VZCZCXRO3415
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DE RUEHAB #1036/01 2801027
ZNY CCCCC ZZH
P 071027Z OCT 07
FM AMEMBASSY ABIDJAN
TO RUEHC/SECSTATE WASHDC PRIORITY 3609
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHDS/AMEMBASSY ADDIS ABABA 0129
RUEPGDA/USEUCOM JIC VAIHINGEN GE

C O N F I D E N T I A L SECTION 01 OF 03 ABIDJAN 001036 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS TO USTR C. HAMILTON, JACKSON 
TREASURY FOR D. PETERS 
USAID FOR C. GARRETT, S. SWIFT, M LEMARGIE 
ADDIS, PARIS, LONDON FOR WEST AFRICA WATCHERS 
ACCRA FOR WARP P. RICHARDSON, MCCOWN 
DAKAR FOR FAS, FCS 
 
E.O. 12958: DECL: 10/02/2017 
TAGS: EFIN IMF ECON PGOV PREL EMIN EAGR ENRG EPET
IBRD, IV 
SUBJECT: IFIS, DONORS DISCUSS FISCAL GOVERNANCE AND 
EVENTUAL HIPC;  UNOCI DISAPPOINTMENT WITH ROLLOUT OF 
AUDIENCES FORAINES 
 
REF: A. ABIDJAN 765 
 
     ¶B. ABIDJAN 753 
     ¶C. ABIDJAN 1347 (2006) 
 
Classified By: POL/ECON: ERV MASSINGA, reasons 1.4 (b,d) 
 
 ¶1.  (C)  Summary.  International Financial Institutions 
(IFIs) staff convened top bilateral donors September 28 to 
discuss their negotiations with the Government of Cote 
d'Ivoire (GOCI) on fiscal controls and next steps.  Cote 
d'Ivoire is staying current with the July 2007 arrears 
financing package (reftel a), and has raised money to pay its 
50 percent of outstanding arrears on the local bond market. 
The IFIs are imposing stiff fiscal control and transparency 
measures in the energy and cocoa sectors, and appear 
reasonably upbeat at the prospect these policies will 
succeed.  If the GOCI remains current with its arrears 
clearance plan and the fiscal controls work as designed, Cote 
d'Ivoire could begin Highly Indebted Poor Country (HIPC) 
negotiations in earnest by mid-2008.  The IFIs are pushing 
forward with these aggressive plans despite obvious 
disappointment among the international community at the 
failure to move forward on disarmament and the weak showing 
so far in the audiences foraines program to provide birth 
certificates to potentially millions of Ivorians.  End 
Summary. 
 
¶2.  (C)  The World Bank, African Development Bank (AfDB) and 
the IMF convened top bilateral donors on September 28 to 
provide a status report on efforts to create durable, 
transparent fiscal controls and next steps towards a Poverty 
Reduction and Growth Facility (PRGF) and eventual 
consideration of a HIPC debt reduction.  Despite overall 
disappointment with the failure to move on disarmament and 
the feeble rollout of the audiences foraines process seen 
thus far (see para 9), IFI staff were relatively upbeat at 
the prospect of making enough strides in the coming year to 
allow for entering into serious HIPC negotiations by mid 2008. 
 
¶3.  (C)  IFI Staff reviewed with satisfaction the successful 
financing of the July 2007 package that cleared World Bank 
and AfDB arrears and which paved the way for the IFI's 
reengagement with Cote d'Ivoire.  In September 2007, Cote 
d'Ivoire launched a successful bond issuance for CFA 225 
billion (USD 460 million) at 6 percent interest, of which CFA 
120 billion will be used to repay the World Bank for its 
up-front loan to clear 50 percent of the over USD 400 million 
arrears as called for in the July agreement.  Another CFA 80 
billion will be used to repay the AfDB 33 percent of the 
country's arrears with that institution (again, according to 
the July package) and the rest to be used to finance urgently 
needed infrastructure improvements.  During roundtable 
discussions, IFI staff noted that 80 percent of the bonds 
were sold within the region, a not-so-subtle point of pride 
at having convinced Ivorian authorities to avoid riskier and 
more expensive options such as the proposed summer 2007 JP 
Morgan deal (reftel a). 
 
¶4.  (SBU)  The IFIs presented an aggressive Governance 
Support and Economic Relaunch (AGRE in French) program 
designed to produce substantially greater levels of 
transparency in government spending.  The AGRE has 
successfully pushed the Ministry of Finance to return to 
regular budgeted expenditure mechanisms for at least 70% of 
national spending for the 2007 budget, an improvement over 
the past three years, in which the Ministry has largely 
abandoned its formerly good governance practices by financing 
spending through unbudgeted and opaque ad hoc "advances." 
 
Energy 
====== 
 
¶5.  (C)  On the critical question of energy (which in 2006 
topped cocoa and coffee as the country's top income 
generators, producing approximately USD 1.35 billion versus 
USD 1.1 billion), the IFIs have succeeded in finishing audits 
of the state-owned refinery (SIR) and the state petroleum 
company PETROCI.  Both audits are being reviewed by IFI staff 
in Washington before being made public.  The third energy 
audit, covering the electrical generation industry, should be 
 
