NIGERIA ECONOMIC UPDATE, MARCH 2005

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000537

SIPDIS

STATE PLEASE PASS TO USTR

E.O. 12958: DECL: 04/08/2015
TAGS: ENRG ECON ECPS EWWT EINV PINR NI
SUBJECT: NIGERIA ECONOMIC UPDATE, MARCH 2005

Classified By: Consul General Brian Browne for reasons 1.4 (b) and (d)


1. (SBU) Summary: The GON's privatization program may
accelerate as a result of the power sector reform bill signed
into law March 11, and the new Maersk operating concession of
the Apapa (Lagos) port container terminal. The GON has also
contracted the Italian firm, Grimaldi Group, to build a USD
60 million port terminal in Lagos. However, doubts remain
about the political will to conclude sales of key public
enterprises like NITEL. The recent sacking of NITEL's Dutch
managers, Pentascope BV, who, the GON claims, has retarded
NITEL's privatization, has been attributed to a political
vendetta against Nigeria's Vice President, a purported ally
of the Dutch firm. At the Nigerian American Chamber of
Commerce annual Businessman's Day, Ambassador Campbell gave
a no-nonsense speech urging further economic reform in order
to spur trade and investment. End summary.


2. (U) This economic update includes:

-- Power Sector Reform Bill Signed
-- Ports Concession Update
-- Political Undertones of Pentascope's Sacking
-- U.S.P.S. Money Order Counterfeiters Arrested
-- Ambassador Campbell Addresses Chamber of Commerce

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Power Sector Reform Bill Signed
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3. (U) On March 11, President Obasanjo signed the power
sector reform bill to privatize the National Electric Power
Authority (NEPA). The new law may speed up the unbundling
of NEPA into 18 companies comprising generation, transmission
and distribution companies. The law will permit the
establishment of a Nigerian Electricity Regulatory Commission
to regulate the companies to be created from the unbundling
process, and the future private power providers yet to be
licensed.


4. (C) If properly implemented, the law is expected to
encourage investment in existing or new independent power
plants (IPPs). IPPs will now be allowed to sell electricity
to NEPA, other IPPs, and directly to consumers. IPPs such as
the Ibom power project (Akwa Ibom State),the AES Barge
(Lagos),and the NNPC-Agip IPP (Kwale-Okpai),will no longer
have to sell their power to NEPA through power purchase
agreements. (Comment: NEPA's unreliable power supply is a
main reason for Nigeria's private sector non-competitiveness,
since business firms generally depend on expensive electric
generators for power supply. The law gives some hope that
Nigeria has taken a step toward addressing the systemic
deficiencies in the national power grid. However, this will
be a long process that cannot be resolved quickly. This
process will take years. End comment.)

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Ports Concession Update
--------------


5. (U) In line with plans to privatize Nigeria's ports, the
Government of Nigeria (GON) signed a memorandum of
understanding with Grimaldi Group (Italy) for construction of
a port terminal at Tin Can Island (Lagos). The GON also
selected AP Moller SA (Denmark) as concessionaire of the
Apapa Port's main container terminal (Lagos).


6. (SBU) Grimaldi is expected to complete the USD 60 million
terminal in 18 months and to manage it for 25 years. A
Grimaldi representative told us the firm aims to complete the
project ahead of schedule. He added the company wants to
ensure it recovers costs early enough to hedge against policy
changes that might affect its investment. (Comment: Though
the concessioning process seems to be on track, the National
Assembly has declared the exercise illegal, since it has yet
to pass a law that explicitly authorizes the program. End
comment.)

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Political Undertones of Pentascope's Sack
--------------


7. (U) The GON recently terminated the management contract
between the Nigerian Telecommunications Limited (NITEL) and
the Dutch company, Pentascope BV, alleging the latter's
incompetence in meeting the target date set for NITEL
privatization. The early termination came amid allegations
of political backstabbing among NITEL, Pentascope, and the
GON.


8. (C) Ken Igbokwe, a Managing Partner of
PricewaterhouseCoopers (PWC) Nigeria, the firm that
recommended Pentascope to the Bureau of Public Enterprises
(BPE),has alleged the Nigerian legislature's preoccupation
with management contract reflected a political vendetta rather
than a business decision. Central to the alleged vendetta
is the belief that Vice President Atiku Abubakar had a stake
in Pentascope and had used his influence with Nasir el-Rufai,
a former BPE boss and now minister of the Federal Capital
Territory, for the contract to be given to Pentascope.
According to Igbokwe, bad relations between President
Obasanjo and the Vice President, and between the Legislature
and el-Rufai, led to the political machinations over
Pentascope, to the detriment of NITEL's privatization. Due
to animus for his Vice President, Obasanjo backed the
investigation of Pentascope despite the attendant cost of
significantly delaying NITEL's privatization, asserted
Igbokwo.
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Other News: U.S.P.S. Money Order Counterfeiters Arrested
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9. (SBU) Together with the U.S. Legal Attache's and FBI office
in Nigeria, Nigeria's Economic and Financial Crimes
Commission (EFCC) uncovered a counterfeit U.S. Postal
Service (USPS) money order ring. During an investigation
conducted in March, the Nigerian police arrested three
persons in possession of 120,000 blank counterfeit USPS
money orders, the potential value of which was USD 1.2
million. In a second independent investigation, the EFCC
raided a house in which the EFCC discovered fake USPS money
order printing plates. The EFCC is looking into whether the
two incidents are linked. Interpol also recently arrested
persons possessing counterfeit USPS money orders. Blank
money
orders are sold for between naira 1000 (USD 8) and naira 3000
(USD 23) on the Nigerian black market.

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Ambassador Campbell Addresses Nigerian-American Chamber of
Commerce
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10. (U) Ambassador John Campbell presented a well-received
keynote address March 31 about the challenges facing U.S.
investors in Nigeria at the Nigerian-American Chamber of
Commerce's Businessmen's Day 2005. Speaking on the
"Nigerian-American Trade and Investment Relationship:
Opportunities and Challenges," the Ambassador told the
200-plus audience that improvements must occur in three
areas in order for U.S. companies to invest more in Nigeria:
1) better security of personnel and property, now threatened
by oil bunkering, kidnappings, personal violence, and 419
financial fraud scams; 2) reliable and robust public and
private institutions that promote good governance and the
rule of law; and 3) improved micro- and macroeconomic
fundamentals, such as interest rates, exchange rates, and
labor costs, to raise Nigeria's production competitiveness.
Among the attendees were Lanre Balogun, Lagos State
Commissioner of Commerce and Industry; Bode Sumonu, Chief
Advisor to Ondo State Governor on Investment and Financial
Matters; and Chief I.O. Dada, National President, Nigerian-
American Chamber of Commerce.
BROWNE