(U) GON DIRECTIVE COULD COMPEL HALLIBURTON TO

C O N F I D E N T I A L SECTION 01 OF 03 ABUJA 001663

SIPDIS

E.O. 12958: DECL: 09/27/2014
TAGS: BEXP ETRD ECON PREL NI OIL
SUBJECT: (U) GON DIRECTIVE COULD COMPEL HALLIBURTON TO
WITHDRAW FROM NIGERIA

(U) Classified by Ambassador for reason 1.5 (d).

(U) This is a joint Consulate General Lagos - Embassy
Abuja cable.


1. (C) Summary: Recent GON decisions banning
Halliburton from receiving new government contracts
and requiring it to export all of its radioactive
resources from Nigeria threaten Halliburton's
continued operations in the country. Halliburton is
doing all it can to reverse these decisions and has
scheduled a series of high-level meetings over the
next several days, including, it hopes, with President
Obasanjo on September 30 or October 1 in New York.
The proximate cause of the GON's displeasure with
Halliburton is the company's failure to return to
Nigeria two radioactive sources stolen from
Halliburton facilities in December 2002. The GON's
grievances against Halliburton Nigeria (and an
unrelated grievance against Halliburton's Kellogg
Brown and Root (KBR) subsidiary) are multi-layered.
This incident may be the proverbial straw that broke
the camel's back. End Summary.

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GON Decisions Show Halliburton The Exit Sign
--------------


2. (C) On September 24, Remy Caulier, Vice President
of Halliburton's Energy Services Group, Nigeria
(HESN),called on Ambassador to relate the saga that
has brought Halliburton to the brink of having to
terminate its operations in Nigeria. Caulier's senior
colleagues had briefed ConGen Lagos earlier this week.
Caulier's immediate concern is a notice that HESN
received on September 10 from the Nigerian Nuclear
Regulatory Authority (NNRA) informing HESN that NNRA
is withdrawing its authorization that HESN use
radioactive materials in Nigeria until it has taken
steps to return the two radioactive sources stolen
from Halliburton in December 2002. The NNRA further
demanded Halliburton to re-export from Nigeria all of
its radioactive sources within 30 days. This is
significant, Caulier said, because HESN uses such
materials in a third of its operations. Compounding
the problem, on September 16, the Secretary to the
Government of the Federation, Chief Ufot Ekaette,
issued a directive (which Halliburton was not sent,
but which Caulier read at the office of NNPC Managing
Director) banning Halliburton from future government
contracts as a result of the company's "negligent
conduct" concerning the stolen radioactive sources.


3. (C) Caulier confirmed to Ambassador that these two
decisions would put Halliburton out of business in
Nigeria if implemented. Jim Mills, Halliburton
Business Development Manager in Lagos, had told ConGen
Lagos that government contracts account for 80-85
percent of Halliburton's business. Caulier disclosed
that such measures would cut Halliburton Nigeria's
expected revenues by 50 percent in 2005 and by 80
percent in 2006, two critical years with respect to
new projects coming on line in the oil and gas
sectors. The mere fact that the measures might be
implemented, he said, is jeopardizing its conclusion
of an $80 million deal with Shell in coming weeks, and
other international majors are beginning to reconsider
whether to continue to do business with Halliburton
Energy Services. Caulier, like Mills, has met with
officials of NNPC's National Petroleum Investment
Management Services (NAPIMS),but harbors little hope
that NAPIMS will hold Halliburton contracts in
abeyance pending resolution of these issues. Both
Halliburton officials believe its competitors could
replace Halliburton within days if its contracts were
abrogated.


4. (C) Making matters worse, Caulier was informed on
September 23 by Halliburton Nigeria's Human Resources
Group that Nigeria's Immigration Service is now
denying temporary work permits to Halliburton
employees. Caulier said many gray areas characterize
the GON's recent decisions, the result being that
Halliburton, its international partners, and even the
NNPC are unsure whether the decisions affect only
Halliburton Energy Services Nigeria (which accounts
for 80 percent of Halliburton's actual activity in
Nigeria) or other Halliburton affiliates as well.
Caulier said it nonetheless seems that the decisions
apply strictly to HESN since Halliburton's Kellogg
Brown and Root subsidiary has not received anything
from the GON suggesting that it, too, is being
sanctioned.

--------------
Halliburton Requests Obasanjo Meeting;
Scrambles to Walk-Back Decisions
--------------


5. (C) While Halliburton Nigeria's attorneys Ola
Alokalora and Oghogho Akpata told colleagues in Lagos
that President Obasanjo has agreed "in principle" to
meet Halliburton David Lesar, Caulier told Ambassador
that Halliburton has no confirmation that the meeting
requested will occur. Caulier is cautiously
optimistic, but Halliburton has received no word from
Obasanjo's office. Lagos colleagues were told that
the meeting is tentatively scheduled for September 30
or October 1, in New York. Caulier, himself, hopes to
meet next week with Nigeria's Attorney General and
with the directors of the NNRA, NNPC, and NAPIMS.
Caulier said HESN has also scheduled an emergency
meeting of its board of directors next week to review
the situation. Meanwhile, according to Consulate
Lagos, Halliburton has requested the major oil company
managing directors to weigh in on its behalf. In this
vein, Caulier disclosed to Ambassador that HESN has
asked Obasanjo's Energy Advisor Daukoru, NNPC Managing
Director Kupulokun, and Vice President Atiku to assist
in reversing the order that HESN re-export all of its
radioactive sources within thirty days. Caulier went
on that if the order is not rescinded or if HESN does
not receive a waiver from NNRA by October 10, HESN
will begin to ship these items out of Nigeria at that
time.

