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Cablegate: Ec Sheds Light On Confiscated Food Aid

VZCZCXRO5635
RR RUEHROV
DE RUEHAE #0225/01 1141225
ZNR UUUUU ZZH
R 231225Z APR 08
FM AMEMBASSY ASMARA
TO RUEHC/SECSTATE WASHDC 9622
INFO RUCNIAD/IGAD COLLECTIVE
RUEHSA/AMEMBASSY PRETORIA 1432
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 ASMARA 000225

SIPDIS

SIPDIS

SENSITIVE

AIDAC

LONDON AND PARIS FOR AFRICA WATCHERS
DEPT FOR AF/E - PLEASE PASS USAID
NAIROBI FOR USAID - GPLATT
KAMPALA FOR USAID - DSUTHER
PRETORIA FOR USAID - PDISKIN
ROME FOR FODAG

E.O. 12958: N/A
TAGS: ECON EAID EAGR PGOV ER
SUBJECT: EC SHEDS LIGHT ON CONFISCATED FOOD AID

REF: 06 ASMARA 458, and others

1. (SBU) SUMMARY: European Commission (EC) First Secretary
Stephane Halgand (protect) told Emboffs the EC, with the full
cooperation of the Eritrean government, is reviewing the seizing of
12,500 metric tons (MT) of its food aid in spring 2006. The review
will likely recommend retroactively amending the EC's pre-2006
Eritrean food aid contracts to allow the seizure as part of a cash
for work (CFW) scheme that sold the food aid locally to fund
short-term agricultural and infrastructure projects. END SUMMARY.

----------------------------
2. (SBU) WHERE'S THE WHEAT?
----------------------------

In an April 15 meeting, Halgand briefed Emboffs on the EC'S efforts
to account for its food aid summarily confiscated in spring 2006 by
the GSE to support a unilaterally instituted CFW scheme. The GSE
confiscated at the time over 90,000 metric tons (MT) of total
international food aid (mostly wheat): from the EC (12,500 MT), from
USAID (14,000 MT/$4.5 million), and from the World Food Program
(WFP) (64,000 MT), as well as lesser amounts from other
international donors. In fall 2006, high-level EC visitors informed
the GSE that the Commission would be willing to amend its food aid
contracts to allow for a CFW alternative, contingent upon the GSE
fully accounting for the confiscated food stocks. In summer 2007,
the GSE permitted an EC contractor to travel in 15 districts to
conduct a review of the GSE's actual CFW activities. As a second,
final stage of review, the EC is currently conducting a financial
audit with the GSE about the disposition of funds from the seized
food aid. Once this review is completed, the EC office in Asmara
will forward its findings to Brussels with a recommendation on
whether to retroactively amend the original food aid contracts to
permit the GSE's CFW activities.

-----------------------------------
3. (SBU) CASH FOR WORK IN PRACTICE
-----------------------------------

Halgand stated that the EC's 2007 review of the CFW program
indicated that the seized food aid was, in fact, monetized under a
CFW scheme to pay mainly unskilled laborers for soil and water
conservation activities. Project workers were paid between $1.33
and $2.66 per day based on output. In monetizing the seized aid,
Halgand believes the donor grain was transferred first from the
Ministry of Agriculture (MoA) to the Eritrean Grain Board (EGB)
which set a standard price, and then sold to local flour mills for
processing at $32.00/MT. The processed grain was then transferred
to the Ministry of Trade and Industry (MoTI) for distribution to
local bakeries and Hidri ration outlets for $104.00/MT.

--------------------------------------------- -----------
4. (SBU) THE GSE'S SURPRISINGLY DETAILED RECORD KEEPING
--------------------------------------------- -----------

Halgand also provided an electronic copy of the March 2008 Final
Report on EC Food Aid Contribution to the State of Eritrea (not for
distribution). The report provided a detailed account of the
organization of CFW, including internal GSE procedures, a listing of
funded conservation projects, and the grain stock wastage. The
report also concluded that the GSE's CFW program met the EC's
criteria for enhancing food security, "project activities have
contributed to food security and livelihoods at household level,"
and that over 300,000 people benefited from the scheme. Halgand
elaborated that the EC would retroactively amend the pre-2006 food
aid agreement with the GSE if EC headquarters views the results of
the report as satisfactory.

-----------------
5. (SBU) COMMENT
-----------------

Post believes the EC's audit provides a good overview of the
disposition of all of the seized food aid. Halgand noted that
Eritrea consumes approximately 600,000 MT of grain per year. Since
the 90,000 MT of confiscated grain equals 2 months of normal
consumption, he believes it probable that Eritrea's processing and
distribution system effectively absorbed and processed almost the
entire stock of seized donor food aid during spring/summer 2006.

ASMARA 00000225 002 OF 002


The EC's findings show no indication that any of the confiscated
food aid was exported to obtain hard currency. Given the expense
and effort of re-export compared to the minimal net hard currency
gain (total food confiscated was worth approximately $25 to $30
million), Post agrees the GSE likely used the confiscated aid to
displace regular food imports.

The Final Report on EC Food Aid Contribution to the State of Eritrea
indicates a high level of sophistication in the GSE's accounting
practices. Although the GSE does not share its financial and budget
information, the report's detail indicate a strong system of
internal financial accounting.
MCMULLEN

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