C O N F I D E N T I A L SECTION 01 OF 03 ABUJA 001663 SIPDIS E.O. 12958: DECL: 09/27/2014 TAGS: BEXP, ETRD, ECON, PREL, NI, OIL SUBJECT: (U) GON DIRECTIVE COULD COMPEL HALLIBURTON TO WITHDRAW FROM NIGERIA (U) Classified by Ambassador for reason 1.5 (d). (U) This is a joint Consulate General Lagos – Embassy Abuja cable.
1. (C) Summary: Recent GON decisions banning Halliburton from receiving new government contracts and requiring it to export all of its radioactive resources from Nigeria threaten Halliburton’s continued operations in the country. Halliburton is doing all it can to reverse these decisions and has scheduled a series of high-level meetings over the next several days, including, it hopes, with President Obasanjo on September 30 or October 1 in New York. The proximate cause of the GON’s displeasure with Halliburton is the company’s failure to return to Nigeria two radioactive sources stolen from Halliburton facilities in December 2002. The GON’s grievances against Halliburton Nigeria (and an unrelated grievance against Halliburton’s Kellogg Brown and Root (KBR) subsidiary) are multi-layered. This incident may be the proverbial straw that broke the camel’s back. End Summary.
GON Decisions Show Halliburton The Exit Sign
2. (C) On September 24, Remy Caulier, Vice President of Halliburton’s Energy Services Group, Nigeria (HESN), called on Ambassador to relate the saga that has brought Halliburton to the brink of having to terminate its operations in Nigeria. Caulier’s senior colleagues had briefed ConGen Lagos earlier this week. Caulier’s immediate concern is a notice that HESN received on September 10 from the Nigerian Nuclear Regulatory Authority (NNRA) informing HESN that NNRA is withdrawing its authorization that HESN use radioactive materials in Nigeria until it has taken steps to return the two radioactive sources stolen from Halliburton in December 2002. The NNRA further demanded Halliburton to re-export from Nigeria all of its radioactive sources within 30 days. This is significant, Caulier said, because HESN uses such materials in a third of its operations. Compounding the problem, on September 16, the Secretary to the Government of the Federation, Chief Ufot Ekaette, issued a directive (which Halliburton was not sent, but which Caulier read at the office of NNPC Managing Director) banning Halliburton from future government contracts as a result of the company’s “negligent conduct” concerning the stolen radioactive sources.
3. (C) Caulier confirmed to Ambassador that these two decisions would put Halliburton out of business in Nigeria if implemented. Jim Mills, Halliburton Business Development Manager in Lagos, had told ConGen Lagos that government contracts account for 80-85 percent of Halliburton’s business. Caulier disclosed that such measures would cut Halliburton Nigeria’s expected revenues by 50 percent in 2005 and by 80 percent in 2006, two critical years with respect to new projects coming on line in the oil and gas sectors. The mere fact that the measures might be implemented, he said, is jeopardizing its conclusion of an $80 million deal with Shell in coming weeks, and other international majors are beginning to reconsider whether to continue to do business with Halliburton Energy Services. Caulier, like Mills, has met with officials of NNPC’s National Petroleum Investment Management Services (NAPIMS), but harbors little hope that NAPIMS will hold Halliburton contracts in abeyance pending resolution of these issues. Both Halliburton officials believe its competitors could replace Halliburton within days if its contracts were abrogated.
4. (C) Making matters worse, Caulier was informed on September 23 by Halliburton Nigeria’s Human Resources Group that Nigeria’s Immigration Service is now denying temporary work permits to Halliburton employees. Caulier said many gray areas characterize the GON’s recent decisions, the result being that Halliburton, its international partners, and even the NNPC are unsure whether the decisions affect only Halliburton Energy Services Nigeria (which accounts for 80 percent of Halliburton’s actual activity in Nigeria) or other Halliburton affiliates as well. Caulier said it nonetheless seems that the decisions apply strictly to HESN since Halliburton’s Kellogg Brown and Root subsidiary has not received anything from the GON suggesting that it, too, is being sanctioned.
Halliburton Requests Obasanjo Meeting; Scrambles to Walk-Back Decisions
5. (C) While Halliburton Nigeria’s attorneys Ola Alokalora and Oghogho Akpata told colleagues in Lagos that President Obasanjo has agreed “in principle” to meet Halliburton David Lesar, Caulier told Ambassador that Halliburton has no confirmation that the meeting requested will occur. Caulier is cautiously optimistic, but Halliburton has received no word from Obasanjo’s office. Lagos colleagues were told that the meeting is tentatively scheduled for September 30 or October 1, in New York. Caulier, himself, hopes to meet next week with Nigeria’s Attorney General and with the directors of the NNRA, NNPC, and NAPIMS. Caulier said HESN has also scheduled an emergency meeting of its board of directors next week to review the situation. Meanwhile, according to Consulate Lagos, Halliburton has requested the major oil company managing directors to weigh in on its behalf. In this vein, Caulier disclosed to Ambassador that HESN has asked Obasanjo’s Energy Advisor Daukoru, NNPC Managing Director Kupulokun, and Vice President Atiku to assist in reversing the order that HESN re-export all of its radioactive sources within thirty days. Caulier went on that if the order is not rescinded or if HESN does not receive a waiver from NNRA by October 10, HESN will begin to ship these items out of Nigeria at that time.
