Identifier
Created
Classification
Origin
06NIAMEY515
2006-05-23 15:05:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Niamey
Cable title:  

NIGER: THE LATEST ON PRIVATIZATION

Tags:  ECON EIND EINV PGOV KPRV XA NG 
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RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS NIAMEY 000515 

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LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: N/A
TAGS: ECON EIND EINV PGOV KPRV XA NG
SUBJECT: NIGER: THE LATEST ON PRIVATIZATION

REF: A.) NIAMEY 1302 NOV 05

UNCLAS NIAMEY 000515

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LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: N/A
TAGS: ECON EIND EINV PGOV KPRV XA NG
SUBJECT: NIGER: THE LATEST ON PRIVATIZATION

REF: A.) NIAMEY 1302 NOV 05


1. BEGIN SUMMARY. Econoff Gage met with representatives of
the Government of Niger (GON),companies and the World Bank
(IBRD) to produce the following status report on
privatization in Niger. GON privatization efforts have
advanced since 1996, when Niger codified in law the desire to



privatize 12 firms with a share held by the state. Four
firms remain that have varying levels of ownership by the
GON. However, excepting a hotel, these firms are unlikely to
be privatized in the near future. Rather than rush to
privatize, the two most economically important firms, the
national electrical company (NIGELEC) and the petroleum
distribution company (SONIDEP) will attempt to restructure,
with a reluctant blessing by the World Bank (IBRD). END
SUMMARY.

--------------
BACKGROUND
--------------


2. (SBU) In the 1960s, shortly after Niger's independence, a
number of companies were created by the GON. These state
owned entities functioned effectively, in some individuals'
opinions, until the 1980s. However, other allegations of
mismanagement and misuse of companies' operating funds were
used as justifications to push for privatization, or even
liquidation, such as occurred with the Bank of Development of
the Republic of Niger (BDRN). From 1993-1994, the GON and
the World Bank (IBRD) began targeting the structure of
remaining state owned enterprises. In 1996, Niger passed
legislation to privatize 12 state owned firms, which occurred
at a steady rate through 2002, after which privatization
stalled.

--------------
WHAT WAS PRIVATIZED
--------------


3. (SBU) In 1996 Niger passed legislation formally providing
for the privatization of 12 GON owned firms. Not all 12 have
been privatized, with one being removed from privatization
efforts through legislative mandate, another being liquidated
and, as listed previously, others not attracting sufficient

outside interest. Also, other firms were added to the
legislative list for privatization subsequent to 1996. Ten
years after Niger formalized via law the concept of
privatizing several enterprises with a share held by the GON
the following firms have been successfully privatized.

a) Cement Company (Societe Nigerienne de Cimenterie - SNC)

b) Milk Company (Office du Lait du Niger - OLANI)

c) Public Works Company (Societe de Location de Material des
Travaux Publics - SLMTP)

d) Textile Company (Societe Nigerienne de Textiles -
SONITEXTIL)

e) Phone Company (Societe Nigerienne des Telecommunications
- SONITEL)

f) Water Company (Societe Nationale des Eaux - SNE)

g) Transport Company (Societe Nationale des Transports
Nigeriens - SNTN)

--------------
COMPANIES REMAINING
FOR PRIVATIZATION
--------------

NIGELEC (Societe Nigerienne d'Electricite):


4. (SBU) As Niger's primary electricity provider and
producer, NIGELEC receives approximately 85-90% of its power
from Nigeria. Compared to other West African companies,
NIGELEC does a decent job of providing service to urban
communities; nevertheless, customers complain about high
rates and frequent power surges and cuts, particularly during
the hot season. NIGELEC's privatization is problematic,
with each of the two bidders seeking the contract posing
different sets of problems (the same two firms have been the
only participants in two separate tender offers). While the
French multi-national Vivendi has probably the better
technical package, civil society and the opposition would
probably chaff at a French takeover of NIGELEC. Of greater



concern to the GON would be fear of a backlash by the rival
bidder, the Nigerian National Electric Power Authority
(NEPA),who already supplies most power to NIGELEC at
subsidized "fraternal" rates, were Vivendi to win the
contract.


5. (SBU) Moreover, the entire question of privatizing
electrical power distribution is politicized, with opponents
(including inside the GON) arguing that keeping NIGELEC under
state control is in Niger's strategic interest. Many average
Nigeriens fear that with privatization, prices will only go
higher and planned rural and secondary cities'
electrification projects will stop. NIGELEC's Secretary
General (SG) reports that the IBRD has some sympathy to GON
concerns, and thus is not pushing hard for early
privatization of the company. The IBRD recognizes that Niger
can obtain outside loans for increasing the size of its
electric grid but is also conscious that there is a point at
which it might have to provide financial support directly to
the GON.


