NEW FINANCIAL PRESSURES THREATEN AMERICAN SCHOOL

C O N F I D E N T I A L TUNIS 000191

SIPDIS

DEPT FOR NEA/FO - HUDSON; NEA/MAG; NEA/SCA/EX
DEPT ALSO FOR A/OPR/OS - CAMERON
TREASURY FOR IA/MDB - MORRIS

E.O. 12958: DECL: 03/31/2019
TAGS: ASCH PREL AFDB AMGT PGOV TS
SUBJECT: NEW FINANCIAL PRESSURES THREATEN AMERICAN SCHOOL
FURTHER

REF: TUNIS 182

Classified By: Ambassador Robert F. Godec, Reason 1.5 (b) and (d)


1. (C) Summary: The American Cooperative School of Tunis'
(ACST) US bank has frozen $2 million of its funds to ensure
that ACST does not default on its construction loan. The
freeze could bring about the school's bankruptcy before the
end of the academic year. The Ministry of Public Property
and Real Estate Affairs has sent ACST a letter seeking to
renegotiate its lease. The school sits on government land.
The Ministry wants to raise the rent beyond current lease
provisions. The African Development Bank President spoke to
the Minister of Finance but obtained no progress. He is now
considering seeking an appointment with President Ben Ali.
ACST and the Embassy continue to move forward on steps laid
out in reftel. The school will be holding a contingency
planning meeting late March 31 on a possible shutdown. End
Summary


2. (SBU) ACST informed the Embassy March 31 that PNC Bank
N.A. of New York, which manages the school's ongoing
construction loan, has notified ACST that they are putting a
$2 million freeze on the school's assets held by the bank (in
addition to $800,00 already held in escrow) due to the
material adverse change in the school's financial situation
resulting from the Tunisian demand for taxes. The school is
entering into a dialogue with PNC and OPIC, which insures the
loan, and will inform us when they have more information.
The bank's action could hasten the advent of bankruptcy even
before the end of the academic year.


3. (SBU) In addition to the major tax demands reported in
reftel, ACST received a letter on March 31 from the Ministry
of Public Property and Real Estate Affairs saying that the
Ministry wants to renegotiate the school's lease by the end
of the year, or else the Ministry will abrogate the current
lease by invoking a one year notification clause. The school
sits on government land that they have leased since 1961.
The most recent lease signed in 2003 runs through 2025 and
has a 5 percent increase in rent built-in each year. The
stated purpose of the negotiations would be to bring the rent
up to market levels. Interestingly, the letter, dated
February 13, was postmarked March 19, the day the Ministry of
Finance issued the final tax decree against the school
reported reftel.


4. (C) African Development Bank (AfDB) President Donald
Kaberuka spoke to both the Minister of Finance and the
Minister of Development and International Cooperation on
March 27 about the future of ACST. He told American
Executive Director Mimi Alemayehou that he was unable to
budge the Minister of Finance, who stated that ACST was
required by law to pay the taxes the Ministry of Finance has
determined are due. Kaberuka is now considering whether to
request a meeting with President Ben Ali on the matter.
Kaberuka said that AfDB is already seeing signs of
recruitment difficulties since potential new employees are
hearing about the problem and are waiting to find out if a
school will be available for their children. We note that
Tunisia is competing to hold the annual AfDB meeting in 2010.


5. (C) In a March 31 meeting chaired by the Ambassador,
school representatives said they would proceed with
contingency planning in view of the possible forced closure.
A meeting this evening of the board and administrators will
consider the necessary contingency steps. The school plans
to announce formally the possibility of closure to parents at
a general meeting on April 15, with a letter informing
parents of the topic to be discussed a few days before. It
continues to prepare for a possible court filing. For its
part, the Embassy continues to pursue meetings with senior
GOT officials, interested Ambassadors, and influential local
personalities in an attempt to reverse the GOT's current
course of action.
Godec