Virgin Nigeria row a cautionary tale for investors

By Nick Tattersall - Analysis

LAGOS (Reuters) - When billionaire Richard Branson launched Virgin Nigeria three years ago he was lauded by the then-government for bringing a credible national airline to a country with an appalling air safety record.

Little could he have imagined that three years later, with a new Nigerian president in power, an acrimonious row with the authorities would break out over whether the terms of the agreement he struck were still valid.

Virgin Nigeria, in which Branson's Virgin Atlantic has a 49 percent stake, was launched to great fanfare in 2005 under then-President Olusegun Obasanjo, an economic reformer with whom the British tycoon enjoyed close relations.

But Umaru Yar'Adua took office in Africa's top oil producer more than a year ago and his administration has been busy scrutinising contracts struck under his predecessor.

From oil giants Royal Dutch Shell and Exxon Mobil to China's Civil Engineering Construction (CCECC), the terms of deals with major foreign investors are coming under the spotlight. Relations with Virgin have soured considerably.

"Over the years, public officials hardly bothered about the interest of our people when entering into contracts and agreements on behalf of the government," presidential spokesman Olusegun Adeniyi told a local newspaper last week.

"But with Yar'Adua many things are going to change ... under his watch, while we want foreign investment and would respect the sanctity of legally-binding contracts, he will not allow a situation in which our country continues to be short-changed."

Foreign direct investment soared to over $5 billion in 2007 from barely a fifth that in 2000, according to World Bank data. Nigeria has also been central to the portfolios of investors seeking to profit from Africa's fastest growth in decades.