6. (SBU) Thus the IBRD is focusing on improving NIGELEC's
governance and international management controls. According
to the SG, NIGELEC has been able to pursue business goals in
recent years without much GON interference because President
Tandja has made it clear on a number of occasions that under
no circumstances are NIGELEC's operating funds to be touched
for the private gain of government officials. NIGELEC has
also begun to crack down on private consumers who illegally
access NIGELEC's grid, and the SG estimates NIGELEC has
recovered 700,000,000 CFA (approximately 1,300,000 USD) by
pursuing those who steal electricity. Thus, from 2000-2005,
NIGELEC's profits increased by 87 percent and its value as an
enterprise increased by 56 percent, according to the SG.
Moreover, NIGELEC has spent nearly 60 million USD on rural
electrification investments during the same period. The SG
foresees significant future demand pressures to increase
power generation to supply secondary cities as well as large
scale rural irrigation projects. To generate such
electricity the GON is considering building a coal-powered
plant in the city of Tahoua. Its showcase project, however,
would be to build the Kandaji dam northwest of Niamey, which
many critics view as economically unfeasible and potentially
environmentally unsound.

SONIDEP (Societe Nigerienne des Produits Petroliers):


7. (SBU) SONIDEP is the national petroleum products
distribution company and sole licensed fuel importer and
depot operator in Niger. With privatization, the hope was
that the monopoly SONIDEP holds on fuel importation and
storage would end. The Director General (DG) of SONIDEP
estimated that the goal of privatization was to put 70
percent of fuel importation and storage in private hands.
Approximately 51 percent of SONIDEP was to be sold to
institutional, private interests, 10 percent to
non-institutional, private interests, and 5 percent to
employees. The remaining 34 percent was to be retained by
the GON. Tamoil, a Libyan oil company, and Total, a French
concern, are the only two remaining, professional, private
companies with a presence in Niger that might purchase a
sizable portion of the 51 percent of SONIDEP set aside for
purchase by clients of this type. Unfortunately, neither
firm seems interested. Total is owed money by the GON for
fuel sales. Stock in SONIDEP is unlikely to be exchanged to
eliminate this debt. Tamoil claims to be making little
profit in Niger and thus might have limited interest in
taking on greater obligations in the country. Nigerien
companies have bought 6 percent of SONIDEP's stock. Included
in this group is the local fuel retailer, Tahirou Sikieye
enterprises, an Ex-Im bank loan recipient.


8. (SBU) Despite these challenges, SONIDEP remains a
somewhat more likely candidate for privatization than
NIGELEC, not only because its domestic defenders are far less
influential than NIGELEC's but also because the IBRD has
pushed the GON harder to privatize SONIDEP. In 2000, SONIDEP
and the GON agreed with the IBRD to allow SONIDEP to keep its
importation and storage monopoly for the time being, if in
return SONIDEP would sell stock in the company and
simultaneously make itself attractive for investment by
lowering debts and fixing management problems. The DG of
SONIDEP seems to be making good on his agreement with the
IBRD, as he has received a number of awards for his
management including a decoration in December 2005 by the
President of Niger. Also SONIDEP's future plans include
upgrades to its Information Technology (IT) systems and
International Standards Organization (ISO) certification.
Should these reforms occur, and if the GON removes its
remaining (comparatively low) fuel subsidies; meets Total's
or Tamoil's contractual concerns; and cracks down on illegal
fuel imports from Nigeria, then SONIDEP's privatization
attractiveness will increase.

HOTEL GAWEYE (Societe Proprietaire et Exploitante de l'Hotel
Gaweye - SPEHG):


9. (SBU) The Gaweye is the premier hotel in Niamey, albeit
in an uncrowded field. The GON owns 95 percent of the Gaweye,
with 5 percent of the hotel held by private and public
companies such as NIGELEC, Sonibank, etc. The hotel was
constructed during the uranium price boom of the 70's and
early 80's. The Gaweye's parent company SPEHG lacked hotel
management experience and contracted running of the hotel to
Accor, a French multinational, who managed the Gaweye from
1981 to 2003. However, occupancy rates dropped to between
30-40 percent, losses mounted for SPEHG, and the contract
with Accor was not renewed. Since 2003 the Gaweye has been
managed by a Nigerien Army Colonel, Amadou Halidou. Also in
2003, the Gaweye hosted the Community of Sahel-Saharan States
(CENSAD) summit conference, and was refurbished. The GON
footed the bill for refurbishment, but did not completely pay
its primary contractors, a Croatian firm INGRA and a
politically well connected Nigerien businessman, Moussa Dan
Fulani. According to a senior SPEHG officials, the off-books
repayment of these outstanding credits to Dan Fulani and
INGRA is but one of several complicating factors behind the
Gaweye privatization.


