2009 SECTION 527 REPORT FOR EGYPT

UNCLAS CAIRO 001199

SENSITIVE
SIPDIS

DEPT FOR EB/OIA HEATHER GOETHERT AND KIMBERLY BUTLER
DEPT FOR NEA/ELA

E.O. 12958: N/A
TAGS: ECON EINV CASC KIDE OPIC PGOV EG
SUBJECT: 2009 SECTION 527 REPORT FOR EGYPT

REF: STATE 49477


1. (SBU) The following report is provided in response to
reftel request for information on investment disputes and
expropriation claims:


2. (SBU) The United States Government is aware of four (4)
claims of U.S.persons that may be outstanding against the
Government of Egypt (GOE):


1. a. Claimant A

b. 2001

c. In June 2001, the Alexandria Governorate took
approximately 6,000 square meters from Claimant A's land (on
which a factory had been built) to widen the adjoining
highway. The Governorate's ensuing construction work also
damaged a wall and some property. As a result of this
action, Claimant A made a request to the Governorate for
compensation of approximately $390,000, for the seized land
and physical damage. The compensation case proceeded
smoothly at first. However, during the final stages of the
compensation process in late 2003, the Governorate informed
Claimant A that it did not have legal title to the entire
property (despite documentation to the contrary),and thus
had no right to compensation for the land taken for the
highway.

The Governorate officials further informed Claimant A
that it had no right to expand operations, sell the land or
engage in any legal proceedings involving the land, and that
the Governorate would file a lawsuit against Claimant A to
reclaim the land. As a result of the dispute, Claimant A was
unable to expand operations and meet growing export orders.
After the U.S. Embassy participated in a meeting with
Claimant A and GAFI, the GOE investment authority, GAFI
established a technical committee to review the issue. In
March 2005 GAFI officially confirmed Claimant A's ownership
of the land and notified the Governorate, which then offered
compensation of less than the $390,000 requested by Claimant

A. Later in 2005, the Ministry of Housing assessed the value
of the land based on 2003 prices. Claimant A disputed this
assessment, and was informed by the Governorate that the land
could only be re-assessed after three years. Claimant A's
CEO met with the Governor to try to resolve the matter.
Claimant A was informed by the Governorate that negotiations
could only be conducted directly between the Governorate and
Claimant A's headquarters. The parties are currently working
on continuing negotiations.

In December 2006, Embassy and APP staff met with the
new Governor, appointed in 2006, to discuss the case. The
Governor instructed his staff to look into the case. The
Embassy advised the claimant of this meeting and asked the
claimant to follow up directly with the Governor's office.
The claimant reports no additional progress, as the Governor
referred the case to the Deputy Governor, who referred it to
Alexandria Higher Committee for Evaluating the Price of Land,
affiliated to the Ministry of Housing, for an opinion. The
opinion still has not been rendered. In discussions with the
claimant, post suggested the possibility of pursuing
compensation in kind (e.g., tax concessions, etc.) rather
than monetary compensation. Claimant seemed agreeable to
this approach.

Claimant terminated the manufacturing portion of its
operation in Egypt in June 2008 and now uses its facilities
in Egypt for trading only. Despite the downsizing, Claimant
still considers the dispute unresolved and has not received
any new offers of compensation from the Governorate. Claimant
has not provided any additional information on this case to
Post.


2. a. Claimant B

b. 1992

c. Claimant B was awarded a contract in 1989 to refurbish a
GOE-owned hotel in the Ain Sokhna area. Claimant B had spent
several million dollars by 1992 and was ready to inaugurate
the project when the then-Ministry of Public Enterprise
informed Claimant B that the contract was null and void.
Both parties agreed to arbitration, which resulted in a
favorable ruling for Claimant B. Nonetheless, the Ministry
of Public Enterprises continued to demand that Claimant B
surrender the assets and took the matter to court. The court
initially refused to hear the case on the grounds that the
original contract stipulated that in case of legal dispute
both parties would seek arbitration. The Ministry appealed
the decision and the appellate court agreed to hear the case
on the grounds that the arbitration decision was never
executed. Claimant B petitioned against the appellate
court's decision and no further court action was taken.
Claimant B has reportedly removed operations from Egypt, and
Claimant B has not been in touch with the Embassy in at least
five years.


3. a. Claimant C

b. 1998

c. Claimant C secured a $6.2 million, 4-year contract with
the then-Ministry of Trade and Supply to provide both
technical assistance to the Egyptian Export Development
Center and export-promotion support to Egyptian companies.
The money was allocated from the Ministry of International
Cooperation through local currency proceeds generated from a
USAID cash transfer program. Claimant C began providing
training, and an initial payment of $1.6 million was due in
March 1998. In June 1998, Claimant C received only a partial
payment of $560,000 and the Egyptian Export Development
Center, under the successor Ministry of Economy and Foreign
Trade (now the Ministry of Trade and Industry) subsequently
cancelled the contract and all future services to be
provided, claiming services already provided were of
unsatisfactory quality. No other payments were made, and the
Egyptian Export Development Center was closed in 2002. The
Embassy raised the issue numerous times with various
officials, including the former Prime Minister but the GOE
took no further action.

The Embassy repeatedly advised Claimant C to pursue
arbitration, but Claimant C continued to seek a political
solution. The Ministry of Trade and Industry indicated in
discussions with Embassy officials that a new export
promotion center was opening and that Claimant C was welcome
to submit a new proposal to provide services. Claimant C,
however, sought a written response from the Ministry of Trade
and Industry to Claimant C's contention that the previous
contract is still valid. Claimant C last contacted the
Embassy in 2006 requesting assistance in obtaining a written
response. Post has been unable to obtain any recent
information on the case.


4. a. Claimant D

b. 2004

c. The Egyptian National Air Navigation Services Company
(NANSC),part of the Egyptian Ministry of Civil Aviation,
contracted with Claimant D to supply seven surveillance
radars to be installed in seven different locations across
Egypt. Prior to the final stages of the contract, the
Egyptian authorities seized the company's $3.4 million
performance bond, claiming performance deficiencies in the
supplying of proper documentation, spare parts, and test
equipment. The Embassy has been involved in discussions
between the parties and has raised the dispute up to the
level of the Prime Minister. In August 2004, a mediation
committee was set up between the GOE and Claimant D to
resolve the issue. However, NANSC terminated the committee
before a decision was reached, and did not respond to
solutions offered by Claimant D at the end of 2004 in the
pursuit of a negotiated settlement. In January 2005 the
Minister of Civil Aviation decided to resort to official
arbitration after meeting with the senior management of
Claimant D. In February 2005, Embassy officials approached
the then-Ministry of Foreign Trade and Industry to press for
resolution of the issue, but did not receive a response.
Arbitration was to have begun in 2006 but did not. In 2008
claimant informed the Embassy that NANSC has requested
additional information regarding spare part availability, to
which the claimant responded. At that point, the Claimant
repeated its request to meet with NANSC to resolve the
dispute but received no response. Claimant did not respond to
Post request for additional information on this case.


3. (SBU) Claimant list:
Claimant A: Colgate Palmolive
Claimant B: H and H Enterprises
Claimant C: International Trade and Marketing (ITM)
Claimant D: Northrop and Grumman Electronic Systems



4. (U) Embassy point of contact for this report is Acting
Economic Counselor John Speaks (E-Mail: speaksjt@state.gov,
Tel. 011-20-2-2797-2685)
SCOBEY