ASMARA'S INTERCONTINENTAL HOTEL TOLD TO CLOSE

C O N F I D E N T I A L ASMARA 000401 SIPDIS DEPARTMENT FOR AF/E AND AF/EX LONDON AND PARIS FOR AFRICA WATCHERS E.O. 12958: DECL: 08/12/2018 TAGS: ECON BEXP PGOV ER SUBJECT: ASMARA'S INTERCONTINENTAL HOTEL TOLD TO CLOSE REF: ASMARA 0359 Classified By: Ambassador Ronald K. McMullen for reason 1.4 (d) ¶1. (C) TWO MONTHS TO PACK AND GO: The Amcit manager of Asmara's Intercontinental Hotel (strictly protect) told the ambassador August 8 that the government of Eritrea had abrogated Intercontinental's management contract of the country's best hotel; the company was given until October 5 to clear out. Intercontinental had a valid contract until 2014; the manager believes Eritrea acted illegally in terminating the contract six years prematurely. ¶2. (C) WE WANT MORE MONEY: No specific reason was given for the breach of contract, although the GSE official told the manager the government was disappointed with revenue flows from this state-owned asset. Intercontinental gets a management fee plus a percentage of monthly profits, if any. Occupancy of the hotel has been around 20% in recent months. The manager complained that Eritrean policies have severely stunted the number of business and tourist travelers, the hotel's main target clientele. He also mentioned that Intercontinental owed the state about a million dollars for unspecified goods or services. A month ago the authorities rejected payment in Nakfa or Euros, demanding U.S. dollars. Last week they contacted the manager and said they'd take any currency, but they needed the cash immediately. The manager took this to indicate severe governmental cash-flow problems. ¶3. (C) KNOCK-ON EFFECTS: The Intercontinental's biggest customer is Lufthansa, whose crews from the thrice-weekly flights from Frankfurt regularly stay at the Intercon, the only hotel in Eritrea meeting international standards. Lufthansa's Eritrea manager said the hotel's closure could jeopardize Lufthansa flights to Eritrea, as the pilot and flight attendants' unions may object to their members overnighting in any of Asmara's other (rather seedy) hotels. The Intercontinental manager said that the government might seek to re-open the hotel under local management or that of a regional hotelier. Neither of these options, he commented, would come close to providing the level of service Intercontinental currently offers and that Lufthansa's crews expect. He also added that potential investors in Eritrea will overlook the Eritrean government's disregard for valid contracts at their peril. MCMULLEN