10. (SBU) The bigger factor preventing privatization is that
the GON still wants to maintain overall ownership of the
hotel while privatizing its management. The GON has made two
attempts to privatize the Gaweye since Accor ceased managing
the hotel. In the first GON call for bids for Gaweye
privatization, only Accor and INGRA responded. For the
second call for bids, only Accor and a Malian concern made
offers. Both bids up to now have not been acceptable to the
GON, probably because it has set unrealistic conditions for
the bidders, namely that they pay a yearly rental fee as well
as provide funding for periodic renovation of the hotel.

NIGERIEN RICE COMPANY (Societe Le Riz du Niger - RINI):


11. (SBU) Although farthest along in the privatization
process, RINI is THE least viable of the four firms still on
blocks for privatization. RINI is a partially privatized
concern, with the GON still holding 30 percent of its stock.
The remaining shares are distributed amongst the employees,
35 percent, cooperative rice producers, 30 percent, and
private investors, 5 percent. However, selling the remaining
GON shares in RINI will be difficult. Financially, RINI is
suffering. RINI needs 4 billion USD a year to buy the rice
harvests, to provide financing to individual rice producers
or cooperatives for the purchase of seed and fertilizer, and
to process the rice itself. With no agricultural banking
system in Niger, prohibitively high commercial lending rates
and little time between the two rice growing seasons, RINI
has been hard pressed to find this funding.


12. (SBU) There also are lingering unresolved legal
questions as to the ownership of the land of one of the three
RINI plants. Of more concern, these three plants produce at
under 20 percent of their capacity. At least a million
dollars would be required to refurbish the RINI facilities,
and it appears that local traders have effective networks to
purchase Niger's modest rice harvests directly from farmers
and use rice processing factories in Nigeria and Burkina Faso.
--------------
THE WORLD BANK AND
NIGERIEN PRIVATIZATION
--------------


13. (SBU) The IBRD has financed an 18.6 million USD project
that began in June 2005 and will end in December 2006 to aid
in the privatization of remaining Nigerien companies. Much
of these credits, however, will not be spent on
privatization. The IBRD did provide for the continued
funding of the Privatization Coordinating Cell (CCPP) within
the structure of the GON. Some IBRD funding was also
provided for general support to the private sector,
specifically, to help address areas rated in the most recent
IBRD report titled "Doing Business." The aspects rated in
this report include: a) starting a business, b) regulation
of the construction sector, c) property transfer, d) getting
credit, e) protecting investors, f) business taxation, g)
international trade, h) contract execution, and i) closing a
business. One million USD will likely be reprogrammed for
GON efforts to control avian influenza (AI).


14. (SBU) According to the IBRD Country Representative,
support still exists in his organization for privatizing the
management of the Gaweye. However for SONIDEP and NIGELEC
the focus is no longer privatization but restructuring.
SONIDEP needs to improve its performance and pursue ISO and
other certifications. In addition, the IBRD Representative
noted the GON will have to aggressively court prospective
buyers of SONIDEP stock as long as both Total and Tamoil
remained uninterested interest. Like SONIDEP, NIGELEC needs
to study and improve its performance. The IBRD
Representative acknowledges that NIGELEC has a preferential
contract arrangement with Nigeria and that privatization
efforts would have a difficult time addressing this
relationship.

--------------
COMMENT: SUPPORT OF
PRIVATIZATION WANING
--------------


15. (SBU) Public and GON support for privatization has
definitely waned. In the eyes of some Nigeriens,
privatization has not delivered what it promised: lower
prices and better service. Many hold up the example of
Sonitel, the national phone company, now owned by Chinese and
Libyan interests, as proof that privatization has gone wrong.
Sonitel's service problems are apparent with repeated line
cuts, interference and inability to complete dialed calls.
In addition, Sonitel is notorious for billing irregularities
and when questioned often responds with little or no
justification for charges. Privatization also did not lead
to the creation of a shareholding class of any significant
size in Niger.


16. (SBU) The small formal private sector has a clear vision
of what steps it thinks the GON should take to encourage
investment, and privatization is not high on that list.
Instead, the private sector would like the GON to rationalize
its tax structure, ease bureaucratic red tape, and establish
transparent mechanisms to promote land ownership.

ALLEN