YEMEN SEEKS TO JUMPSTART EITI

C O N F I D E N T I A L SANAA 001138

SIPDIS

SIPDIS

PLEASE PASS TO EEB/ESC/IEC MAUEL, EEB/ESC/IEC HAENDLER,
EEB/ESC/IEC/ENR HAYMOND

E.O. 12958: DECL: 06/13/2017
TAGS: EAID ECON EMIN ENRG EPET YM
SUBJECT: YEMEN SEEKS TO JUMPSTART EITI

REF: SECSTATE 75118

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


1. (U) This cable addresses questions raised in reftel
regarding Yemen's accession to the Extractive Industries
Transparency Initiative (EITI).


2. (C) SUMMARY: To date, Yemen has fulfilled only one of
four criteria for EITI membership: a high-level commitment
to join. According to the ROYG Deputy Minister of
International Cooperation and Planning (MOPIC),a national
coordinator still has not been named and the ROYG is still
forming a ministerial committee to address this issue and to
develop an action plan. The Ministry of Oil is in the
process of forming a two-person Secretariat/implementation
unit and a nine-member committee and plans to publicly launch
the EITI implementation plan in August 2007. The ROYG has
requested technical assistance from the donor community in
carrying out EITI implementation; DFID and the World Bank,
among other donors, remain engaged with ROYG on this issue.
ROYG transparency in the oil industry is a mixed bag.
According to a USAID-commissioned report, the oil industry is
more prone to corruption because of its share of the GDP, but
there are efforts to monitor it. END SUMMARY

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EITI STILL A PLAN IN PROGRESS
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3. (C) In March 2007, President Ali Abdullah Saleh
announced Yemen's intention to join EITI and sent a letter of
intent to the EITI Secretariat. This was a departure from
former Prime Minister Abdulqader Bajammal's alleged statement
that Yemen would join EITI "over his dead body." In a June
11 meeting, Deputy MOPIC Minister Nabil Shaiban told Econoff
that EITI was one of President Saleh's top priorities. This
fulfills one of the four indicators for Yemen to be listed as
an implementing country of EITI.


4. (C) However, Yemen has yet to fulfill the other three
indicators: a) naming a national EITI coordinator; b)
involving civil society in the implementation process; and c)
devising an action plan. DFID representative Jeehan
Abdul-Ghaffar reported that DFID sent the ROYG three separate
letters reminding it of its EITI obligations on January 23,
May 21, and June 10. The third letter was sent to President
Saleh, the new Prime Minister and MOPIC Minister Abdul-Karim
al-Arhabi. Nabil Shaiban noted that the ROYG Ministry of Oil
and Minerals (MOM) would be the focal point for
implementation of EITI, but he did not know who would be the
national coordinator. Econoff contacted Ministry of Oil
officials on June 12, who indicated that it has not named a
National Coordinator, but Najeeb al-Sharafi, an Advisor to
the Minister of Oil, will be responsible for the initial
stages of the program. Shaiban added that the ROYG is
commmitted to working with civil society, but it needs to
identify appropriate NGOs and assess their competency. Some
possibilities include the Yemen Parliamentarians Against
Corruption (YemenPAC),Transparency International, and
resident oil companies.


5. (C) With respect to the action plan, Shaiban said that
the ROYG is in the process of establishing an EITI
implementation unit and has forming a ministerial committee
responsible for overseeing the implementation of EITI, headed
by Minister Arhabi. MOPIC will coordinate and facilitate
EITI implementation within the ROYG and with development
partners. Shaiban told Econoff that MOPIC will soon meet
with the MOM to discuss the issue and to establish a timelime
for the next four months on meeting the remaining three EITI
indicators.


6. (C) Econoff met with Najeeb al-Sharafi at MOM on June 16,
who said that the MOM would form a two-person Secretariat,
which would serve as the EITI implementation unit. He said
that the MOM would try to recruit personnel from within the
MOM, but if they cannot find anybody, they would seek
professionals from the outside. He said that the ROYG would
also form a nine-person committee, composed of three ROYG
officials (one from the Ministry of Finance, one from MOPIC
and one from MOM),three representatives from oil companies,
two representatives from civil society organizations and one
representative from the newly-formed Anti-Corruption Board.
Al-Sharafi informed Econoff that the ROYG will let civil
society organizations decide whom they would like to
represent them on the committee, but said that they will
probably come from Yemeni human rights organizations. He
added that MOM will also let oil companies decide which
representatives to send to the committee. Al-Sharafi said
that the ROYG would hold a major public event in August 2007
announcing EITI implementation, and would invite
stakeholders, the media and members of the donor community.
An action plan would be revealed at the event. (Note:
Al-Sharafi said that the ROYG may use a draft action plan
provided by the World Bank and have members of the committee
comment and vote on it. End note).