ABIDJAN 00001036  002 OF 003 
 
 
done by the end of 2008.  The petroleum and gas producing 
sector were subject of a number of recommendations to assure 
Cote d'Ivoire and the sub-region better supplies of 
gas-fueled electricity in the medium and long term, perhaps 
the most important of which is a suggestion to change the 
manner in which gas is priced.  This is a an indirect 
critique of the current controversy involving the Ministry of 
Energy, PETROCI and U.S. firm Devon Energy, in which Devon's 
existing gas contract keeps the price of delivered gas at 
roughly 1/2 that of gas produced by competitors CNR 
(Canadian) and Foxtrot (a 80/20 percent consortium between 
French company Bouygue and PETROCI).  PETROCI would like to 
purchase Devon's Ivorian production network, and Devon 
executives have told Emboff that PETROCI has attempted to 
pressure the Ministry of Energy into avoiding renegotiating 
Devon's gas production contract to allow higher gas prices 
(which would thus encourage new investment and production) in 
order to keep Devon's asking price down.  Based on the 
couched language of the aide memoire distributed at the Sept 
28 meeting and conversations with Devon executives, the IFIs 
have made known their reluctance to see a state-owned firm 
purchase major new assets while the country itself is the 
beneficiary of substantial debt reduction and international 
assistance. 
 
¶6.  (C)  IFI staff have won Ivorian acceptance of the terms 
of the Extractive Industries Transparency Initiative.  While 
joining the EITI was not a prerequisite for the July arrears 
clearance and IFI reengagement package, the IFIs and a number 
of bilateral donors (reftel b) put strong pressure on the 
GOCI to join.  The government reports it is in the midst of 
forming an EITI committee (with civil society participation) 
and writing its membership agreement.  In addition to the 
EITI commitment, the IFIs have pushed the government to 
create a ministerial Oil Committee (composed of the 
Ministries of Finance (nominally independent, but leaning 
towards the President's FPI) and Energy (FPI)).  The 
Committee will monitor oil's physical, revenue and tax flows, 
and forward reports to the Council of Ministers (presided 
over by the Prime Minister and attended by all ministers) as 
an additional means of bringing transparency to the sector. 
 
Cocoa 
======= 
 
¶7.  (C)  On the question of coffee and more importantly 
cocoa, the IFIs have put into place a system of strict 
supervision of the quasi-governmental cocoa control 
organizations (reftel c).  The cocoa bodies will forward to 
the IFIs their receipts on a quarterly basis, and will review 
with IFIs plans for spending or investing those funds.  Since 
2001, the IFIs have estimated between USD 600 and USD 800 
million in "parafiscal" taxes have been collected for the 
ostensible support of the industry and its smallholding 
farmer/producers.  Much of that sum, according to the IFIs' 
aide memoire and other reports "cannot be satisfactorily 
accounted for."  Bank staff told Emboff separately that the 
renewed attention to the scandal of the quasi-governmental 
"Fonds del Regulation and Control" purchase of a chocolate 
factory in Fulton, New York is representative of 
long-standing misfeasance in the sector (septel).  In 
addition to strict review of cocoa receipts, the IFIs have 
won a modest reduction in parafiscal taxes (CFA 2.65 from CFA 
36) and are pushing for even deeper cuts in the future.  The 
EU representative at the briefing pressed the IFIs to demand 
the outright elimination of the taxes. 
 
Next Step - HIPC in 2008? 
======= 
 
¶8.  (C)  If the AGRE, with the critical energy and cocoa 
control elements, is well managed, and Cote d'Ivoire stays 
current with its arrears clearance package, IFI staff 
envisions revising the 2002-era Interim Poverty Reduction 
Strategy Paper (I-PRSP) and completing a new PRSP as 
precursors to "moving forward" in mid -2008 with negotiations 
for a Highly Indebted Poor Country (HIPC) "decision point. 
Such a relatively aggressive timetable would enable the IFIs 
to decisively reduce Cote d'Ivoire heavy indebtedness (total 
indebtedness is 71 percent of GDP, and scheduled debt 
 
ABIDJAN 00001036  003 OF 003 
 
 
payments, principal and interest, are 3.9 percent in 2007). 
 
Deputy SRSG Discusses SYSG's Consideration of a new SRSG, 
Initial Audiences Foraines Rollout 
------------ 
 
¶9.  (C)  Prior to the IFIs, briefing, Deputy SRSG (and UNDP 
Head) Georg Charpentier told Emboff that the United Nations 
Operation in Cote d'Ivoire (UNOCI) was disappointed and 
mildly surprised at the weak performance of the audiences 
foraines teams seen heretofore.  He reported that the team in 
Ferkessedougou (Prime Minister Soro,s hometown) and Gagnoa 
(President Gbagbo,s hometown) had already come back to 
Abidjan, citing a  lack of support, and after essentially 
token efforts in the field.  UNOCI had expected these teams 
to stay in the field and be supplemented by ever-increasing 
numbers of other teams in other locations, all building to an 
effort perhaps able to address the potentially massive 
numbers to be processed.  Initial results are not 
encouraging, but UNOCI will push all parties to move the 
process forward. 
 
¶10.  (C)  Comment.  Despite the disappointment related to DDR 
and the audiences foraines, the IFIs are moving with alacrity 
to fashion a system that can (hopefully) set the stage for 
economic growth and encouragement of new investment.  The 
country's leadership is intensely and almost exclusively 
focused on the political crisis, and does not appear to be 
focusing on these negotiations, although the measures being 
adopted will gradually impinge on the opaque sources of 
funding upon which the President's faction has long relied. 
The international community, led by the IFIs, are reasonably 
optimistic that in the fiscal and economic realm, they will 
be successful.  The results of the upcoming sale of Devon 
Energy's Ivorian assets and the rollout of the 2007-2008 
cocoa harvest will be key indicators of how the IFI's 
strategy is faring.  End Comment. 
NESBITT