Cablegate: Nigerdock: Story of a Privatization

Published: Tue 27 Nov 2001 01:37 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A
1. (SBU) Summary: The case history of Niger Dock, the first
such privatization to feature an American firm, highlights
the internal GON rivalries and other obstacles that
privatization faces in Nigeria. Just when the issue seemed
settled, and J. Raymond McDermott, Inc. (JRM), had won the
Niger Dock bid with Global Electric Corporation, a new fly
flew into the ointment as JRM withdrew its promise to become
an equity partner. The latest developments of that situation
will be dealt with in detail in a separate cable. End
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Privatization Gameplan for Niger Dock
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2. (U) When the GON rolled out its initial privatization
plan in 1998, the government's sole shipbuilding company
Niger Dock Nigeria, Ltd. was among the companies slated for
privatization during Phase II of the Bureau of Public
Enterprise's anticipated privatization program. Established
in 1986 by the GON as Nigeria's preeminent shipbuilding and
ship repair facility, Niger Dock had become a leading West
African shipbuilder. However, its fortunes degenerated
dramatically as a result of chronic mismanagement. Still,
many observers believe a privatized Niger Dock can return to
3. (SBU) Despite numerous hiccups, Phase II remains on
track. Yet Niger Dock's own privatization has not failed to
generate extensive internal divisions within the GON, which
in turn has transmitted diverse and confusing signals to
potential investors.
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High Drama Trails the Privatization Bid
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4. (U) Niger Dock's privatization has been dogged by high
drama among the various GON agencies involved in its
privatization. On October 25, 2001 the BPE published the Bid
Evaluation Criteria on approval by the National Council on
Privatization (NCP.) According to the BPE privatization plan,
the tender winner will own 51 percent of the company, the GON
will retain 20 percent, while the remaining 29 percent would
be sold to the general public.
5. (SBU) On October 31, just days before the final winner
was to be announced, Nigerdock management -- also a bid
contender as part of the Navimor International/Stolt Offshore
joint venture -- withdrew its 2000 audited accounts already
submitted to the BPE, claiming errors had been spotted in the
audited accounts. Some observers viewed this development as
a ploy to delay the bid opening since Navimor International
had privately indicated its intention to withdraw from the
bid. The National Council for Privatization (NCP) authorized
the BPE to go ahead with the bid awards.
6. (SBU) Undeterred, BPE went ahead with the bid round since
Global Energy Company/J. Ray McDermott, as well as Stolt
Offshore, expressed willingness to continue with the bid. In
support, the NCP ruled in favor of BPE and gave its nod to
commence the bidding. Six serious contenders, including West
African Shipyards Limited/Spring Fountain (a Niger Dock
Management Buyout); Navimor International/Stolt offshore; and
Global Energy Company(GEC)/J. Ray McDermott, submitted
financial bids.
7. (SBU) When bids were opened November 9, the Global
Energy Company (a Nigerian oil and gas firm)/J. Ray
MacDermott partnership was the winner with a bid of N3.4
billion (USD 32 million). According to BPE advisors, the
only other serious contender was Stolt/Navimor who had
virtually withdrawn its bid between the first and second
rounds. The only reason Stolt maintained its bid, according
to the BPE advisor, was because McDermott's bid remained
higher than its own. The reasons behind Stolt's disinterest
are not known.
8. (SBU) Almost immediately after the award was announced,
Transport Minister Ojo Maduekwe sought to reverse the bid
process. Under his name, advertisements were placed in the
local press claiming that since Niger Dock was under probe by
a judicial commission, privatization of the company could not
proceed. (In 2000, President Obasanjo had set up a judicial
commission to look into the affairs of the company since
2000. This led to the dissolution of its previous board and
the suspension of Niger Dock's previous Chief Executive.)
BPE challenged the Minister's assertion. BPE's helmsman
Nasir El-Rufai postulated that since the Judicial Commission
was looking only into past activities, their findings in no
way could corrupt the privatization process.
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McDermott Stands Down on Niger Dock, at Least for Now
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9. (SBU) Enter another fly into the Niger Dock ointment. On
November 20, el-Rufai briefed Ambassador Jeter on the
decision of J. Ray McDermott not to commit equity
participation with GEC at this time, a message crafted on
November 8 but undelivered to the BPE until after the bid
award had been announced. In its message to GEC, McDermott
indicated it agreed to remain a technical partner and provide
capital equipment for Niger Dock capacity improvements.
McDermott also kept the door open for increasing its
participation in the near future. The BPE chief believed the
complexion of the GEC/McDermott bid had been altered
substantially by the McDermott decision. He feared this late
change in the partnership arrangement jeopardized the entire
Niger Dock bid process, and would give the upper hand to
those who did not want Niger Dock privatization to proceed.
(For more detail on the Ambassador's meeting with el-Rufai,
see septel.)
10. (SBU) McDermott management confirmed to USDOC that
although the company still had a strong interest in Nigerdock
and was committed to provide significant technical and
infrastructure support, corporate approvals for providing a
50/50 equity split with GEC for the project had not yet been
forthcoming. Such technical participation, McDermott
believed, was allowed under the draft sales and purchase
agreement between GEC and the GON. GEC had already secured
bank financing. And corporate buy-in at some level up to 50
percent could be obtained as early as the first quarter of
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