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Cablegate: 2008 Report On Investment Disputes and Expropriation

VZCZCXYZ0000
RR RUEHWEB

DE RUEHNR #1325/01 1440834
ZNR UUUUU ZZH
R 230834Z MAY 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 5888
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS NAIROBI 001325

STATE FOR EB/IFD/OIA HEATHER GOETHERT AND KIMBERLY BUTLER, AND L/CID
GABRIEL SWINEY AND CAMERON HOLLAND

STATE ALSO FOR AF/E AND AF/EPS

USDOC FOR 3131/USFCS/OIO/RD/ANESA

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: KIDE EINV OPIC CASC PGOV KE
SUBJECT: 2008 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION
CLAIMS - KENYA

REFS: (A) STATE 43784 (B) 05 NAIROBI 3255

SENSITIVE BUT UNCLASSIFIED. CONTAINS BUSINESS PROPRIETARY
INFORMATION. NOT FOR RELEASE OUTSIDE USG CHANNELS. PLEASE PROTECT
ACCORDINGLY.

1. (U) The U.S. Mission in Kenya is aware of one (1) outstanding
claim of a United States business interest against a branch of the
Government of Kenya (GOK).

2. (U) Background: In the mid-1990s, Claimant A entered into a
partnership with a Kenyan public university ("the university"), via
a Memorandum of Agreement (MOA), to establish computer instruction
centers. This partnership sought to impart computer skills to
Kenyan students and over the years expanded to several centers
across the country, using U.S. expertise, intellectual property, and
technology supplied by Claimant A to staff and run the curriculum.

3. (SBU) According to Claimant A, the partnership ran successfully
for seven years when, in June 2003, the university, citing
management irregularities, unilaterally took over the entire
enterprise. Though the university agreed in principle to proceed to
arbitration, as provided for by the MOA that established the
partnership, the arbitration process has yet to commence, despite
the significant efforts that U.S. Embassy officers, including the
previous U.S. Ambassador and several Senators and Members of
Congress have expended in pursuit of a satisfactory resolution since
the management takeover.

4. (SBU) At the time of the university takeover, Claimant A
contends it had invested approximately KSh 35 million (USD 500,000),
but had only recouped about 50% of this amount. Furthermore,
Claimant A estimates a loss of investment in excess of USD 5 million
when projected revenues are considered and also estimates that the
university is currently collecting in excess of KSh 100 million (USD
1.43 million) annually from the IT Learning Center, based at its
campus in Juja Town, and from 16 other accreditation centers in
Nairobi. Finally, according to Claimant A, the university has also
set into motion plans to develop a technology park, a project
concept that had been envisioned for implementation at some later
phase within the spirit of the joint MOA. Claimant A asserts that
the university needs to reverse its suspension of the MOA or provide
financial compensation.

5. (SBU) U.S. Mission Actions on Behalf of U.S. Claimant: In June
2003 Claimant A formally sought U.S. Embassy Nairobi intervention in
its dispute with the Kenyan university, citing a unilateral breach
of the parties' MOA and claiming that Claimant A's interest in the
partnership had been expropriated. Subsequently, Embassy officials
contacted GOK counterparts on Claimant A's behalf and persuaded the
university to submit the case to arbitration, as agreed in the MOA.
The Embassy has also signaled to the GOK the desirability of an
early and, if possible, amicable settlement of this dispute on many
occasions. To date, Claimant A has refused to engage local counsel
or pursue this case in the Kenyan legal system. Claimant A has also
refused to accept the university's offer of arbitration under the
MOA's terms.

6. (SBU) As part of a March 20, 2007 conference call, Claimant A's
president requested that the U.S. Ambassador intervene in the
matter. Claimant A's local representative also participated in the
conference call. In response, on April 24, 2007, the Ambassador
wrote to the Kenyan Minister of Education, requesting the
reinstatement of the MOA by the Kenyan university. A copy of this
letter was also sent to the then Minister of Internal Security
because Claimant A's president believes the former Internal Security
Minister can assist in facilitating a decision that would bring both
parties closer to a negotiated resolution. U.S. Embassy Foreign
Commercial Service (FCS) officers have followed up with contacts in
both the Education and Internal Security ministries but have yet to
receive a concrete reply to the Ambassador's letter. U.S. Embassy
officers have met and corresponded with Claimant A's local
representative on several occasions.

7. (SBU) On July 11, 2007, Claimant A's president contacted U.S.
Embassy FCS following an "East African Standard" article alleging
corruption at the university. U.S. Embassy Charg d'Affaires spoke
with Claimant A's president on July 12 and held a follow-up meeting
with Claimant A's representative in Kenya on July 13. The Charg d'
Affaires reiterated that, while the U.S. Embassy would continue to
seek a negotiated political solution to this dispute, Claimant A
ought to pursue local legal remedies and/or international


arbitration, which Claimant A has thus far refused to do.

8. (SBU) On September 10, 2007, Claimant A's president held a
conference call with then Acting Deputy Chief of Mission (DCM) and
FCS staff, during which he indicated that he no longer wished to
pursue a negotiated solution to his claims against the university.
Claimant A's president requested a determination by the USG that his
assets had been expropriated. In a September 21, 2007 letter from
the Ambassador to Claimant A's president, and a subsequent
conference call involving both parties on October 4, 2007, the
Ambassador reviewed USG policy on expropriation in detail to
Claimant A. The Ambassador explained that U.S investors must
exhaust all local remedies or prove the futility of pursuing such
remedies prior to claiming expropriation. Since the October 4, 2007
conference call with the Ambassador, Claimant A's president has to
date neither initiated local legal action to seek redress or
initiated international arbitration, nor initiated negotiations with
the University to reach a settlement. (U.S. Embassy officers
continue to maintain regular contact with Claimant A's local
representative).

9. (SBU) On May 14, 2008, the DCM sent Claimant A's president a
letter clarifying that the Counselor for Commercial Affairs is
Claimant A's principal point of contact. The DCM asked that
Claimant A henceforth communicate any changes in this case to the
Foreign Commercial Section of the Embassy.

10. (SBU) Claimant's Name:

Claimant A: Nebraska-based Micro-Mini Systems (MMS)

University: Jomo Kenyatta University of Agriculture and Technology
(JKUAT)

11. (U) Primary U.S. Mission contacts:
FCS Counselor for Commercial Affairs Jim Sullivan
Email: jim.sullivan@mail.doc.gov
Tel: 254-20-363-6066
Fax: 254-20-363-6722

FCS Senior Commercial Specialist Humphrey Lilech
Email: humphrey.lilech@mail.doc.gov
Tel: 254-20-363-6438

State Department Economics Officer George W. Aldridge
Email: aldridgegw@state.gov
Tel: 254-20-363-6048
Fax: 254-20-363-6011

Ranneberger

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