US embassy cable - 02ABUJA2884

UNCLAS SECTION 01 OF 02 ABUJA 002884 
 
SIPDIS 
 
 
STATE FOR AF/W, AF/EPS 
 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EINV, ETRD, NI 
SUBJECT: NIGERIA: ECONOMIC ROUNDUP CABLE 
 
 
REF: A. ABUJA 2768 
     B. ABUJA 2626 
     C. ABUJA 2567 
 
 
1. This periodic economic report includes: 
--Dutch Auction Holds Naira Steady 
--Supplemental Budget Withdrawn 
--IMF and GON begin Article IV Consultations 
--Hotels' Privatization in Jeopardy 
--Business Opportunities for U.S. Firms in Lagos State 
--Nigeria to sign Paris Club Debt Agreement with U.S. by 
November 
 
 
Dutch Auction Holds Naira Steady 
-------------------------------- 
2. At the Central Bank's latest Dutch Auction, held October 
15, the Naira traded at between 127 and 128 to the dollar, 
consistent with weeks previous and about a 5 percent 
depreciation from before the auction was introduced in July 
2002, when it traded at about 121 (Ref. B). Central Bank 
Deputy Governor for Policy Ernest Ebi told econoffs last week 
that bank management is pleased with how the Dutch Auction 
System (DAS) has operated to date, claiming that the 
differential between the DAS-determined exchange rate and the 
parallel market has now narrowed to less than 8 percent. 
Meanwhile, Chief Economic Advisor to the President Magnus 
Kpakol recently commented that "the differential was 
practically zero." Comment: Our calculations, based on a 
parallel market rate of 137.5 naira/dollar, indicate that the 
differential is closer to 9 percent, still a decent rate of 
return for those with access to dollars at the official rate 
who would then sell them at the parallel market rate. End 
comment. 
 
 
Supplemental Budget Withdrawn 
----------------------------- 
3. On October 9, President Obasanjo withdrew the 236 million 
naira (almost $2 billion) budget request that he had 
submitted to the House of Representatives on September 22 
(Ref. A). Comment: We believe that the President introduced 
the supplemental budget to entice lawmakers to give up their 
impeachment efforts against him. With lawmakers still 
unwilling to do so, Obasanjo decided to withdraw the carrot. 
End comment. 
 
 
IMF and GON begin Article IV Consultations 
------------------------------------------ 
4. An IMF team was in Abuja from October 9 to 17 to conduct 
annual (the last were concluded in April 2001) Article IV 
Consultations with the GON. The team will review the GON's 
macroeconomic policy framework since it pulled out of an 
informal monitoring agreement with the IMF in April 2002 
(septel). 
 
 
Hotels' Privatization in Jeopardy 
--------------------------------- 
5. Abuja African Properties Limited, winning bidder in the 
GON's privatization of the NICON Hilton Hotel, was to have 
paid $61.7 million by September 27 to the Bureau of Public 
Enterprises (BPE), while Hans Gremlin Nigeria Limited had 
until October 4 to come up with $34 million for its winning 
bid for the Abuja Sheraton Hotel and Towers. BPE officials 
have confirmed press reports that they have extended the 
payment deadlines to October 21 for Abuja African Properties 
and October 28 for Hans Gremlin Nigeria because both 
companies were unable to secure enough foreign exchange (BPE 
will not accept naira) to finance the transaction.  They 
predict that Hans Gremlin Nigeria will be able to put 
together the financing, but say that Abuja African Properties 
will not be able to put together financing. 
 
 
6. Meanwhile, the Abuja Federal High Court has issued a 
temporary restraining order barring the sale of the NICON 
Hilton Hotel pending the resolution of a suit filed by the 
employees of Nicon Insurance (the parastatal insurance 
company that owns the hotel property) against the BPE and 
other government agencies. The plaintiffs claim that the sale 
would diminish the security offered to policyholders because 
NICON Insurance would lose an asset while the proceeds from 
the sale would belong to the BPE. 
 
 
Business Opportunities for U.S. Firms in Lagos State 
--------------------------------------------- ------- 
7. The Governor of Lagos State is pursuing development plans 
that may benefit U.S. firms. Folorunsho Falarin-Coker, the 
Governor's personal assistant, told econoffs on October 11 
that he and the Governor plan to go to Washington in November 
to pursue talks on the rehabilitation of the Lagos State 
water supply and rail transport systems. Falarin-Coker said 
the Governor wants to privatize the water supply system but 
must first invest state money to upgrade the system to meet 
the populations immediate water needs. The Governor is also 
holding talks with VW Brazil and Volvo for the purchase of 
busses for use in Lagos. Falarin-Coker said the Governor 
might be willing to engage in discussions with USTDA 
regarding a feasibility study for the establishment of a 
metropolitan bus authority, which a private operator might 
help set up, operate, and transfer. 
 
 
8. Probably in an attempt to show that the Governor is 
serious about business, Falarin-Coker said that the Governor 
opposes debt relief. He reportedly told World Bank officials 
in Washington earlier this month that Nigeria should pay the 
debt it owes and "get on with business." Falarin-Coker said 
the Governor favors a break up of Nigeria's national 
telecommunications company, NITEL, and recommends that the 
utility be restructured along state or regional lines. Such a 
development, if it were to come about, might generate 
opportunities for U.S. firms. 
 
 
Methanol Processing Plant Proposed Near Lagos 
--------------------------------------------- 
9. Eurochem Technologies Corporation Ltd. of Singapore and 
local partners are building a methanol processing plant on 
Lagos' Lekki Peninsula. When operational, it is expected that 
the project will utilize approximately 220 million cubic feet 
of gas, currently being flared, to produce the methanol, 
which will eventually be feedstock for the production of 
polyethylene and polypropylene--both used in the production 
of plastics. The facility is expected to serve as a hub for 
other petrochemical industries in the downstream oil sector. 
Ancillary infrastructure to be constructed will include a 
seaport and other petrochemical manufacturing plants that 
would utilize the feedstock. Annual export revenues of $350 
million are being estimated. The project is being 
financed--at least partially--through the ongoing debt 
conversion scheme, involving purchase of the country's 
external debt from creditors, presumably at some discount, 
and selling it back to the debtor at a favorable rate. 
 
 
Nigeria to sign Paris Club Agreement with U.S. by November 
--------------------------------------------- ------------- 
10. Director General of the Debt Management Office (DMO) Akin 
Arikawe told the Ambassador that the U.S.-Nigeria bilateral 
Paris Club debt agreement will be signed by November. Arikawe 
also told emboffs that Nigeria 
was close to agreement with the United Kingdom on nearly $6 
billion in bilateral debt. He said that the debt is to be 
paid over eight years and the interest rate charged is 4.6 
percent. 
JETER