until 
the highest bidder, Investors International London 
Limited (IILL) was unable to cover its bid.  In a quick 
move "to save face," the BPE signed a management 
contract with Pentascope in 2003.  Critics claim the 
selection process was flawed while the BPE claims it 
selected the best of 14 companies that included: 
China's Netcom, India's BSCNL/TCIL and the 
multinational consortium, Africa Access/BT Teleconsult. 
 
4. (SBU) Ken Igbokwe, Managing Partner, 
PricewaterhouseCoopers (PWC) Nigeria, told us TCIL was 
the best in PWC's assessment but Pentascope was also a 
commendable choice.  However, members of the House 
committee on telecom and the existing NITEL board 
wanted a non-Indian company and thus selected 
Pentascope. 
 
5. (U) Beyond the controversy over its selection 
Pentascope stands accused of running NITEL aground, and 
of funding recurrent expenditures, including staff 
salaries, from monthly bank overdrafts. Critics say in 
the two years of Pentascope management, NITEL, lost 
naira 100 billion.  The BPE counters that losses are 
attributable to its constant loss of market share to 
private telecom operators and GSM operators.  The BPE 
also notes that Pentascope was saddled with large debts 
previously incurred by NITEL, such as a USD 200 million 
debt to ZTE, Motorola and Ericsson. 
 
6. (U) NITEL Lagos Zone officer, Ig Nwangwu, confirmed 
NITEL is not in great shape.   A 250,000-line expansion 
plan has been outstanding since early 2004. However, 
since 2001, functional lines have declined from 455,000 
to 288,000.   Efforts are being made to restore lines 
but funding is lacking. 
 
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Political Undertones to the Controversy 
--------------------------------------- 
 
7. (SBU) Some observers allege that political vendettas 
have caused this alleged mismanagement to deteriorate 
into a scandal that will not go away.  Igbokwe of Price 
Waterhouse Coopers (PWC) said beleives President 
Obasanjo approved the investigation into Pentascope to 
needle VP Atiku, who purportedly has a financial stake 
in Pentascope. Some claim the Vice President, who as 
Chair of the National Council of Privatization, 
influenced El-Rufai's decision to grant Pentascope the 
management contract. Moreover, El-Rufai is in the 
doghouse with some National Assembly members because he 
accused two Senators of attempted bribery. 
 
8 (SBU) New BPE boss, Irene Chigbue also referred to 
"political obstacles" in NITEL's privatization. 
However, Chigbue said the BPE is forging ahead: 
"Getting it right this time around should put an end to 
the controversy."  Chigbue added trying to put NITEL on 
better footing before privatizing, is "throwing good 
money, after bad."  The best thing is to sell as-is, 
which the BPE plans to do before 2007. 
 
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NITEL: Is it viable? 
-------------------- 
 
9. (U) Communications Minister, Cornelius Adebayo, 
recently declared that a privatized NITEL, leveraging 
available infrastructure and network backbone, would 
put up a good fight to regain its market share. An 
industry operator, Dirk Smet of Starcomms agrees that a 
repackaged NITEL could be a formidable competition in 
the telecom market, if it focuses on core services like 
international gateway, fixed line and data support. 
NITEL recently launched its wholesale IP product, which 
will provide NITEL users guaranteed bandwidth to the 
worldwide Internet via the SAT-3 cable. 
 
10. (U) Comment: The GON has failed to privatize its 
major utility companies (telecom, power, oil and gas). 
This has buttressed accusations that it lacks the 
political will wrestle the vested interests linked to 
these parastatals. Given the GON's checkered history in 
perfecting sales of these major utilities and NITEL's 
chronic impuissance and dwindling market share, a 
stampede of potential investors is highly unlikely. The 
BPE will be hard-pressed to "get it right this time" by 
conducting a competent bidding process that ends in the 
selection of a competent and financially capable 
investor. It remains to be seen whether the GON lives 
up to the BPE's pledge to "get it right this time". 
 
BROWNE