2007 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION CLAIMS

UNCLAS NAIROBI 002353 SIPDIS STATE ALSO FOR AF/E, AF/EPS, EB/OIA HEATHER GOETHERT, AND L/CID SAM MCDONALD USDOC FOR 3131/USFCS/OIO/RD/ANESA TREASURY FOR VIRGINIA BRANDON SIPDIS SENSITIVE E.O. 12958: N/A TAGS: EINV KIDE OPIC CASC PGOV KE SUBJECT: 2007 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION CLAIMS - KENYA REFS: (A) STATE 55422 (B) 05 NAIROBI 3255 SENSITIVE BUT UNCLASSIFIED. CONTAINS BUSINESS PROPRIETARY INFORMATION. NOT FOR RELEASE OUTSIDE USG CHANNELS. PLEASE PROTECT ACCORDINGLY. ¶1. (U) The U.S. Mission in Kenya is aware of one (1) outstanding claim of a United States business interest against a branch of the Government of Kenya (GOK). ¶2. (U) Background: In December 1995, Claimant A entered into a joint venture with a Kenyan public university ("the university"), via a Memorandum of Agreement (MOA),to establish computer instruction centers. This partnership sought to impart computer skills to Kenyan students and over the years expanded to several centers across the country, using U.S. expertise, intellectual property, and technology supplied by Claimant A to staff and run the curriculum. ¶3. (SBU) The partnership run successfully for seven years when, in June 2003, the university, citing management irregularities, unilaterally took over the entire enterprise. Whilst Claimant A and the university agreed in principle to proceed to arbitration, as provided for by the MOA that established the partnership, the arbitration process has yet to commence, despite the significant efforts that U.S. Embassy Kenya officers, including the previous U.S. Ambassador (ref B) and several Congressmen and Senators have expended in pursuit of a satisfactory resolution since the management takeover. ¶4. (SBU) At the time of the university takeover, Claimant A contends it had invested approximately Kshs. 35 million (USD 500,000),but had only recouped about 50% of this amount. Furthermore, Claimant A estimates a loss of investment in excess of $5 million when projected revenues are considered and also estimates that the university is currently collecting in excess of Kenyan shillings 100 million (USD 1.43 million) annually from the IT Learning Center, based at its campus in Juja Town, and from 16 other accreditation centers in Nairobi. Finally, according to Claimant A, the university has also set into motion plans to develop a technology park, a project concept that had been envisioned for implementation at some later phase within the spirit of the joint MOA. Claimant A asserts that the university needs to reverse its suspension of the MOA or provide financial compensation. ¶5. (SBU) U.S. Mission Actions on Behalf of U.S. Claimant: In June 2003 Claimant A formally sought U.S. Embassy Nairobi intervention in its dispute with the Kenyan university, citing a unilateral breach of the parties' MOA. Subsequently, embassy officials contacted GOK counterparts on Claimant A's behalf and persuaded the university to submit the case to arbitration, as agreed in the MOA. The embassy has also signaled to the GOK the desirability of an early and, if possible, amicable settlement of this dispute on many occasions. To date, Claimant A has refused to engage local counsel and pursue this case in the Kenyan legal system. It has also refused to accept the university's offer of arbitration under the MOA's terms. ¶6. (SBU) As part of a March 20, 2007 conference call, Claimant A's president requested that U.S. Ambassador to Kenya Michael Ranneberger intervene in the matter. His company's local representative also participated in the conference call. In response, on April 24, 2007, Ambassador Ranneberger wrote to Kenyan Minister of Education, Dr. George Saitoti, requesting the reinstatement of the MOA by the Kenyan university. A copy of this letter was also sent to Minister of Internal Security John Michuki, a personal acquaintance of Claimant A's president. Claimant A's president believes Security Minister Michuki can assist in facilitating a decision that would bring both parties closer to a negotiated resolution. U.S. Embassy FCS officers have followed up with contacts in both the Education and Internal Security ministries but have yet to receive a concrete reply to the Ambassador's letter. (U.S. Embassy officers have met and corresponded with Claimant A's local representative on several occasion). ¶7. (SBU) Claimant's Name: Claimant A: Nebraska-based Micro-Mini Systems (MMS) University: Jomo Kenyatta University of Agriculture and Technology (JKUAT) ¶8. (U) Primary U.S. Mission contacts: FCS Counselor for Commercial Affairs Edward Yagi Email: edward.yagi@mail.doc.gov Tel: 254-20-363-6066 Fax: 254-20-363-6722 (Please note, Mr. Yagi will soon depart post and will be replaced by Jim Sullivan.) FCS Senior Commercial Specialist Humphrey Lilech Email: Humphrey.lilech@mail.doc.gov Tel: 254-20-363-6438 State Department Economics Officer George W. Aldridge Email: aldridgegw@state.gov Tel: 254-20-363-6048 Fax: 254-20-363-6011 Ranneberger