VZCZCXRO9908
PP RUEHMA RUEHPA
DE RUEHDK #1693/01 2261549
ZNR UUUUU ZZH
P 141549Z AUG 07
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 9007
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEHNE/AMEMBASSY NEW DELHI 0068
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 001693 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR AF/EPS AND AF/W 
STATE PASS EXIM, OPIC AND TDA 
USDOC FOR 4510/MAC/ANESA/OA/PMICHELINI 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ETRD IN SG
SUBJECT:  SENEGAL: INDIAN IFFCO TO CONTROL ICS 
 
REF: DAKAR 666 
 
¶1.  Summary:  On July 16 the Government of Senegal and the Indian 
Farmer Fertilizer Cooperative Limited Group (IFFCO) signed a new 
agreement to rescue Senegal's major phosphate producer, ICS.  The 
goal of the negotiations was to recapitalize ICS, gain creditors' 
confidence, attract new shareholders, and after two years of minimal 
mining, processing, and export activity, bring ICS production back 
to historic levels.  The new ICS, if equipment upgrades take place, 
could significantly improve Senegal's GDP growth prospects and 
balance of trade situation.  However, since the GOS will now own 
only 10 percent of the firm and because of a tax holiday included in 
the agreement, the GOS will not benefit from a major increase in 
revenue.  End summary. 
 
ICS COMING BACK ON-LINE 
----------------------- 
¶2.  The importance of getting ICS back to near historic levels of 
phosphate and phosphoric acid production has been a constant theme 
from donors, the IMF, and Senegal's business community.  ICS has, in 
years past, accounted for an estimated three percent of Senegal's 
GDP.  However, this agreement's initial goal is only to get ICS up 
to 50 percent of its historic capacity.  Major investments by IFFCO 
and its new partners to upgrade equipment will be required to boost 
production higher. 
 
¶3.  Highlights of the agreement, which will allow IFFCO to control a 
majority of the company's shares include: 
 
-- IFFCO must invest CFA 40 billion (USD 80 million) in cash to 
recapitalize ICS and pay debt.  IFFCO must also present a new 
business plan to the GOS and creditors.  (Note:  as noted in reftel, 
the interim agreement signed in February 23, 2007 had previously 
required IFFCO to invest the same amount by June 30, 2007.  End 
note.); 
 
-- IFFCO is required to publish the list of ICS's new consortium 
members before September 30, 2007.  This will entail new 
negotiations with ICS shareholders and creditors.  (Note: 
previously, ICS shareholders were:  the GOS 46.38 percent, IFFCO 
19.09 percent, the government of India 6.97 percent, the French firm 
Societe Commerciale de Potasse 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 3.34 percent, and various others 7.92 
percent.  End note.); 
 
-- the consortium that includes IFFCO and other local and foreign 
partners will control 90 percent of ICS's shares while the GOS will 
retain only 10 percent; 
 
-- the GOS will grant IFFCO 25 years of tax and fiscal 
exonerations; 
 
-- IFFCO must conclude negotiations with creditors before September 
30, 2007; a transitory joint committee led by the GOS will monitor 
the negotiation efforts with creditors.  (Note:  ICS has arrears of 
over USD 400 million in both short- and long-term debt including 
approximately USD 140 million owed to local banks.  End note.); 
 
-- IFFCO is required to retain 20 percent of phosphoric acid 
production in Senegal for the fabrication of fertilizers to be sold 
in Senegal and neighboring countries; 
 
-- IFFCO will control ICS's current phosphate deposits and pursue 
investment on other new mineral exploitation agreements; 
 
-- the GOS must help make the company profitable by "securing the 
business environment to support IFFCO's investment." 
 
¶4.  With the signed agreement in hand, IFFCO's General Manager told 
the press that his company's immediate plans will include increasing 
sale turnovers up to USD 200 million per year (from the estimated 
USD 100 million in 2006) and the construction of a new cement plant 
near ICS's phosphate deposit. 
 
COMMENT 
------- 
¶5.  For more than a year the GOS has been in negotiations with IFFCO 
(and perhaps other potential donors) to rescue ICS, its 2,500 
employees, and the important foreign exchange earnings the company 
can generate.  While this agreement is welcome, in the end it does 
not appear the government gained any more from the negotiations than 
it could have received 18 months ago, but now ICS is in further need 
of new investment and improvements.  And the deal is not yet done. 
Finding new partners willing and able to commit significant 
financing for ICS's revitalization and reaching a final agreement 
 
DAKAR 00001693  002 OF 002 
 
 
with creditors to either reschedule or forgive ICS's debt by 
September 30 will be a very difficult task for IFFCO. 
 
Visit Dakar's Intranet site at 
http://dakar.state.gov/htdocs/section/econsec tion.aspx and Embassy 
Dakar's SIPRNET Web site at http://www.state.sgov.gov/p/af/dakar. 
 
SMITH