ALGERIA: PRIVATIZATION (SLOWLY) MOVING AHEAD

C O N F I D E N T I A L SECTION 01 OF 03 ALGIERS 000024

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E.O. 12958: DECL: 01/08/2018
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SUBJECT: ALGERIA: PRIVATIZATION (SLOWLY) MOVING AHEAD

REF: A. ALGIERS 1748

B. ALGIERS 1638

Classified By: Ambassador Robert Ford for reasons 1.4 (d) and (e).

THIS CABLE CONTAINS COMPANY PROPRIETARY INFORMATION NOT TO BE
SHARED OUTSIDE USG.


1. (SBU) SUMMARY: Algeria's head of financial reform told
Ambassador January 7 that Algeria has not retreated from its
plan to privatize the large CPA bank. Rather, the government
is waiting for the right market conditions to guarantee
maximum value for its flagship parastatal and to ensure a
competitive bidding process. The Ministry also requested
further technical assistance in the form of experts who could
spend several weeks at select financial institutions to
advise on issues of credit and investment risk assessment and
management. Meanwhile, the government has announced other
privatization plans in heavy industry, and we see progress in
the bid of an American company to acquire an industrial
parastatal. END SUMMARY.

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MOVING FORWARD...PRUDENTLY
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2. (C) On January 7, Fatiha Mentouri, head of financial
reform and Minister-Delegate at the Ministry of Finance, told
the Ambassador that Algeria will sell a majority share of the
bank Credit Populaire d'Algerie (CPA) (reftels). The process
will continue, she said, when the Algerians are confident
that international financial markets will support a
competitive bidding process. She echoed Algerian concerns
that we have previously reported; the Algerians want this
first bank privatization to go particularly well to give
momentum to the privatization process more generally.
Mentouri noted that the Algerian people need to see multiple
offers from a variety of foreign banks, and the value of the
offers must be high. She said that it would have been
untenable to have only three French banks bidding for CPA at
a time of extreme volatility in the international banking
sector. She also questioned the commitment to the Algerian
market by some of the foreign banks that initially expressed
interest. She said that a French bank (Credit Agricol) had
told the Ministry that it was forced to pull out of the
bidding for CPA because it was overextended by the subprime
lending crisis, but Mentouri later learned that that French
bank had purchased a Spanish bank only a week before it
withdrew its bid here. Mentouri, looking straight at the
Ambassador, noted that Citibank pulling out had truly put her
in a tight spot.


3. (C) Mentouri insisted, however, that Algeria remains
committed to the privatization of CPA and other banks, but it
must do so prudently. The Ambassador welcomed the assurance
that the privatization process would move forward at some
point. He suggested Mentouri identify indicators or
benchmarks by which the GoA would judge conditions to be
appropriate again and explain this policy to the
international financial press. This would bolster the
confidence of potential investors who, the Ambassador noted,
were now wondering about the GoA's reform credibility.
Mentouri accepted the need to speak more to the press. (She
had no particular market climate indicators to suggest when
the CPA privatization might start again, however.) Looking
at our new Treasury attache, she said she would seek his
advice on how to improve communication between the government
and the banking sector.

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REQUEST FOR TECHNICAL ASSISTANCE: ADVISORS EMBEDDED IN BANKS
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4. (SBU) Mentouri also noted that Algeria is interested in
further technical assistance from the USG, particularly in
the form of experts who could help her office improve credit
and investment risk assessment and management procedures at
commercial banks. She acknowledged the programming we have
already provided, including Treasury advisors resident at the
Ministry and the Central Bank, and MEPI-funded seminars in
risk management. She urged that we look at putting in a
longer-term presence that would focus on changing banking
credit and risk management policies, observing that a
week-long seminar has only limited impact.

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INDUSTRIAL SECTOR PRIVATIZATION
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5. (U) Mentouri also told the Ambassador that the
government is planning to privatize a parastatal insurance
company. Meanwhile, on January 6 the government announced
plans to privatize six more companies. Four are in the
leather industry located in Tizi Ouzou and Setif, along the
eastern coastal corridor. One is located in the eastern port
city of Bejaia and is involved in construction. The sixth is
a plaster company in the historic city of Ghardaia, south of
Algiers.


6. (SBU) We also see progress regarding an American bid for
an Algerian state-owned heavy cable company. Our contacts in
the Ministry of Industry quietly told us in December that
General Cable Corporation was recommended by the
privatization council (CPE) to acquire a controlling interest
in Enica Biskra cable company. An executive of General Cable
later told us that the company had been so informed, and that
final negotiations were pending. Although the CPE decision
has yet to be announced publicly, our government contacts
tell us the deal is on track, and General Cable informed us
on December 30 that it is sending a team from its European
offices to negotiate final contract language, including
minority shareholder rights for the government. A company
executive told us that, in a surprising move, the Algerians
offered to negotiate options for General Cable to acquire the
remaining interest in Enica Biskra at a future date. The
company executive told us that while they are somewhat
concerned that the government has not publicly declared
General Cable the winner of the bid, there has been no
attempt to revisit the company's technical or financial
offers, and thus far, the process, while slow, has been
within international norms and experience.

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COMMENT: SLOW AND STEADY MAY YET WIN THE RACE
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7. (C) While the suspension of the CPA privatization sent
more than a ripple of disappointment through parts of the
international investment community and the ranks of
government policy-making, Mentouri appeared extremely serious
about putting it back on track as soon as possible. (Her
sharp look at the Ambassador suggested that it was indeed the
Citibank decision that caused her to halt the process, and a
number of economic observers think that, in fact, the GoA did
want to award CPA to Citibank.) Mentouri appears quite
committed to financial sector reform and to bank
privatization in particular. In fact, her knowledge of the
issues is impressive, and she admitted to the Ambassador that
one of her greatest challenges is pushing her cabinet
colleagues who, she says, simply do not understand the
financial markets. Mentouri appears to be a superb potential
partner with whom we could work to address one of the biggest
bottlenecks in the Algerian economy: its miserable banking
sector. Our new, permanent resident Treasury advisor is

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scheduled to start work on banking supervision reform at the
Central Bank on January 13 -- and the Finance Ministry's
request for more assistance of a focused, technical nature,
bodes well for the reform movement at the technocrat level of
the Algerian government.
FORD