NIGER EXPROPRIATES TELEPHONE UTILITY SONITEL

UNCLAS NIAMEY 000132

DEPT FOR AF/W, AF/EPS, AND EEB/CIP

PARIS FOR AF WATCHER

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ECPS KPRV ELAB EINV KMCA NG
SUBJECT: NIGER EXPROPRIATES TELEPHONE UTILITY SONITEL


1. SUMMARY: On February 12, the Government of Niger (GON)
unilaterally announced a decision to reduce the term of the
operating license of the country's privatized telecoms provider
SONITEL, effectively ending the management of Dataport LTD, the
foreign-owned consortium that had purchased 51% ownership in 2001.
The GON has not announced what compensation, if any, will be paid to
Dataport shareholders. End summary.


2. In November 2001, the GON sold a controlling interest (51%) in
Sonitel, the state-owned telephone company, to Dataport Ltd, a
Chinese-Libyan joint venture. The Chinese partner, ZTE, provided
equipment and technology while the Libyan partner had managed the
company since 2001.


3. When privatized, the company had approximately 20,000
subscribers, 25,000 lines, 2,500 cellular phone accounts, 1,500
internet customers, 150 telex and 200 specialized lines. The terms
of the privatization granted SONITEL a monopoly on international
communications, including both voice and data, in exchange for an
aggressive capital investment program to improve quality and access.
The Dataport LTD consortium claims to have invested approximately
USD 80 million in upgrading SONITEL systems but the number of new
fixed lines is less than stipulated in the terms of reference. The
contract stipulated installation of 75,000 fixed lines by 2004, but
only 70,000 were in service at the end of 2008. (Comment: Cellular
service, an area in which SONITEL does not have a monopoly, has
shown far more robust growth in Niger than fixed line service. End
comment.)


4. SONITEL's union employees have never been happy with the
privatization. In a 2004 interview, the secretary general of the
union claimed that the equipment provided by the Chinese partner was
of poor quality. Since then, the union has called several strikes
to protest deterioration of working conditions and demand that the
GON withdraw the license from Dataport. The National Assembly
conducted an inquiry into SONITEL operations and called on the GON
to rescind Dataport's license. The GON had given notice to the
Chinese/Libyan Joint venture that they should come into compliance
with the terms of reference. According to the Minister of
Communications, SONITEL and SahelCom (the mobile company) received
seven formal notifications of non-performance from the Regulatory
Multi-sectoral Authority (RMA) between 2004 and 2007.


5. The exact terms of the privatization agreement are not clear, but
the GON claims to have retained the right to withdraw the license if
Dataport failed to hold its part of the bargain. However, the GON
had not initiated any legal process to regain majority ownership of
SONITEL by February 12, when it unilaterally announced a decision to
reduce Dataport LTD's license from the original 15-year term to
seven years and two months. From February 20, SONITEL and its
subsidiary SahelCom would belong to the GON. The GON announcement
was silent on the issue of compensation for the joint venture
partners.


6. The GON has not yet announced whether it will reimburse the
Dataport partners for the capital invested in SONITEL or will
withdraw the license without any compensation. Dataport has made no
formal announcement, but is believed to be preparing a lawsuit
challenging the GON actions. Despite general appreciation that
failure to provide compensation would have a negative effect on
future efforts to attract foreign investment, Nigerien policy makers
have yet to express concern about the lack of legal process in this
case.


7. Minimize considered.

ALLEN