VZCZCXRO8817
PP RUEHMA RUEHPA
DE RUEHDK #2091/01 2980753
ZNR UUUUU ZZH
P 250753Z OCT 07
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 9426
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEATRS/TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHLMC/MCC WASHDC

UNCLAS SECTION 01 OF 03 DAKAR 002091 
 
SIPDIS 
 
DEPT FOR AF/W, AF/EPS, EB/IFD/ODF 
TREASURY FOR OASIA/RHALL 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID ELAB BTIO PGOV SG
SUBJECT: GOS WILL LIKELY SELL COMPANY SHARES AS PART OF ITS NEEDED 
ECONOMIC REFORM 
 
REF: A) DAKAR 1987, B) DAKAR 1693 
 
DAKAR 00002091  001.2 OF 003 
 
 
¶1.  (SBU) SUMMARY:  The Government of Senegal has announced plans to 
move forward on its much-touted privatization agenda and speed up 
its divestiture from three key public-private companies by early 
2008:  Sonatel (Telephone Company), ICS (Fertilizer Company) and 
Dakar Dem Dikk (public transportation).  Organized labor has been 
vocal in its opposition to these plans, particularly as job-loss 
numbers -- potentially in the thousands -- circulate in the local 
press.  If the government sells all its shares in these firms it 
could benefit from a USD 600-plus million windfall.  Hopefully, that 
sum will be used to significantly help Senegal deal with its budget 
deficit, its current account deficit, or provide important support 
to anti-poverty efforts.  The concern is that the administration 
will not assure the best value or application when cashing in these 
state assets.  END SUMMARY. 
 
DIVESTITURE GATHERS MOMENTUM 
------------------------------ 
¶2.  (U) After numerous delays, the Government of Senegal's 
privatization plan, part of its overall economic reform program, 
seems to be gaining momentum.  The major elements of the agenda for 
the end of 2007 and the beginning of 2008 include the sale of its 
remaining stakes at Sonatel (telecommunications), ICS (phosphates 
and related products), and Dakar Dem Dikk, or 3D, (urban bus 
company), as noted in Ref A.  Both ICS and 3D have serious financial 
difficulties. 
 
¶3.  (U) To date, Senegal's most important and strategic parastatals 
have been privatized.  They include: 
 
-- Suneor, the peanut processing and vegetable oil importing 
company, was privatized in 2005.  Advens Group (a consortium that 
includes a Belgian firm and the Senegalese cotton company Sodefitex) 
now controls 66.9 percent of the shares, private individuals 10 
percent, the employees 5 percent and GOS 5.1 percent.  Advens 
changed the name from Sonacos to Suneor n 2006 as a first step 
towards boosting the image of the company; 
 
-- the railroad operator Transrail was sold in 2003 to a Canadian 
Company, Canac-Getma for USD 34 million; 
 
-- the national airline company, Air Senegal International, was 
privatized in 2000 with Royal Air Maroc now controlling 51 percent 
of the company's shares while GOS retains 49 percent; 
 
-- the water supply company SDE was privatized in 1996 with SAUR (a 
subsidiary of the French Bouygues Group) controlling 51 percent, 
private Senegalese individuals 39 percent, employees 5 percent, and 
the GOS 5 percent; and 
 
-- Sonatel was partially privatized in 1997, but the GOS retained 39 
percent of Sonatel's shares, while selling 33 percent to France 
telecom, 10 percent to the employees, and 18 percent to the public 
through the regional stock exchange.  In 1999, a capital 
restructuring increased France Telecom's stake to 42 percent, 
reducing the GOS shares to 30 percent. 
 
¶4.  (U) Other privatizations which took place in the 1990's included 
SOTEXKA (textiles), SSPT (phosphates), Hamo (building construction), 
and Dakar Marine (Vessel construction).  To date, the privatization 
programs have generated more than USD 400 million, largely from the 
1997 sale of Sonatel shares (USD 212 million). 
 
¶5.  (U)  With a push from the IMF, the World Bank, and other donors, 
the GOS is considering the privatization of Senelec, the country's 
heavily indebted electricity monopoly, and SAR, the country's 
heavily indebted petroleum refinery.  The GOS might also sell the 
Meridien President Hotel, and perhaps even privatize the country's 
Postal service. 
 
THE GOVERNMENT'S STAKE AND TAKE 
------------------------------- 
¶6.  (U) The sale of GOS's remaining stake (30 percent) in Sonatel 
should happen before the end of December.  Sonatel has some shares 
listed on the regional bourse, and if all the shares (listed and 
not) were sold at the company's current share price the GOS could 
receive CFA 300 billion (USD 600 million), the equivalent of 20 
percent of its original FY 2007 budget.  According to local sources, 
since only a portion of the GOS's Sonatel shares are listed, the 
government plans to issue an international tender for most of its 
holdings.  France Telecom/Orange Senegal (Sonatel's Strategic 
partner) is reportedly interested and ready to seize the offer to 
gain an absolute controlling share of the company.  Should it 
acquire all the GOS shares, France Telecom would control 72 percent 
 
DAKAR 00002091  002.2 OF 003 
 
 
of the company.  Local employees hold 10 percent, and private and 
public representatives the final 18 percent. 
 
