Cablegate: Nigeria:Economic Roundup Cable

This record is a partial extract of the original cable. The full text of the original cable is not available.

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

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