--------------
Is Returning the Sources Good Enough?
Or Is it Too Little, Too Late?
--------------


6. (C) Ambassador asked Caulier what points would
Halliburton's CEO Lesar make to Obasanjo should the
two meet next week. Caulier said Lesar would probably
try to give Obasanjo the full story of behind the
return of the stolen radioactive substances to
Houston, as well as to explain to him the consequences
of Halliburton's withdrawal from Nigeria. Ambassador
replied that underscoring the number of jobs that
could be lost (880 in all, 750 Nigerians),the decline
in foreign investment ($100 million) that could occur,
and the loss of related future tax revenue that would
ensue, as well as the damper that such action would
put on future investment are all considerations that
Obasanjo might weigh seriously.


7. (C) In reply to the Ambassador's question, Caulier
said he thinks the GON is pressing this issue in
order to use it as leverage in unrelated discussions
with the USG, for example, debt forgiveness or because
the GON lost face as a result of the unauthorized
return of the stolen radioactive sources to Houston
and hence wants to regain its self-respect. He
explained that Halliburton had not worked with the GON
in its early efforts to find and retrieve the stolen
materials. When found in Germany early in the year,
Halliburton USA was notified by its office in Germany,
which arranged for the items to shipped to Houston two
days before a Nigerian delegation arrived in Germany
to take possession of the items. (Comment. Obasanjo's
Energy Advisor Daukoru told Econ Counselor September
24 that Germany's and Halliburton's action "infuriated
Obasanjo" inter alia because the Nigerian delegation
had comprised the Attorney General, the Minister of
Foreign Affairs, and the Director of the NNRA. End
comment.) Caulier affirmed, however, that Halliburton
had invited the GON to inspect the source material in
Houston in February, without success.


8. (C) Caulier went on that if the decision calling on
the HESN to re-export its radioactive sources were to
be reversed, HESN would push for quick issuance of the
import licenses that would allow Halliburton to ship
the sources to Nigeria. In that event, Caulier said
HESN would permit the radioactive source container to
be presented as evidence in court against the several
individuals who will be prosecuted for theft, provided
that the source material can be safeguarded.

--------------
Finger-Pointing Begins, Starting With The USG
--------------


9. (C) Maybe because HESN is seeking USG intervention,
Caulier said nothing to the Ambassador on September 24
about HESN's views regarding past USG involvement, if
any, in the recovery of the stolen radioactive
sources. His colleague Mills, however, told Consulate
Lagos on September 22 that the "U.S. statement that it
was not up to Halliburton to decide what to do with
the sources," following their recovery in Germany, had
not been helpful. He further implied the USG had
somehow delayed Halliburton's ability to return the
sources promptly to Nigeria. Citing the timing of the
GON decisions (right before President Obasanjo's trip
to the U.S.),Mills also wondered whether Obasanjo
might be using Halliburton to "get something" from the
USG.


10. (C) Ambassador summarized the discussion by noting
that it was hard to come to grips with the issue, in
part because so much that has been said is unofficial.
He repeated Caulier's assertion that the spate of
anti-Halliburton articles in the Nigerian press may
have been encouraged by the GON to advance its case.
He advised Caulier that forward movement will hinge on
the willingness of Halliburton to cooperate with the
GON. Halliburton should also highlight the adverse
consequences of its being compelled to withdraw from
Nigeria. Lastly, Halliburton should work to improve
its public image in Nigeria. Caulier noted these
points and said he will work closely with the Embassy
and Consulate to right the situation.

--------------
Comment
--------------


11. (C) Consulate Lagos understands that when the GON
initially requested that Halliburton return the
sources to Nigeria, the firm replied that it would do
so if the GON granted it additional import licenses.
Should that be true, Halliburton clearly mishandled
the matter. HESN's previous tax liability and its and
KBR's alleged bribery issues further complicate the
matter. If this were not enough, Halliburton has
submitted to the U.S. and Nigerian Justice departments
its notes on the LNG affair. We understand that these
notes may implicate several prominent Nigerian
politicians and businessmen, though not the key
players involved in this affair--the President, the
Attorney General, and the Director General of the
NNPC. Just when it needs all the friends it can
muster, Halliburton is about to engender a long list
of enemies who would just as soon see Halliburton exit
the Nigerian market. We need to weigh carefully any
advocacy steps we may take on Halliburton's behalf
given the complexity of the issues involved.


CAMPBELL