C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 001381

SIPDIS

E.O. 12958: DECL: 04/13/2014
TAGS: PGOV KCOR PREL BEXP EINV EFIN NI
SUBJECT: NIGERIA: U.S. COMPANY LOSES BID, ALLEGES
PRIVATIZATION HAS LOST TRANSPARENCY

Classified By: AMBASSADOR JOHN CAMPBELL FOR REASONS 1.5 (b) AND (d).


1. (U) ACTION REQUESTED PARAGRAPH THIRTEEN.


2. (SBU) Summary: Earlier this year, Nigeria's Bureau of
Public Enterprises (BPE) solicited bids in the sale of a
majority stake in ALSCON, the state aluminum smelting plant.
The bid by an American corporation, BFIGroup Corporation, to
acquire the 77.5 percent share in ALSCON allegedly has been
thwarted by a lack of transparency in the bidding process,
and perhaps some corruption as well. We understand that
BFIGroup has sought the assistance of the U.S. Commerce
Department, as well as Embassy Abuja, in advocacy for its
claim to be the legitimate bid winner. Embassy recommends
due diligence by the Advocacy Office or State/EB/OCA on
BFIGroup's U.S. operation, and request guidance. End Summary.


3. (U) Earlier this year, Nigeria's Bureau of Public
Enterprises (BPE) solicited bids in the sale of a majority
stake in ALSCON, the state aluminum smelting plant. The
plant, completed in 1997 at a cost of approximately USDOLS
2.5 billion, operated well below capacity until May 1999,
when production ceased due to lack of working capital and
inadequate gas supply. Efforts to privatize the corporation
began in earnest two years ago, but were delayed for various
reasons until this year.


4. (U) In April, BPE announced the two shortlisted bidders
for the 77.5 percent stake: BFIGroup Corporation and Russian
Aluminum (RUSAL). BFIGroup, an American company, boasts 38
experts in the aluminum industry. According to documents it
filed in the tender process, BFIGroup has a technical and
marketing agreement with Daewoo International (America) Corp.
to purchase and market the aluminum products.


5. (U) BPE opened the financial bids June 14. RUSAL's
initial offer of USDOLS 205 million was conditional on the
cancellation or repayment of all ALSCON liabilities. RUSAL
refused to pay the 10 percent up-

front fee required without
this and other conditions being met. BPE summarily rejected
the bid as against its rules, and disqualified RUSAL from the
process. BFIGroup submitted a bid of USDOLS 280 million, and
raised it to USDOLS 410 million to meet BPE's minimum reserve
price. BFIGroup was declared the winner by the Chairman of
the Technical Subcommittee of the National Council of
Privatization (NCP).


6. (U) Instead of granting preferred bidder status to
BFIGroup, the GON announced it was renegotiating with RUSAL.
RUSAL's bid dropped to USDOLS 160 million. A few days
later--allegedly due to pressure from the international
community--the GON reversed its stance and allowed BFIGroup
to proceed as the preferred bidder. According to BFIGroup,
given Nigeria's history in financial dealings and the
uncertainty over the political situation resulting from BPE's
quick reversals, BFIGroup had to soothe jittery investors and
requested an extension to the 15 day period stipulated in
which to make the 10 percent downpayment (USDOLS 41 million).
Again, according to BFIGroup, it filed such a request on
June 28, as well as a second one July 6, both of which BPE
rejected, and the deadline to sign the Sales Purchase
Agreement (SPA) passed. At this point BFI Group was
officially out of the running, pending appeals.

BPE NOT PLAYING FAIR?


7. (SBU) On 28 July, the CEO of BFIGroup, Dr. Reuben Jaja,
met with Poloffs to discuss what he alleged were the
transparency and possible corruption problems in the bidding
process and to ask for assistance. He alleged several
instances of unfair and/or criminal actions on the part of
the BPE and GON:

- The sealed envelope containing the BFIGroup bid proposal
had been tampered with while in the possession of the BPE;
- BPE refused to meet with company representatives to sign
the SPA during the 15-day grace period, waiting until the
deadline had passed;
- Requests to the BPE for extension of the 15-day
downpayment period were rejected, although granted to
investors in several other recent privatizations;
- Local media reports that BFIGroup's CEO is an ex-convict
constitute a smear campaign against him personally;
- An imposter claiming to be an employee of Chase Manhattan
Bank gained access to the BFIGroup's bank account, presumably
intending to arouse suspicion about the corporation's
finances; and
- BPE has attempted to cash the USDOLS 1 million bid bond
submitted by BFIGroup during the negotiation. BFIGroup has
filed a court injunction to prevent this action.


8. (U) Emboffs discussed with BPE officials, but their
rebuttals to the allegations of bias and lack of good faith
negotiation were often contradictory. They have stated that
the BFIGroup did not submit extension requests in time, then
stated that BFIGroup did in fact submit the request in time.
BPE first said that BFIGroup had refused to sign the SPA for
ALSCON, and then that the company did seek to sign the SPA
but BPE prevented the signing before the deadline.


9. (C) BFIGroup CEO Jaja told Emboffs that BFIGroup
representatives met with President Obasanjo the night of June

13. At the meeting, Obasanjo asked for the particulars of
their bid. When the BFIGroup's legal advisor advised that
this would be illegal and could affect the process, the
President allegedly retorted, "but the Russians showed me
their proposal." After the meeting, Deputy Senate President
Ibrahim Mantu allegedly tried to intervene on behalf of the
American firm. Mantu reported back to BFIGroup's CEO that
NSA Mohammed Aliyu Gusau and the President's wife Stella
Obasanjo had advised Mantu that he was "on the wrong side."
Mantu reportedly told the CEO that Stella had offered to
"take care of him" if he would switch his support to the
Russians.


10. (C) BFIGroup appears ready to pursue this matter rather
than accepting defeat. It has contacted the World Bank about
BPE's questionable privatization practices and requested
assistance from the Embassy in pursuing its case at a
political level in Nigeria. It says it plans to approach the
U.S. Congress as well. The CEO has engaged a team of lawyers
in Nigeria to file a suit against the BPE process and is
looking to do the same in the U.S. In the letter to the
World Bank, BFIGroup hinted that "big people in Nigeria were
involved" and that it might be forced to begin naming names.


11. (C) Comment: BFIGroup's allegations are serious. If well
founded, the USG would have cause to raise this matter at the
highest level. Press reports suggest need for caution,
however. Some have given conflicting stories on BFIGroup's
position, and whether it is incorporated in the U.S.
(California) or not. One newspaper, BusinessDay, also
reported on July 7 that BFIGroup and its founder, Jaja, are
being sued for fraud in the Orange County Superior Court in a
case from August 15, 2000 in connection with their failure to
obtain regulatory approval to operate a wire transfer
business. BusinessDay said the case was allegedly settled
out of court, but the plaintiff's attorney claimed Jaja
defaulted on his obligation to pay and was sued again on May
12, 2004 for fraud by the same party in a case "Richard
Nguyen v. Reuben Jaja, Bancorp Financial Investigations
Group, No. 04CC05740, Complaint for Fraud, Conversion, Money
Had and Received, Breach of Contract, and Accounting."


12. (C) BFIGroup is also alleged to be involved as the
financial advisor for Solgas in a messy contract for Solgas
to rescusitate Nigeria's Ajaokuta Steel complex, and
specifically that it defaulted in sourcing the money to pay
for the Solgas bid.


13. (SBU) ACTION REQUESTED: BFIGroup has asked that the
Mission intercede with the GON, and USDOC has received a
similar request. Please advise.
CAMPBELL