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ROYG REQUESTS AID
FOR IMPLEMENTATION
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7. (C) Shaiban recommended that MOPIC convene a forum group
consisting of the ROYG and key donors, including the United
States, United Kingdom, World Bank and the EITI Secretariat,
to discuss next steps and how assistance can be provided to
Yemen for implementing EITI. He stressed that capacity would
have to be built in the MOM, which is new to the EITI
process, and this will take time. The public will also need
to be educated about EITI, according to Shaiban, because they
are ignorant of legislation and may perceive EITI "as an
infringement on their financial books." Shaiban asked
specifically if the EITI Secretariat can provide Yemen with
guidance about what criteria should be included in the action
plan. Al-Sharafi acknowledged that the World Bank will
initially provide the ROYG with 15,000 USD to hire a
reconciliation firm, but the ROYG would have to pay for the
validation process. He is not sure where the ROYG will find
funding for EITI implementation after the first year.


8. (C) The World Bank is working closely with the ROYG on
implementation of EITI. In a June 10 telecon, WB Country
Director Mustafa Rouis told Econoff that the WB sent an
Aide-Memoire to the Minister of Oil on May 12, which outlined
details of an EITI implementation support mission led by
Anwar Ravat, on May 5-9. Ravat held discussions with MOM
officials on the overall approach, the effort needed from the
ROYG to implement EITI, and the WB's plan to provide
technical assistance to MOM to take the EITI process forward.
The Aide Memoire mentioned that the timeline for the ROYG to
produce its first EITI report would be 12-15 months from May
12, 2007. When the EITI report is published, the ROYG would
fund and undergo an EITI Validation Process (managed by the
EITI Board). According to the World Bank, the initial EITI
implementation steps include: a) creation of a Secretariat
within MOM to implement EITI; b) targeting to fulfill EITI
sign-up indicators by August 31, 2007; c) convening an EITI
stakeholder group, including relevent ROYG ministries, oil
and gas companies, and civil society representatives; d)
ensuring that there are no legal obstacles to participating
in EITI; and e) holding an EITI "launch" workshop among the
stakeholders to reach a common understanding on an EITI
action plan. Shaiban expects the WB to provide consultants
and training conferences on EITI. He noted that the WB has a
special EITI trust fund for this purpose.

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TRANSPARENCY IN YEMENI OIL INDUSTRY?
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9. (C) ROYG officials and oil company executives across the
board have praised current Minister of Oil and Minerals
Khaled Baheh for his reform-mindedness, transparency and
professionalism. (Note: Minister Baheh was a former Human
Resources Manager for Canadian Nexen. End note). One oil
company executive opined that "Baheh was the best thing that
happened to the oil industry, he has an honest vision, his
work ethic is beyond reproach, and he tries to work with the
oil companies." MOM publishes statistics on the oil and gas
industry on its website. Oil companies have been diligent in
filing reports and stiffly penalizing the offering or
acceptance of bribes.


10. (C) Despite this rosy picture, the ROYG is still plagued
by transparency problems in the oil sector. For example,
when the ROYG released its FY 2007 budget in February, the
media accused it of underreporting oil revenues by 25 million
barrels (i.e. USD 1.36 billion). The Central Bank of Yemen
historically underreports oil revenues so that the ROYG has
extra money to spend on supplemental budgets at the end of
the year. There are elements within the ROYG that resist
reform and are more prone to corruption, including Deputy
Minister of Oil Alameh, who according to one source, "runs a
mafia within the Ministry of Oil."


11. (SBU) A USAID-commissioned study entitled "Yemen
Corruption Assessment," published in the Spring of 2007,
noted that oil is the main source of state patronage
(accounting for 80 percent of national revenues) and thus is
vulnerable to corruption. However, oil is expected to dwindle
over the next 10 years, leading to two possible strategies,
either a) "to take while the takings are good," or b) "to
encourage reform, especially concerning corruption, in order
to encourage investment and economic growth."


12. (SBU) Preventing option A and promoting Option B would,
according to the report, require a stronger role by
Parliament and auditing institutions. The Parliament has
oversight of the oil industry through its Oil Committee,
which has been particularly active in investigating and in
one case blocking a ROYG-sponsored international oil
concession (Hunt Oil's concession on Block 18 of Ma'rib,
which was transferred to the ROYG-owned Safer Corporation in
2005). The Central Organization of Control and Audit (COCA),
however, which is the ROYG's supreme audit institution, is
responsible for conducting financial audits and
investigations of the Ministry of Oil, but has yet to make
any reports public.

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NEXT STEPS?
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13. (C) Comment: The ROYG is eager to join EITI in order
to attract more international investment to Yemen. Action
taken on the EITI implementation front, however, has been
limited. Since attending the Oslo Conference on EITI in
October 2006, the ROYG has only recently formally announced
its intention to join and has only fulfilled one of the four
indicators for EITI membership. As is often the case with
new initiatives, we find that the ROYG's door is open to
cooperation, but that they will need a great deal of
technical assistance and donor support and prodding to make
Yemen's full implementation of EITI a reality. End Comment.

KRAJESKI