US embassy cable - 02ABUJA2768

UNCLAS SECTION 01 OF 03 ABUJA 002768 
 
SIPDIS 
 
 
SENSITIVE 
 
 
DEPT FOR AF/W, AF/EPS 
 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ELAB, EAIR, PGOV, NI 
SUBJECT: NIGERIA:ECONOMIC ROUNDUP CABLE 
 
REF: A) ABUJA 2567, B) 01 ABUJA 997 C) LAGOS 1870 
 
 
SUBJECT: ECONOMIC ROUNDUP CABLE 
 
 
1. This periodic U.S. Mission Economic Report 
includes: 
-- Nigeria's Debt Management Office Ready to Sign 
Bilateral Paris Club Agreement 
-- President Sponsors Bill to Give States Offshore Oil 
Revenue 
-- Supplemental Budget Bill Has Little Chance of 
Passage 
-- NITEL to Face Competition in Telecom Sector 
-- Oil Workers Strike Causes Short-lived Gasoline 
Shortages 
-- Nigeria Airways: Sold or Not Sold? 
 
 
GON CLOSE TO SIGNING USG BILATERAL DEBT ACCORD 
--------------------------------------------- ------- 
 
 
2. (SBU) According to Nigeria's Debt Management Office 
(DMO), the GON is close to signing the bilateral Paris 
Club debt accord with the USG.  DMO Director General 
Akin Arikawe told Econoffs the agreement needed the 
approval of the Federal Executive Council (FEC), and 
predicted FEC assent by late October.  Because Arikawe 
and many key players from the Central Bank and 
Ministry of Finance will be in Washington in early 
October, there may be an additional delay in 
finalizing the agreement.  We think mid-November may 
be a more likely.time-frame for the signing ceremony. 
 
 
PRESIDENT SPONSORS BILL TO GIVE STATES OFFSHORE OIL 
REVENUE 
--------------------------------------------- --------- 
----- 
 
 
3.  (U) In early September, President Obasanjo 
submitted a bill to the Senate (but not to the House 
of Representatives, according to the Speaker's office) 
defining the contiguous offshore zone of a state--for 
revenue sharing purposes--as part of that state.  As 
such, offshore oil revenue would be calculated as part 
of the derivation fund (Ref B).  In essence, the bill 
would restore the states bordering the Gulf of Guinea 
to the status quo prior to the April 5, 2002 Supreme 
Court ruling that offshore resources were not part of 
the territory of individual states.  That decision 
took away the 13 percent of revenues that states with 
oil and gas facilities in adjacent water had been 
receiving. 
 
 
4. (SBU)  Comment: The new resource allocation bill 
has been depicted by the media as a conciliatory 
gesture toward the South-South to retain support for 
the executive in the upcoming elections.  While the 
bill may have some support in the Senate, getting it 
through the House may be more arduous given the 
stronger opposition to Obasanjo in that Chamber. 
Another complication is that passage of the bill will 
require members from non-oil producing States to 
forego the additional revenue their states and the 
Federal Government gained at the expense of these 
maritime states.  Prospects are further complicated by 
the nature of the legislative fix proposed.  Many 
constitutional experts believe the two-paragraph 
proposal to redefine offshore production as onshore 
production would not pass court review.  They argue 
that the Supreme Court has ruled definitively on the 
issue, and to change the effect of the ruling requires 
a constitutional amendment, with the requisite but 
unlikely approval of two-thirds of the State 
legislatures.  End comment. 
 
 
SUPPLEMENTAL BUDGET: "A NON-ISSUE" FOR LEGISLATORS 
--------------------------------------------- ----- 
 
 
5. (U) On September 10, President Obasanjo submitted a 
236 billion Naira (almost USD $2 billion) supplemental 
budget to the National Assembly.  The budget included 
21 billion Naira in spending on recurrent items, 92 
billion Naira on capital projects and 124 billion 
Naira on external debt service. 
 
 
6. (SBU) Introduced on the heels of impeachment 
charges tin the National Assembly based in part on the 
accusation that Obasanjo had failed to implement the 
2002 budget, the supplemental budget has not been well 
received by lawmakers in Abuja.  Several House members 
told Emboffs that the supplementary budget will not 
pass. One quipped, "It is a non-issue." He added that 
maybe one or two items might get through, particularly 
additional funding for the Independent National 
Electoral Commission (INEC), but that the rest are 
repackaged unimplemented items from previous budgets. 
Lawmakers also said that there was no need for a 
supplementary budget with the President due to present 
the 2003 budget to the National Assembly within a 
month.  One noted that even if a supplemental budget 
were passed, they had little confidence that it would 
be implemented. 
 
 
GON TO SELL TRACTOR, TRUCK, NEWSPRINT, AND SUGAR FIRMS 
--------------------------------------------- --------- 
 
 
7. (SBU) Despite the failure of core investors to 
raise needed funds for the privatization of NITEL in 
March 2002 and the shipbuilding company Nigerdock in 
August 2002, the Bureau of Public Enterprise (BPE) is 
moving forward with the sale of four more state-owned 
enterprises.  The BPE has invited qualified core 
investors to bid on the 51 percent controlling 
interest in the Bauchi tractor and equipment 
manufacturer, Steyr Nigeria Limited; the Kano truck 
assembler, National Trucks Manufacturers Limited; the 
Savannah Sugar Company in Adamawa State; and the 
Nigerian Newsprint Manufacturing Company in Akwa Ibom 
State.  The 49 percent balance of the government's 
equity in each firm is to be sold subsequently on the 
Nigerian Stock Exchange. 
 