¶7.  (SBU) In fact, we have heard that GOS has already started 
"secret" negotiations with France Telecom, and that the deal may be 
finalized privately or France Telecom may be "pre-positioned" to win 
any public tender. 
 
¶8.  (U) The sale of the GOS's remaining stake in ICS, Senegal's 
largest industrial producer, is pending final resolution of an 
agreement signed between Senegal and the Indian company IFFCO, in 
which the latter will invest USD 160 million to reorganize and 
modernize ICS (Ref B).  The agreement with IFFCO should reduce the 
GOS's stake in ICS from 46.38 percent to 10 percent.  Thus, IFFCO 
and other local and foreign partners will establish a consortium 
that will control 90 percent of ICS's shares.  Under this agreement, 
the GOS would not receive financial compensation for its 36.38 
percent stake in ICS, though some observers have claimed that the 
GOS shares should be valued at around CFA 100 billion (USD 200 
million).  (Note: The GOS has been trying for almost two years to 
negotiate a deal to get ICS back to significant production and the 
value of GOS shares independent of such a negotiation is, in 
reality, negligible.  End note).  After a deal is finalized, the GOS 
could perhaps sell its remaining 10 percent stake in ICS for an 
additional small windfall. 
 
¶9.  (U) The agreement between IFFCO and the GOS is currently on hold 
since other creditors have balked at IFFCO's proposal that they 
write off 50 percent of their debt holdings from ICS.  IFFCO also 
needs to reach agreement on the acquisition of shares from the 
company's minority investors.  The GOS hopes these "little" issues 
are resolved by early 2008.  [Note:  ICS has arrears of over USD 180 
million, in which USD 140 million is owed to local banks.  ICS's 
other shareholders include the Government of India - 6.97 percent, 
Societe Commerciale Potasses et de l'Azote (SCPA) - 4.76 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 - 7.92 percent.  End note.] 
 
¶10.  (U) The privatization of the public bus company 3D is planned 
for early 2008.  The GOS controls 70 percent of the company, 
Senecartours (another local transportation company) 15 percent, 
Snart (an insurance company) 10 percent, and 3D employees 5 percent. 
 The value of the GOS holding is estimated at CFA 2 billion (USD 6 
million). 
 
ORGANIZED LABOR RESISTING 
------------------------- 
¶11.  (U) Several reports in the local press have claimed that unions 
from these companies oppose the GOS's divestiture plan.  Sonatel's 
union claimed it was "betrayed by the government" and faulted the 
latter for having broken the "social consensus" by failing to 
undertake extensive consultations before announcing its plans to 
sell its stake in the company.  During a press conference held on 
September 13, Gabou Gueye, the head of Sonatel's union, stated, 
"except in the U.S. and Great Britain, public authorities worldwide 
always maintain a presence in the telecommunications sector."  Gueye 
noted that "telecommunications represent a sector of sovereignty and 
pride for Senegal; therefore we will develop an awareness campaign 
among the other unions to discourage the GOS."  Regarding France 
Telecom's likely absolute control of the Sonatel, Gueye stated, "we 
cannot accept that and will do everything we can to discourage the 
authorities." 
 
¶12.  (U) At ICS, union members have publicly faulted the GOS for not 
having undertaken sustainable measures to solve the financial mess. 
They have criticized the recapitalization plan, stating that it does 
not offer a bright future for workers.  The agreement with IFFCO 
could lead to job losses of more than 750 full-time and 3,300 
part-time/temporary workers, although the new private manager might 
reemploy half that number once the firm increases its output to 
historic levels. 
 
¶13.  (U) At 3D, more than 1,000 workers would reportedly lose their 
jobs.  UDT-3D, the firm's main union, criticized the privatization 
plan and also blamed management for "embezzling money" and for not 
having taken measures to solve the financial crisis of the company. 
 
 
COMMENT:  WHAT WILL HAPPEN WITH THIS WINDFALL? 
--------------------------------------------- - 
¶14.  (SBU) Despite unavoidable social pressures, the government 
appears intent on moving forward with its privatization agenda. 
Hopefully, this is an indication of a renewed commitment to 
much-needed economic reforms.  While union leaders will continue to 
 
DAKAR 00002091  003.2 OF 003 
 
 
criticize these changes, their agitation can be seen as a necessary 
exercise which is unlikely to lead to mass action or change the mind 
of the Wade Administration.  With the expected combined proceeds 
from these sell-offs to reach at least USD 600 million, the 
government could be much better financed to follow through on its 
rhetoric to address the country's pressing poverty alleviation and 
development needs.  This assumes that the proceeds go into the 
regular budget process and not to the opaque coffers of the 
Presidency or to one of the country's quasi-public, 
politically-constituted agencies.  Another concern, as with every 
aspect of this government's public finances, is that the 
privatization exercise will not be transparent and will largely 
benefit the administration's favored partners through privately 
negotiated deals.  These risks could be significantly reduced should 
the GOS conclude its proposed Policy Support Instrument with the IMF 
in the coming months. 
 
SMITH