UNITEL GSM BID IN DOUBT; OMANTEL POISED TO BENEFIT

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000221

SIPDIS

E.O. 12958: DECL: 01/28/2016
TAGS: PGOV ECON EINV ECPS EIND YM ECON COM
SUBJECT: UNITEL GSM BID IN DOUBT; OMANTEL POISED TO BENEFIT

REF: SANAA 23

Classified By: Charge D'Affaires Nabeel Khoury for reasons 1.4 (b) and
(d).


1. (C) SUMMARY. After months of speculation, it is now
certain that Unitel is unable to cover the cost of its bid
offer for Yemen's third GSM license. Political connections
continue to keep the company afloat, but most bets are now on
Omantel to win the license. Although a legitimate operator,
Omantel may have overreached with its bid offer as well, and
it remains to be seen if they will be able to pay, or if a
behind-the-scenes accommodation will be made. Post's
advocacy efforts on behalf of Millicom have little chance for
success, as President Saleh associates that company with
Israel. The tender farce surrounding the GSM license now
borders on the ridiculous, with corrupt officials fighting
among themselves while the investment climate continues to
suffer. END SUMMARY.

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Unitel Charade Coming to an End
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2. (C) After months of delay, Unitel's fourth deadline
extension to pay the USD 149 million it offered for Yemen's
third GSM license is set to expire on January 31. Local
Unitel representatives have reportedly been unable to come up
the necessary funds to honor their bid, despite early claims
that they were backed by China Mobile. (Reftel) Company
executives undertook a frantic last-minute search for
alternate partners, including the Palestinian company Paltel.
Paltel representatives visited Sanaa twice and, according to
Tarik al-Haidary, CEO of GSM competitor Sabafon, Prime
Minister Bajammal held a four-hour meeting to convince them
to invest. Paltel declined the offer, said Haidary, saying
the contract was not worth the money and Yemen's government
is too corrupt to trust. Without a true operating partner,
Unitel's bid is no longer viable.

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Omantel Next in Line
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3. (C) All indications are that the ROYG will offer the
contract to the next highest bidder, Omantel, which offered
USD 101 million. In a previous meeting with Ambassador,
Bajammal said that in the event a bidder could not honor its
offer, the ROYG would simply work its way down the list of
bidders, a position confirmed in a letter from the Cabinet to
Omantel's local representative, Saleh Ali Muhsen. Post is
formally advocating for Millicom, the third highest bidder at
USD 54 million. Fathi Fahem, Millicom's local
representative, insisted that Omantel does not meet the
requirement of the tender document, as they have no
international experience and did not submit their bid bond in
time.


4. (C) Nevertheless, competitors consider Omantel a
legitimate operator, hungry to expand beyond Oman. Their bid
may be somewhat inflated, said Haidary, but it is worth the
price to gain a reputation as an international company.
Muhsen, who will receive 10 percent of the company's shares
in Yemen if successful, confirmed this view, adding that
Omantel will recoup some of its cost by selling 35 percent of
shares to Yemeni investors. Among those who have expressed
interest, according to Muhsen, are the Hayel Saeed Group and
Fahim, his competitor from Millicom. Sources in Muscat are
slightly more skeptical, citing Omantel's disappointing
profits and stagnant share prices for 2005. While there is
no doubt that Omantel would like to expand beyond its small
home market, it may not be willing to accept a loss leader of
USD 100 million. As such, Omantel may look to pay in
installments, rather than in the lump sum required by the
tender agreement. If this arrangement is not palatable to
the ROYG, this could re-open the door for Millicom.

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Saleh: "Millicom is Israeli"
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5. (C) Hamid al-Ahmar, head of the al-Ahmar group which
includes Sabafon, said the situation is "very bad" for
Millicom. Ahmar claimed that in a private meeting with
President Saleh, the President said, "Millicom is Israeli,
and they will never win this contract." Millicom is based in
Luxembourg, but sent former Israeli diplomat David Kimche as
a company representative to Yemen on several occasions to
advocate for their bid, which is what may have raised the
Yemenis' antennae. (Note: Hamid is also a member of
Parliament and son of Yemen's pre-eminent sheikh, Abdullah
al-Ahmar. END NOTE).


6. (C) Al-Ahmar also claimed to know for certain that Unitel
was to belong in part to Saleh, whose interests were
represented in the matter by his nephew, Tarik. Muhsen
rejected the notion that Saleh was behind Unitel, implicating
instead Bajammal and Minister of Telecommunications Moalimi.
According to Muhsen, the two ministers conspired with the
Chinese Ambassador to Yemen (since departed) to obtain
Chinese loans that would cover the USD 149 billion bid price,
with significant personal benefit for all three. When the
Chinese portion fell through, the ministers managed to gain
repeated extensions to look for alternative funding. They
refused to give Omantel the contract, said Muhsen, because he
had not paid any bribes. Haidary countered that the
extensions can only be explained by a presidential stake in
the company, and that it is not out of the question that the
Unitel deal will be revived yet again if Saleh twists more
arms. (NOTE: Muhsen is brother to Mohammed Ali Muhsen,
Military Commander for Yemen's Easter Quadrant, and a
relative of the President. END NOTE).

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Comment: Corrupt Fiddle While Investment Climate Burns
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7. (C) The third GSM tender has become a showcase for Yemen's
unwillingness to conduct a legitimate tender. Four months
after winning the contract, Unitel has yet to pay a dime, but
remains in the running. Omantel may benefit from the
collapse of Unitel's house of cards, but it remains to be
seen if they too will renege on their initial bid offer.
ROYG officials refuse to accept that the Yemeni market can
only attract legitimate operators at around USD 50 million,
and instead choose to run the tender like a bazaar. The
personal involvement of high officials, possibly including
the President or members of his family, compromises the
tender process further. While Yemen's ruling elite continues
to play games, the clear loser is the country's investment
climate and telecom services.
Khoury