Is Returning the Sources Good Enough? Or Is it Too Little, Too Late?
6. (C) Ambassador asked Caulier what points would Halliburton’s CEO Lesar make to Obasanjo should the two meet next week. Caulier said Lesar would probably try to give Obasanjo the full story of behind the return of the stolen radioactive substances to Houston, as well as to explain to him the consequences of Halliburton’s withdrawal from Nigeria. Ambassador replied that underscoring the number of jobs that could be lost (880 in all, 750 Nigerians), the decline in foreign investment ($100 million) that could occur, and the loss of related future tax revenue that would ensue, as well as the damper that such action would put on future investment are all considerations that Obasanjo might weigh seriously.
7. (C) In reply to the Ambassador’s question, Caulier said he thinks the GON is pressing this issue in order to use it as leverage in unrelated discussions with the USG, for example, debt forgiveness or because the GON lost face as a result of the unauthorized return of the stolen radioactive sources to Houston and hence wants to regain its self-respect. He explained that Halliburton had not worked with the GON in its early efforts to find and retrieve the stolen materials. When found in Germany early in the year, Halliburton USA was notified by its office in Germany, which arranged for the items to shipped to Houston two days before a Nigerian delegation arrived in Germany to take possession of the items. (Comment. Obasanjo’s Energy Advisor Daukoru told Econ Counselor September 24 that Germany’s and Halliburton’s action “infuriated Obasanjo” inter alia because the Nigerian delegation had comprised the Attorney General, the Minister of Foreign Affairs, and the Director of the NNRA. End comment.) Caulier affirmed, however, that Halliburton had invited the GON to inspect the source material in Houston in February, without success.
8. (C) Caulier went on that if the decision calling on the HESN to re-export its radioactive sources were to be reversed, HESN would push for quick issuance of the import licenses that would allow Halliburton to ship the sources to Nigeria. In that event, Caulier said HESN would permit the radioactive source container to be presented as evidence in court against the several individuals who will be prosecuted for theft, provided that the source material can be safeguarded.
Finger-Pointing Begins, Starting With The USG
9. (C) Maybe because HESN is seeking USG intervention, Caulier said nothing to the Ambassador on September 24 about HESN’s views regarding past USG involvement, if any, in the recovery of the stolen radioactive sources. His colleague Mills, however, told Consulate Lagos on September 22 that the “U.S. statement that it was not up to Halliburton to decide what to do with the sources,” following their recovery in Germany, had not been helpful. He further implied the USG had somehow delayed Halliburton’s ability to return the sources promptly to Nigeria. Citing the timing of the GON decisions (right before President Obasanjo’s trip to the U.S.), Mills also wondered whether Obasanjo might be using Halliburton to “get something” from the USG.
10. (C) Ambassador summarized the discussion by noting that it was hard to come to grips with the issue, in part because so much that has been said is unofficial. He repeated Caulier’s assertion that the spate of anti-Halliburton articles in the Nigerian press may have been encouraged by the GON to advance its case. He advised Caulier that forward movement will hinge on the willingness of Halliburton to cooperate with the GON. Halliburton should also highlight the adverse consequences of its being compelled to withdraw from Nigeria. Lastly, Halliburton should work to improve its public image in Nigeria. Caulier noted these points and said he will work closely with the Embassy and Consulate to right the situation. ——- Comment ——-
11. (C) Consulate Lagos understands that when the GON initially requested that Halliburton return the sources to Nigeria, the firm replied that it would do so if the GON granted it additional import licenses. Should that be true, Halliburton clearly mishandled the matter. HESN’s previous tax liability and its and KBR’s alleged bribery issues further complicate the matter. If this were not enough, Halliburton has submitted to the U.S. and Nigerian Justice departments its notes on the LNG affair. We understand that these notes may implicate several prominent Nigerian politicians and businessmen, though not the key players involved in this affair–the President, the Attorney General, and the Director General of the NNPC. Just when it needs all the friends it can muster, Halliburton is about to engender a long list of enemies who would just as soon see Halliburton exit the Nigerian market. We need to weigh carefully any advocacy steps we may take on Halliburton’s behalf given the complexity of the issues involved. CAMPBELL