ADEN CONTAINER TERMINAL TENDER: ROYG ANGLES FOR

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 001338

SIPDIS

PLEASE PASS TO USDOC/TYLER HOFFMAN, USTR/JASON BUNTIN

E.O. 12958: DECL: 05/17/2015
TAGS: ECON EWWT EINV YM ECON COM
SUBJECT: ADEN CONTAINER TERMINAL TENDER: ROYG ANGLES FOR
MORE MONEY

REF: SANAA 106

Classified By: Ambassador Thomas C. Krajeski for reasons 1.4 (b) and (d
).


1. (C) Summary. The tendering process for the Aden Container
Terminal was delayed this month when the ROYG,s High
Tendering Committee decided not to award the tender at the
self-imposed deadline. The Committee believed that the
proposals did not apportion a high enough share of ROYG
revenue, and asked that the companies resubmit bids by May

18. As part of an effort to increase the offers, the
Committee violated international tendering norms by sharing
details of each company,s bid with its competitors. The
companies have not yet submitted revised bids, but they
remain interested in the ACT despite the setbacks. End
summary.


2. (C) Yemen entered a new chapter in the tortuous history of
the Aden Container Terminal (ACT) in April, when the ROYG
High Tender Committee refused to select any of the three
competing companies for the contract. According to Dr.
Mohamed Hamood Alwadan, Chairman of Aden Free Zone and a
member of the ACT Tender Technical Committee, the Committee
believed that bids from Kuwait and Gulf League Company,
International Container Terminal Services Incorporated
(ICTSI),and Dubai Ports International (DPI),all offered the
government too small a revenue share, and decided to postpone
an early April deadline for selecting a bid.


3. (C) Alwadan reported that the ROYG's tender consultant,
Rotterdam Management Group (RMG),proposed three options to
resolve the stalemate: (1) Re-tender; (2) Negotiate
individually with each bidder; or, (3) Initiate a second
round of bidding among the three existing bidders. The
Tender Committee decided on the third option and sent
notification letters to the three bidders to this effect.
Contrary to international confidentiality norms, DPI Director
Ganesh Raj shared that the letters addressed specific terms,
sections, and paragraphs of other bidders, proposals.
Alwadan confirmed this move, saying it was intended to drive
up the ROYG,s share of revenue. Bidders were asked to
submit new bids by May 18.


4. (C) This is but the latest in a long series of false
starts for the ACT. The Terminal was originally awarded in
March 1999 to the Port of Singapore, however the ROYG
cancelled the contract in October 2003 for reasons that
remain unclear. Overseas Port Management, Inc. (OPM),in
combination with local partners, took over ACT management in
November 2003 without a public tender. That contract was set
to expire in 2005. In the wake of the 2000 USS Cole and the
2002 V/M Limburg attacks, commercial maritime traffic to the
Port of Aden took a dramatic downturn. International
observers had high hopes for the rejuvenation of Aden and
Yemen,s economy in general through a safe and secure Aden
Port, container terminal, and free zone. In the past two
years, however, corrupt tendering and mismanagement has led
international observers and commercial interests to lower
their expectations.


5. (C) When the current tender was announced in Fall 2004,
however, Aden still represented a significant investment
opportunity for international companies. Seven potential
bidders traveled to Aden in January 2005 for a meeting with
the tender committee, and all expressed strong interest in
bidding. (Note: Other sources reported as many as fifteen
participating companies. End note.) However, after studying
the tender documents, only three of these companies submitted
bids for the tender by the March 2 deadline. According to
industry and sector analysts, only two of the remaining three
bidders (DPI and ICTSI) are well known in the international
port and shipping management community. According to Raj,
the Kuwait & Gulf League Company is mainly a cargo handling
company that has not operated any port terminals to date and
does not have adequate machinery and equipment to operate a
cargo terminal.


6. (C) The tender committee anticipates receiving replies
from the bidders by the end of May, intends to sign a
contract in July, and to begin operations by October 1. In
the meantime, they have negotiated a contract extension with
the current operator, OPM, until the new port operator can
take over management. To date, however, none of the three
companies has met the new deadline for revised bids.
Nonetheless, it appears that ICTSI and DPI will continue with
their bids. After a May 2, 2005 annual stockholder's
meeting, ICTSI Chairman Enrique Razon told reporters that his
company remains interested in bidding on the ACT &because of
its outstanding location and (because) the growth prospects
there are already strong.8


7. (C) Comment. The current delay in the ACT bidding process
demonstrates the lack of transparency with which the ROYG
approaches the tendering process. For months, the ROYG has
insisted that there were at least nine bidders, and that the
Tendering Committee was trying to narrow the field. Sources
report that there were in fact only three bids (one from a
company of questionable capacity),with most of the initial
international interest dissipating after close examination of
the tender documents. Not satisfied with the ROYG's profit
share in the proposals it did receive, the Committee revealed
the financial terms of the competitors, bids to each other
to pressure them to modify their original bids. This may
bring in quick cash for the ROYG, but could harm the ACT and
the city of Aden in the long run. The company most willing
to pay the ROYG,s price is not necessarily the company best
able to run an efficient and profitable ACT. At the very
least, continued delays and unorthodox procedures undermine
faith in the process and reflect badly on Yemen,s reputation
as a place to do business. End comment.
Krajeski