POSSIBLE SENEGAL-INDIA AGREEMENT TO REVIVE PHOSPHATE

UNCLAS SECTION 01 OF 02 DAKAR 000666

SIPDIS

SIPDIS
SENSITIVE

STATE FOR SCA/INS, AF/EPS AND AF/W
STATE PASS EXIM, OPIC AND TDA
USDOC FOR 4510/MAC/ANESA/OA/MICHELINI
3131/USFCS/OIO/RD/ANESA/MSTAUNTON/GLITMAN/GLO OSE

E.O. 12958: N/A
TAGS: EFIN EINV EIND ETRD IN SG
SUBJECT: POSSIBLE SENEGAL-INDIA AGREEMENT TO REVIVE PHOSPHATE
PRODUCTION


SUMMARY
--------------

1. (SBU) Two days before the reelection of President Wade, the
Government of Senegal (GOS) and the India Farmers Fertilizer
Cooperative Limited Group (IFFCO) signed what is described as an
interim agreement on February 23, to revive production at Senegal's
national phosphates company, Industries Chimiques du Senegal (ICS)
after several months of difficult and uncertain negotiations. The
agreement, also referenced as "the last rescue plan" calls for IFFCO
to invest USD 160 million in ICS' "recapitalization" to pay off and
reorganize the company's debt to a sustainable level, boost its
export activities, and to renew shareholders and partners'
confidence. However, some critics remain skeptical and noted that
IFFCO continues to demand concession rights to the actual phosphates
deposits, not just priority for purchasing ICS' products. Since the
Governments of India, Cameroon, Cote d'Ivoire and Nigeria are ICS
shareholders, the company's success or failure affects their budgets
as well as the 13,500 workers' livelihoods. END SUMMARY.

GOS/IFFCO: SOME ALLIANCE OF HOPE
--------------

2. (U) Junior Minister of Budget Cheikh Adjibou Soumare, Senegalese
Ambassador to India Amadou Boucoum, ICS Managing Director Alassane
Diallo, Indian Ambassador to Senegal Prabati Vyas, and IFFCO
Managing Director Dr. Usta Awashani, attended the February 23
agreement signing ceremony between the GOS and IFFCO, ICS' largest
client, to revive ICS, Senegal's national phosphates company. ICS
has been operating at ten percent or less of its historic capacity
since IFFCO's previous contract with the GOS expired in April 2006.
Previous negotiations, in April and November 2006 were unsuccessful
as the Government of Senegal refused to include control of the
important Matam phosphate mining reserve in the recapitalization
agreement. Observers familiar with the negotiations characterize
the deal as an "interim" agreement since IFFCO continues to press
for concessions on the phosphates reserves. However, under the
agreement, IFFCO would stabilize ICS' debt, including its extensive
arrears to shipping companies. IFFCO and other shareholders
(including the GOS) are required to invest at least CFA 40 billion
(USD 80 million) in cash by June 30, 2007. This will allow ICS to
increase its production to a target of at least two shiploads of
phosphoric acid per month for export to India, which remains below
the company's historic levels of four shiploads per month.


3. (SBU) Outside agreement is needed for the deal to be finalized,
especially for the restructuring of the ICS debt. The "interim"
agreement has been presented to the President of the Special Court
of Dakar, which maintains a current dossier based on GOS actions to
place ICS under bankruptcy protection pending reorganization in
2006, the shareholders, and to ICS' creditors. The communique notes
the two parties' willingness to pursue their relationship within the
framework of the Organization for the Harmonization of Business Law
in Africa" (OHADA) uniform law.


4. (SBU) Some critics remain skeptical and stated that the
so-called agreement was signed just to give a "breath of fresh air"
to ICS. They claimed that the agreement remains silent on IFFCO's
long standing requirements that call for the lay-off of at least 30
percent of ICS's workforce, full control of the Matam phosphate
deposits, and complete control of ICS's finance and management.
(NOTE: The GOS has previously rejected these requirements.
However, according to sources from the Prime Minister Office, a
senior GOS delegation will meet with IFFCO by the end of March in
Paris to discuss these pending sensitive issues. END NOTE.)

RESOLVING ICS' DEBT WILL NOT BE EASY
--------------

5. (U) ICS, which in previous years has accounted for up to ten
percent of Senegal's exports and two percent of GDP, has arrears of
over CFA 90 billion (USD 180 million) in both short and long term
debt. Approximately CFA 70 billion (USD 140 million) is owed to
local banks. Its commercial losses reached CFA 160 billion between
2003 and 2005, and loses are expected to be at least at CFA 20
billion in 2006. ICS has a workforce of 2,500 permanent and 11,000
temporary employees. Its main shareholders include the GOS (46.38
percent),IFFCO (19.09 percent),the Government of India (6.97
percent),Societe Commerciale de Potasses et de l'Azote (SCPA) (4.76
percent),the Government of Cote d'Ivoire (4.27 percent),the
Government of Nigeria (3.95 percent),the Government of Cameroon
(3.35 percent),the Islamic Development Bank (IDB) (3.34 percent),
and others (the remaining 7.92 percent).

COMMENT
--------------

6. (SBU) The drain on Senegal's already under-performing economy

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caused by ICS's lack of production has been a widely discussed topic
throughout Senegal. The government's announcement of this deal only
two days before Senegal's presidential elections is not
coincidental, since during the campaign President Wade promised, "We
know that rescuing ICS will require a great deal of money and
initiatives, but we are ready and committed to keep the factory
alive no matter the cost." The truth is, the GOS cannot afford to
invest much in ICS and needs IFFCO, or some other investor, to
resuscitate the company. Senegal's budget situation is dire, and
the country needs ICS' production, employment, and sales and tax
revenues. We are hopeful that this agreement is the first step in
getting ICS back to full production - but it's not there yet. END
COMMENT.

Jackson