EGYPT: MORE CORRUPTION CHARGES, AD HOC RESPONSE

C O N F I D E N T I A L CAIRO 001988

SIPDIS

SIPDIS

NEA FOR ELA
INL FOR CLINE/VERVILLE
UNVIE FOR SOLOMON

E.O. 12958: DECL: 06/26/2017
TAGS: ECON KCOR PINR EG
SUBJECT: EGYPT: MORE CORRUPTION CHARGES, AD HOC RESPONSE

REF: 2006 CAIRO 7190

Classified by Counselor for Economic Affairs Catherine
Hill-Herndon for reasons 1.5 b and d.


1. (C) Summary: A recent report of a Shura Council member
arrested for smuggling, corruption accusations in the
People's Assembly by a Muslim Brotherhood (MB) legislator
against businessmen affiliated with the National Democratic
Party (NDP),and suspicions about the bidding process for a
government satellite tender reflect the continuing prevalence
of concerns about corruption in Egypt. Whether these
concerns arise from actual graft or opaque, inefficient
transactions that create the appearance of corruption, they
reinforce the perception among Egyptians that they can't
trust their government and fuel a potent political issue for
the opposition. END SUMMARY.

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Smuggled Cell Phones, Shady Land Deals
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2. (U) On June 4, airport customs officials stopped Shura
Council member Hosam Abdul-Mohsen Mekawy, a farmer from
Gharbia province in the Delta, on arrival from Dubai carrying
1,000 cell phones and 8,000 memory cards worth LE 3 million
(USD $525,000). Mekawy's parliamentary immunity was due to
expire at the end of June, according to press accounts,
although immunity has been withdrawn in similar cases
(reftel). Mekawy agreed to pay all taxes and fines in return
for waiving prosecution.


3. (SBU) The take from Mekawy's efforts would have been
modest compared to the cost to the Egyptian treasury of
sweetheart deals for government land. On June 9, Saad
al-Husseini, a leader in the MB bloc of Parliament, charged
that Ministry of Housing land sales to NDP-affiliated
magnates including Ahmed Ezz and Mohamed Farid Khamis at
below-market prices cost the Egyptian treasury LE 59 billion
(USD $10.4 billion),compared to the value of the land if it
had been auctioned per standard practice.


4. (SBU) While that figure seems inflated -- it would equal
36 percent of all government revenues in the most recent
budget -- few Egyptians question that prominent businessmen
profit from their connections to the NDP. In fact, a recent
Zogby poll commissioned by US CENTCOM found that corruption
was second only to unemployment among Egyptians' top domestic
concerns.

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NileSat Deal Rigged For The French?
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5. (SBU) American business contacts also suspect corruption
behind some GOE practices, such as a recent convoluted tender
for satellite services. In April 2007, NileSat, an Egyptian
majority government-owned company that operates satellites
providing television, radio, and data services, unexpectedly
canceled an August 2006 request for proposal (RFP) for a
contract for a new communications satellite, despite
NileSat's assurances to the Commercial Counselor that this
would not happen. U.S. company Orbital, one of the bidders
for the RFP, requested USG advocacy support, expressing
concern that the RFP would be reissued in a manner favoring
the French company Alcatel, the main competing bidder.
Orbital's total bid was tens of millions of dollars less than
Alcatel's when the bids were publicly disclosed on November
5, 2006, in a tender that would eventually have been worth
approximately $400 million in U.S. exports to Egypt.


6. (SBU) Information Minister Annas Al Fiqqi told the
Ambassador April 23 that reissuing the RFP would ensure a
"completely transparent process" and generate lower-priced
bids, and that the new RFP would mirror the original.
However, NileSat issued a new RFP on May 20, 2007 that
significantly differed from the original and essentially
restricted the bidding field to one viable bidder - Alcatel.
For instance, certain "optional" specifications in the first
tender became "required," leading to a higher-priced solution
that favored Alcatel. Prior to the second tender, Orbital
had reportedly been advised that its solution was sufficient.
Additionally, the local Orbital representative said that
whereas the original RFP called for a turnkey proposal to
include satellite, ground, launch vehicle, and insurance,
under the new RFP NileSat will procure the launch vehicle and
insurance itself. This change, he said, removes the cost
savings that Orbital could bring under its turnkey solution.
The Ambassador raised these concerns with Al Fiqqi again on
May 28 but with no substantive response.

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"Mr. President, Did You Know?"
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7. (SBU) USAID is supporting several efforts to promote
transparency in GOE operations and increase the capacity of
NGOs to monitor corruption. USAID Egypt's offices of
democracy and economic growth are working with the Ministry
of Finance on a new budget law designed to improve the
transparency of the national budget, while Transparency
International is currently in negotiations with USAID to
establish a program in Egypt that would, in part, increase
the capacity of NGOs to analyze the new budget. USAID is
also in discussions with the Center for International Private
Enterprise on a program to increase the capacity of the
business community to monitor and lobby against corruption.


8. (U) The most active anti-corruption NGO is AHERO, also
operating as Shayfeencom (We are Watching You),which
received USG democracy funds to publicize its campaign to
encourage the GOE to implement the UN Convention Against
Corruption (UNCAC, reftel). AHERO has since received a small
grant from the Middle East Partnership Initiative (MEPI) to
advocate for the passage of a Freedom of Information Act and
prod the Capital Markets Authority to impose corporate
governance regulations and international accounting standards
for companies traded on the Egyptian stock exchange.


9. (SBU) By promoting transparency and accountability, the
organization is targeting practices that may have more to do
with poor governance than graft and bribery. For example, the
organization purchased a small number of shares in
corporations traded on the exchange and used its shareholder
rights to urge improved corporate governance. As a result,
she said, the Suez Canal Bank was compelled to acknowledge
its holdings of bad debt, resulting in a steep drop in its
share price, while the National Cement Company was compelled
to make use of funds it had reserved, but not spent, to
provide for worker housing.


10. (SBU) The organization now plans to launch a viral
marketing campaign via cell phones and other media on the
theme "Mr. President, Did You Know..." The campaign will
compare public promises made by President Mubarak to
expenditures in the national budget, noting for instance that
the GOE has made no provision to finance the president's
promise to create a place in daycare for every Egyptian child
who needs one.

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Ad Hoc GOE Response
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11. (C) AHERO has succeeded in attracting more media
attention to the problem, and the GOE did publish the UNCAC
in the official gazette in early 2007, giving the treaty the
force of law in Egypt. But the GOE response has remained ad
hoc. For example, Egypt is obligated under the UNCAC to
establish an independent anti-corruption body, but the most
recent such effort faltered in January when the cabinet opted
against creation of a new anti-corruption "observatory."
Instead the Prime Minister's office created a new
anti-corruption coordination committee under the Ministry of
State for Administrative Development, which Hadid said will
lack the bureaucratic clout necessary to operate effectively.



12. (C) COMMENT: The new committee may satisfy one of
Egypt's obligations under the UNCAC, but it will likely do
little to ease public concerns about corruption or quiet
opposition politicians eager to capitalize on those concerns.
RICCIARDONE