SHOW ME THE MONEY: CHINESE WIN YEMEN'S GSM TENDER,

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 002844

SIPDIS

E.O. 12958: DECL: 09/25/2015
TAGS: PGOV EFIN ECPS EIND EINV ETTC KMPI YM CH ECON COM
SUBJECT: SHOW ME THE MONEY: CHINESE WIN YEMEN'S GSM TENDER,
ROYG AWAITS PAYMENT

REF: A. SANAA 2426

B. SANAA 2556

Classified By: A/DCM Thomas Burke for reasons 1.4 b and d.


1. (C) Summary. On September 21, Yemen's Cabinet officially
awarded the third GSM license to Chinese-owned Unitel for its
bid of USD 149 million. The decision came as no surprise;
ROYG officials had made clear that the financial offer
outweighed all other considerations. Many doubts remain,
however, as to whether Unitel's offer complies with the
requirements of the tendering process, and whether the
company will be able to pay the full bid amount.
Irregularities in the tendering process have frustrated
mid-level ROYG officials, and reveal the degree of influence
exerted by the Minister of Finance over other
revenue-generating ministries in this period of fiscal
crisis. End summary.

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Unitel Wins, But Who Are They?
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2. (U) On September 21, several news outlets reported that
the Cabinet awarded Chinese Unitel the license for Yemen's
third GSM mobile phone service. The decision was based on
the recommendations of the Ministry of Telecommunications
technical committee, which awarded Unitel the highest score
among the five bidders on both its technical and financial
offers. The committee's report then went to the High
Tendering Committee, which approved the decision without
public notification or deliberation on September 18. Minister
of Finance Salami departed the next day for IMF/World Bank
meetings in Washington, and the Cabinet added its stamp of
approval in his absence.


3. (U) Considerable confusion remains as to who is the
driving force behind Unitel. According to the rules of the
tender, at least forty percent of the venture must be Yemeni
owned, but there is as yet little indication as to who are
Unitel's local partners. (Ref A) In addition, the
Government-controlled media refers to China Mobile as the
major international investor, implying that Unitel is the
largest telecom operator in China. China Mobile, however,
has repeatedly denied any involvement in the deal, with the
exception of limited consulting services. The Cabinet sought
to address this issue by requiring Unitel to clarify its
financial relationship with China Mobile before signing any
licensing agreement.

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GSM Deal Not Quite Final
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4. (C) Despite the apparent finality of the decision, Fathi
Fahim, local partner of competing bidder Millicom, said this
was only the first of two Cabinet meetings on the issue.
According to Fahem, the Cabinet floated the decision to gauge
the degree of opposition both from competitors and from the
United States. Fahem said that Prime Minister Bajammal told
him that if there are no major complaints before the next
Cabinet meeting on September 27, Unitel would officially win
the tender. Post has provided commercial advocacy on behalf
of Millicom and its vending partner, Motorola. To date, post
has delivered a written letter to the Prime Minister and the
Ministers of Finance and Telecommunications urging the ROYG
to adhere to its own tendering guidelines. Post also
delivered an advocacy letter from Secretary of Commerce
Gutierrez, and Ambassador raised the issue in person with the
above Ministers. (Ref B) David Kimche, a representative for
Millicom, has made clear that his company intends to protest
the Cabinet's decision and continue to press its bid until
the Unitel deal is finalized.


5. (C) Rumors abound that even if they receive final
approval, Unitel does not have enough money to cover its USD
149 million bid. According to the tender document, Unitel
has fifteen days from the signing of a license agreement to
pay in full. By delaying the official signing, the ROYG can
allow Unitel some wiggle room to raise sufficient funds.
According to Kamal al-Jabry, Director General of the Public
Telecommunications Company, the Unitel consortium is
currently shopping around town for new investors for this
reason.

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Tendering Practices Spark Dissent
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6. (C) The selection process has revealed rifts within the
Ministry of Telecommunications between Minister Moalimi and
his senior staff. Assistant Deputy Minister Hamami was
removed from the technical committee after voicing his
opposition to the Unitel bid. Hamami has leveled broader
criticism at the Ministry for diverging from the rules
established in the tender document, and has not been seen at
the Ministry for over a month. Deputy Minister Yassin
Mahmoud, who wrote the tender document, insisted that he had
nothing to do with the selection process, but stopped short
of criticizing the Minister directly.

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ROYG Gambles Its Reputation
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7. (C) Comment: The Cabinet's decision to award Unitel the
GSM license inflicts yet another blow to Yemen's investment
climate. By not following its own stated tendering
guidelines, the ROYG elicited outrage among the few
legitimate international companies willing to risk investing
in Yemen's telecom market. The ROYG undermined its own
long-term interests by selecting a company unlikely to
improve telecom quality, expand infrastructure, or reduce
consumer rates. Most likely, Minister of Telecommunications
Moalimi initially backed the Unitel bid in hopes of
soliciting lucrative vending contracts and Chinese debt
forgiveness for his failed Yemen Mobile venture. (Ref A) Due
to the sheer size of the Chinese bid, however, interest in
the tender rose to the highest levels of the ROYG. With an
emergency supplementary budget of 451 billion Yemeni Riyals
(USD 2.3 billion) currently before Parliament, MOF Salami saw
an opportunity for a one-time infusion into the treasury. By
Prime Minister Bajammal's own admission, the ROYG was
interested only in the size of the bid, not the quality of
the company. (Ref B) This policy of immediate gratification
remains a gamble. If Unitel is unable to make good on its
bid in the next few weeks, Yemen will lose both short-term
revenue and long-term credibility among international
investors. End comment.
Krajeski