DEBT SWAP FOR ENVIRONMENT CLEANUP INITIATIVE

UNCLAS SECTION 01 OF 02 ABUJA 001374

SIPDIS


SENSITIVE BUT UNCLASSIFIED


E for U/S LARSON AND ANN PENCE
EB/IFD/OMA FOR PREID


E.O. 12958: N/A
TAGS: EFIN ECON PREL NI
SUBJECT: DEBT SWAP FOR ENVIRONMENT CLEANUP INITIATIVE


REF: STATE 97771



1. (U) Action request and comment at para 6.



2. (U) TDY U.S. Treasury Advisor Lisa Cook and
Economic Section Chief Stephen Carrig met June 11 with
GON debt management officials for a review of the
mechanics of a debt for environment clean-up swap
first discussed in Washington during President
Obasanjo's May 10-12 meetings with senior
Administration officials. Ambassador was present for
those meetings. GON officials present for the
subsequent Abuja meeting included: Mr. Steve Oronsaye,
Principal Secretary to the President; Mr. A.S.
Arikawe, Director General, Debt Management Office;
Mrs. F.M. Yemidale, Deputy Director, Central Bank of
Nigeria (CBN); and several technical support staff
members.



3. (U) Ms. Cook made a thorough oral presentation of
the mechanics of a debt for clean-up swap. She
provided a brief paper as well that outlined a typical
arrangement step-by-step. The Nigerians, in
particular Yemidale, who has had eleven years of
experience in CBN debt swap programs, quickly warmed
to the proposal and engaged the U.S. side in a
discussion of its specifics. The GON team concurred
in the USG observation that developing the proposal
would be a time-consuming and complex undertaking;
they volunteered that we should begin now.



4. (SBU) Three sets of issues emerged immediately:


a) GON concern that the first purchaser of the
dollar-denominated debt would receive the lion's share
of the discount by buying the debt low and selling it
(relatively) high, thus providing GON limited debt
relief. Oronsaye was particularly concerned about
this issue. USG replied that market dynamics, i.e.,
financial community valuation of Nigerian paper,
indeed, would play an important role in the process,
but i) that would exist even without a swap
arrangement; ii) the GON discharge of dollar debt via
naira payment was clearly advantageous to Nigeria; and
iii) the swap enabled Nigeria to finance environmental
projects it already publicly had endorsed as
essential.


b) GON concern that certain classes of project
financing might be excluded by definition. Arikawe
asked, for example, whether committing the remaining
discounted debt to financing the construction of
facilities utilizing now-flared natural gas
commercially would qualify as sufficiently
"environmental" for the swap. Oronsaye,
notwithstanding the potential caveat on excluding
infrastructure and poverty reduction uses mentioned in
Reftel para 5, observed that wholly environmental
programs would be acceptable to the GON. Cook and
Carrig both noted that although definitions were
important, and there certainly would be a review, the
objective of the swap was to be inclusive of
environmental programs that were workable and
beneficial to all parties.


c) GON concern over restrictions on the location
of acceptable projects or the "nationality" of third
party participants. Oronsaye asked that projects not
be restricted to the Delta region; he noted that other
parts of the country, e.g., the southeast, had their
own serious environmental issues with erosion, for
example. Yemidale asked whether other-than-U.S.
companies and NGOs would be eligible for the program.
USG replied that, in principle, environmental projects
country-wide could be eligible, provided they
otherwise qualified, and that there were no known
firms or NGOs ineligible ab initio.



5. (SBU) In a side-bar conversation with EconChief,
Oronsaye noted that the Delta surely would benefit
were projects undertaken, but that the GON, for
political reasons, necessarily would initiate needed
projects elsewhere as well. He also said that the GON
already had "heard" that both Shell and Mobile were
interested in the swap potentials although, and as
noted in Reftel para 6, the GON initially would prefer
to deal directly with USG and only indirectly with
potential private sector participants. Oronsaye
reiterated the GON team's earlier observation that we
should begin the process as soon as possible, thereby
maintaining the momentum gained by our two Presidents'
interest in the proposal.



6. (SBU) Action Request and Comment. Given the
cooperative and upbeat tenor of these initial debt
swap discussions with the GON at the working-level in
Abuja, Embassy strongly recommends -- and seeks
guidance regarding -- taking immediate next steps. It
appears to us that Reftel's para 8 mention of
consultations with the Corporate Council on Africa
(CCA) to gauge oil company interest might be
complemented beneficially were we informally and
simultaneously to sound out the Nigeria-based field
headquarters. Neither the international headquarters
nor the field elements could commit without
consultations among themselves. USG could facilitate
this were Embassy and the debt swap IAWG liaison to
the CCA provided common talking points. Similarly, it
would be helpful were there a generic set of common
talking points for use with NGOs. Without any
discussions beyond those described here, we have
identified potential NGO participants and are prepared
to approach them as well on instruction. End Action
Request and Comment.


Jeter