CHEVRON PULLS OUT OF RWANDA

C O N F I D E N T I A L SECTION 01 OF 02 KIGALI 000558

SENSITIVE
SIPDIS

E.O. 12958: DECL: 05/11/2017
TAGS: BEXP BTIO ECON EFIN EINV ETRD PGOV RW
SUBJECT: CHEVRON PULLS OUT OF RWANDA

REF: KIGALI 935

Classified By: Charge Cheryl Sim for reason 1.4 (b) (d)


1. (C) Summary: On July 1, Chevron closed shop in Rwanda.
Citing extensive fraud in its Rwandan operations (including
in the alleged fueling of MONUC aircraft that had not been in
Kigali),and friction with the Government of Rwanda (GOR) on
compliance with U.S. sanctions against fueling aircraft from
Sudan and Iran, Chevron decided last November to stop doing
business in the country. The U.S. oil company quietly handed
over its operations to Saudi firm Bakri International, and
will pull out its remaining two expatriate employees in the
next few weeks. Chevron executives assert the GOR is
stonewalling on a promise to reimburse them for a fuel
storage tank Chevron installed in Kigali's Gregoire Kayibanda
international airport in May 2008. Rwanda can ill afford to
lose high profile investors like Chevron especially as it
tries to overcome its reputation as a difficult place to do
business. Despite aggressive marketing, Rwanda has failed to
attract new investment from first-tier multinationals.
Chevron's withdrawal, however discrete, also raises questions
about the country's supposedly squeaky clean record on
corruption. End summary.


2. (SBU) Through its subsidiary Caltex Exports (Rwanda)
S.A.R.L., from 2003-2008 Chevron was the sole supplier of
aviation fuel to Rwanda's only international airport under an
agreement with the GOR that included the option to renew the
contract for an additional five years. Chevron Area Manager
James Chilongo told Charge and econoff Chevron decided to
leave Rwanda and terminate its $8 million annual contract
last November when it discovered extensive fraud committed by
its Rwanda based staff in collusion with some customers
including Rwandair, The Rwanda Airport Authority and the
United Nations Organization Mission in the Democratic
Republic of the Congo (MONUC).


Rwandan Government Entities Involved in Fraud
--------------



3. (C) Chilongo accused Rwandair and implicated the GOR in
the fraudulent acts. Nine Rwanda-based employees were found
to have participated in fraudulent acts by over-invoicing
customers for fuel, receiving checks from Rwandair made out
to themselves for services provided by Caltex and billing
MONUC for fuel stops in Kigali airport when the UN aircraft
were actually in Kinshasa. The Chevron executive estimated
the loss from the fraud at over $400,000 and said the oil
company would pursue legal action against the nine employees.
Chilongo noted senior officials from MONUC in Kinshasa
appeared to be complicit in the scam, and stated Chevron has
since refused to supply aviation fuel to MONUC. Although
Chilongo said Chevron had decided to write off the $56,000 in
unpaid MONUC bills, the Charge suggested that given concerns
about MONUC's performance, Chevron ought to at least consider
writing to UN Secretary General Ban Ki-Moon about the
situation. Chilongo said he would pass the suggestion back
to his headquarters.


4. (C) Chevron and the GOR were also at odds over compliance
Q4. (C) Chevron and the GOR were also at odds over compliance
with U.S. sanctions prohibiting the sale of aviation fuel to
aircraft from countries such as Sudan and Iran. As the sole
supplier of aviation fuel in Kigali airport, Chevron was
periodically asked by the GOR to fuel aircraft from
sanctioned countries. Chilongo explained that Sudanese
aircraft were regularly used to transport high level Rwandan
delegations to other countries and noted these fueling
requests required special approval from the CEO of Chevron
and a waiver from the U.S. government, creating delays and
friction with the Rwandan authorities. Recently, armed
Rwandan Presidential guards "ordered" Chevron staff to fuel a
Sudanese aircraft, Chilongo alleged.


Thank you for your investment...now go
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KIGALI 00000558 002 OF 002





5. (C) Chilongo stated Chevron went out of its way to comply
with the terms of its contract, and acted professionally and
discretely to ensure a continuous fuel supply to its
customers, and a smooth transition to Bakri International
once Chevron decided not to continue the contract. (Note: The
Embassy was unaware of the change in supply contract until
after the July 1 hand-over). The Chevron executive confirmed
that Bakri International fully complied with the terms of the
equipment purchase agreement with Chevron. He added Bakri
has a good reputation and does not have to contend with the
same compliance issues that Chevron faced in Rwanda. While
the transition between the two companies was smooth,
Chevron's break from the GOR has been less amicable.
Chilongo complained the GOR has failed to pay for a newly
built fuel storage tank it agreed to purchase from Chevron
for $402,000 which is currently in use. The Secretary
General of the Ministry of Infrastructure Vincent
Gatwabuyege, who negotiated the purchase agreement with
Chevron, refuses to take Chilongo's calls or respond to
emails, the oil executive asserted. (Note: The Embassy will
inquire with the Ministry of Infrastructure on Chevron's
behalf. End note).


6. (SBU) Chevron's woes with the GOR were compounded earlier
this year when the Rwanda Revenue Authority (RRA) audited
Caltex Exports, claiming the company owed $1.5 million in
back taxes and fines. Chilongo admitted the RRA's claims had
merit - and were partly related to the company's fraud
problems, but complained the RRA acted unnecessarily
aggressively, failed to properly inform the company of new
tax provisions and appeared to be selectively targeting
Chevron. (Note: A number of foreign investors including
Heineken, Kobil and Fina Bank have also complained that the
RRA selectively and unfairly targets foreign investors on tax
issues - reftel).


Where's the Beef?
--------------



7. (C) Comment: Rwanda can ill afford to lose high profile
investors like Chevron. The country is struggling to
overcome its reputation as a difficult place to do business.
Despite aggressive marketing by President Kagame and a
seemingly endless stream of potential investors, Rwanda has
failed to attract new investment from first tier
multinationals. While Chevron has been discrete in
abandoning its business interests in Rwanda, other
multinationals will surely take note of the oil company's
departure. Chevron's withdrawal also raises questions about
the country's supposedly squeaky clean record on corruption.
The GOR takes pride in its proclaimed zero tolerance for
corruption, yet it is hard to believe that senior GOR
officials - given the level of GOR micro-management at the
airport and the fact that Rwandair is government-owned and
operated - were unaware of what was taking place with
Chevron.
SIM