VZCZCXRO2823
PP RUEHMA RUEHPA
DE RUEHDK #0666/01 0811720
ZNR UUUUU ZZH
P 221720Z MAR 07
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 7924
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEHNE/AMEMBASSY NEW DELHI 0065
RUEHZK/ECOWAS COLLECTIVE

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 
 
DAKAR 00000666  002 OF 002 
 
 
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