 
8. (SBU) BPE claims that National Trucks can produce 
7,000 trucks and 3,000 tractors in a year and Steyr, 
8,000 trucks, 2,000 tractors, and 500 generators. 
Savanah Sugar is reported to own 30,000 hectares of 
land (12,000 arable), with claimed output of 100,000 
metric tons of sugar annually, while Nigerian 
Newsprint has capacity to produce 100,000 metric tons 
of newsprint per year. All four companies are in poor 
financial shape and have been operating at below their 
stated capacity for years. 
 
 
9. (C)  Comment:  Little income is expected from the 
sale of these four firms.  Nevertheless, their 
successful sale would be important for restoring 
political momentum for privatization after the NITEL 
and NigerDock sales fell through.  End comment. 
 
 
NITEL TO FACE COMPETITION IN TELECOM SECTOR 
------------------------------------------- 
 
 
10. (U) On August 30, 2002, the Nigerian 
Communications Commission (NCC) approved Globalcom 
Limited's National Operator license to operate as a 
national carrier with digital mobile, international 
gateway, and fixed wireless services.  Globalcom, a 
local firm headed by Lagos businessman Chief Mike 
Adenuga, was the only bidder out of four to pay the 
nonrefundable deposit of $20 million by the August 6 
deadline.  On August 12, Globalcom paid an additional 
$180 million to the NCC to meet the $200 million price 
of the license. 
 
 
11. (SBU) Comment: Globalcom's entry into the 
telecommunications sector, especially after its much 
publicized exclusion from the GSM (cellular) market, 
should bring much-needed competition to NITEL. 
Competition has already brought price cuts in the 
wireless sector.  Prices remain high by international 
standards, however, not because the GSM tariffs are 
high - they in fact are below international averages - 
but because the interconnectivity charge with NITEL is 
six times the world average.  This major problem 
demonstrates a need to strengthen the Nigerian 
Communications Commission (NCC) as an effective 
regulator capable of enforcing minimum standards of 
service - a point with which even some NITEL officials 
are privately in agreement.  Meanwhile, the draft 
national telecommunications law, which would go a long 
way toward accomplishing this, languishes in the 
National Assembly.  End comment. 
 
 
OIL WORKERS STRIKE CAUSES SHORT-LIVED GASOLINE 
SHORTAGES 
--------------------------------------------- --------- 
 
 
12.(U) PENGASSAN, Nigeria's white collar oil and gas 
workers union, and the blue-collar Nigerian Union of 
Petroleum and Natural Gas Workers (NUPENG), held a 
one-day "warning strike" on September 23 to protest 
the planned privatization of the Nigerian National 
Petroleum Corporation (NNPC).  Oil tanker drivers 
(affiliated with NUPENG) stopped transporting gasoline 
from September 20-23. The strike had been scheduled to 
last through Tuesday, September 24, but was called off 
a day earlier following the reported intervention of 
Minister of Employment and Productivity Alhaji Musa 
Gwadabe. 
 
 
13. (U) In Lagos, most gasoline stations had 
sufficient reserves to continue pumping gasoline 
during the strike, though some refused to do so for 
fear of NUPENG reprisals. In other parts of Nigeria, 
the impact was more severe, some lines at the pumps 
reaching more than one kilometer. We have heard no 
report of violence associated with the strikes and, as 
of September 25, lines at fuelling stations were 
returning to normal. 
 
 
NIGERIA AIRWAYS: SOLD OR NOT SOLD? 
---------------------------------- 
 
 
14. (SBU) The future of Nigeria Airways and its 
international routes remains unclear as newly-minted 
Air Nigeria failed to assume the New York-Lagos route 
on September 19 (reftel C).  Minister of Aviation Kema 
Chikwe had announced sale of 49 percent of Nigeria 
Airways to London-based Airwing Aerospace Limited 
(AAL) provoking an angry reaction from the Bureau of 
Private Enterprises (BPE), which had plans to sell the 
heavily indebted company.  What ensued was an 
acrimonious public exchange between the Minister and 
BPE Director General Nasir El-Rufai. The Presidency 
named a five-person committee headed by the Vice 
President to find a way for the two sides to reach a 
compromise. 
15. (SBU) Comment: Minister Chikwe's AAL deal was 
unusual to say the least.  The Ministry of Aviation, 
not the Federal Government of Nigeria, holds the 
controlling 51 percent of the new Air Nigeria.  AAL is 
company with no known experience running an airline. 
AAL planned to begin Air Nigeria by contracting 
Singapore Airlines to handle New York-Lagos flights on 
a wet lease.  As noted in reftel C, this would not 
have been possible on September 20 as contracted as 
neither AAL nor the Ministry of Aviation had taken 
necessary administrative steps for the new company to 
begin U.S. operations.  Both Chikwe and El-Rufai 
reportedly got the word from Aso Rock to cool their 
rhetoric.  The sale remains in limbo and may not be 
sorted out until after the elections. 
 
 
JETER