NIGERIA'S SALE OF NITEL COMPLETES LARGEST PRIVATIZATION

UNCLAS SECTION 01 OF 02 ABUJA 001773 SIPDIS SENSITIVE SIPDIS PASS STATE PASS TO USTR TREASURY FOR DPETERS DOL FOR ANN ZOLLNER USDOC FOR 3317/ITA/OA/KBURRESS USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS E.O. 12958: N/A TAGS: ECPS EINV EIND PGOV NI SUBJECT: NIGERIA'S SALE OF NITEL COMPLETES LARGEST PRIVATIZATION REF: LAGOS 867 ¶1. (SBU) Summary. Nigeria's Bureau of Public Enterprises (BPE) sold on July 3 a 75% stake in the state-owned Nigerian Telecommunications (NITEL) Limited and its M-Tel subsidiary to Nigeria's Transcorp for $750 million in a negotiated sales process. This is Nigeria's biggest privatization deal so far, but it is subject to final approval by the National Council on Privatization. British Telecom acted as technical adviser to the investors, while Etisalat was an additional technical and financial partner. Less than 24 hours after NITEL's sale, eight of the company's top managers resigned following allegations of financial crimes involving NITEL's pension fund. Much Nigerian press reaction to the NITEL deal was negative, for a variety of reasons. The suddenness of NITEL's sale supports the perception by the Nigerian public that the sale was an inside deal. End summary. ¶2. (U) Nigeria's BPE sold on July 3 a 75% stake in the state- owned Nigerian Telecommunications (NITEL) Limited and its M-Tel mobile-telephone subsidiary to the Transnational Corporation (Transcorp) of Nigeria for $750 million (96 billion naira) through a negotiated sales process. This is Nigeria's biggest privatization deal so far, but it is still subject to final approval by the National Council on Privatization. The Government of Nigeria (GON) decided to adopt the negotiated sales process after years of unsuccessful attempts to sell NITEL. This process took into account the company's declining value due to its growing technical obsolescence and revenue losses from NITEL's recent strikes. Transcorp was aided in its successful effort by technical adviser British Telecom and technical and financial partner Etisalat of the United Arab Emirates. Transcorp said it secured a 1 billion euro loan from the European Union Development Council at a 4% interest rate, which it will use to make NITEL more competitive. ¶3. (U) Transcorp was incorporated in 2004 and is a wholly Nigerian-owned conglomerate. The company's chairwoman, Ndi Okereke-Onyiuke, told the press on July 3, "We are out to build a mega-corporation like what exists among the Asian tigers." Transcorp will in August make an initial public offering. Okereke-Onyiuke said the GON would offer for sale to the public by the end of 2006 the remaining 25% of the GON's share of NITEL. The Distribution of NITEL's Liabilities -------------- ¶4. (U) BPE Director General Irene Chigbue said Transcorp had seven working days to pay an initial deposit of $500 million, and 60 working days to pay the balance of $250 million -- otherwise, the deal was off. NITEL would retain all its liabilities and debts, while the GON would assume all human-resources costs such as pension liabilities for NITEL employees and costs associated with downsizing. The GON had approved about 25 billion naira ($195.3 million) as a severance package for 7,000 employees of NITEL and its M-Tel subsidiary. This amount would cover outstanding salaries and allowances, as well as all termination benefits not to be borne by Transcorp. The 25 billion naira payment would be made within six weeks, but would not cover employees' pension liabilities, and NITEL's non-core assets would be sold separately to fund the pension program. Allegations of pension-fund looting -------------- ¶5. (U) Less than 24 hours after NITEL's sale, eight of the company's top corporate managers resigned after the release of a report alleging financial crimes running into the billions of naira, the press reported. In response to agitation by NITEL employees, an investigative committee set up to examine the NITEL Staff Pension Fund (NSPF) identified severe mismanagement of the 5.5 billion naira ($43 million) fund. The committee's report identified 11 managers who helped themselves to various amounts and who will face the Economic and Financial Crimes Commission. The managers allegedly used at least 63 banks and discount houses in their fraudulent transactions involving the NSPF. The committee's report concluded that as of December 2005, the fund invested 4.9 billion naira in various banks of which 1.49 billion naira ($11.6 million) were trapped in distressed banks, while another 372.1 million naira ($2.9 million) could not be accounted for. Also, a 117.14 million naira ($914,000) investment could not be traced. Press reaction to NITEL's sale -------------- ABUJA 00001773 002 OF 002 ¶6. (U) Most Nigerian press reaction to the NITEL deal was sharply critical. The headline of a July 6 editorial in Abuja's DAILY TRUST declared, "Obasanjo's Cronies Finally Grab NITEL" after more than six years of "well-rehearsed rigmarole" with the Nigerian people "already assigned a role as the losers." An editorial on July 9 in the Lagos DAILY CHAMPION congratulated the BPE on selling a "badly run, non-profitable organization seething with corruption, administrative inefficiency and technical deficiency." The paper also, however, noted the "desperate, hasty" bidding process, criticized the "lack of full disclosure" concerning NITEL's true worth, and charged that the company was "sold for a penny" -- because in 2001, Investment International London, Ltd., valued 51 percent of the company at $1.25 billion. The newspaper additionally warned, "[W]e expect more transparency and openness on the part of the BPE" when the remaining 25% of NITEL is sold to the public. The SUNDAY TRIBUNE on July 9 was concerned about the sale's lack of transparency and cautioned, "Nigerians might be on the way of being treated to another orgy of massive official corruption." Comment -------------- ¶7. (SBU) The suddenness of NITEL's sale was surprising, at least to the Nigerian general public, after years of unsuccessful efforts to sell the company. While the GON was correct to sell the rapidly declining NITEL, the deal was not handled with the kind of transparency that supports public confidence in the transaction. Instead, it has supported the public perception that the sale was an inside deal -- given that Transcorp represents the political and economic allies of President Obasanjo. The U.S. Mission Abuja will report septel on further issues suggesting impropriety in NITEL's offer conditions. FUREY