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Cablegate: Air Kasai Encounters Turbulence

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 KINSHASA 001724

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EAIR ECON PGOV CG
SUBJECT: AIR KASAI ENCOUNTERS TURBULENCE


1. Sensitive but unclassified. Protect accordingly.

2. (U) Summary. Air Kasai, a private aviation firm, built
numerous airstrips in Kasai Occidental province to provide
air transportation to otherwise isolated diamond mining
areas. Soon after launching its operations, Air Kasai
encountered opposition from local government officials,
traditional chieftans, and rival companies that resulted in
government attempts to expropriate its airstrips. Government
action is still pending, and Air Kasai is fighting the
expropriation decision. This episode demonstrates some of
the difficulties of doing business in the DRC and illustrates
the frailty of the country's property rights and commercial
law. End Summary.

Background
----------

3. (U) Air Kasai, a private aviation firm, was incorporated
in the DRC approximately two years ago. The company operates
Russian Antonovs (2 AN-2s and 3 AN-26s) within Kasai
Occidental province and between Kasai Occidental and
Kinshasa. Air Kasai bought plots of land in Kasai Occidental
from the GDRC on which to build airstrips for the company's
exclusive use. These eleven airstrips allowed Air Kasai to
offer transportation to otherwise inaccessible areas in Kasai
Occidental's diamond mining regions.

4. (U) Air Kasai's operations contributed to an overall
increase in the DRC's diamond exports by opening
transportation links to previously isolated locales. They
also provide a lifeline for transport of goods into remote
areas not easily reached by bush roads. At the outset,
business was good for Air Kasai. The company's monopoly on
air transportation in Kasai Occidental allowed significant
control over pricing, with a half-hour flight costing
approximately USD 300 per passenger.

Complaints
----------

5. (U) Shortly after Air Kasai launched its operations, local
"chefs coutumiers" (traditional chieftans holding little
formal power but significant social influence) began
complaining that Air Kasai had unlawfully constructed
airstrips on their land, despite the fact that Air Kasai had
purchased legal title to the property. The chieftans
demanded compensation and took their grievances to the
provincial authorities in Tshikapa. (Comment: Local
chieftans quite often demand payment from companies operating
in their zones of influence. Absent government financing and
attention, the chieftans attempt to collect funds from any
available source. End Comment.)

6. (SBU) Provincial officials in Tshikapa took up the cause
and complained to RVA (air transportation authority) and the
Ministry of Transportation that Air Kasai "did not respect
the laws" and "had refused to assist the government during
the expulsion of Congolese from Angola." (Note: This refers
to the forced repatriation of Congolese engaged in illicit
mining activities in Angola. End Note.) Provincial
officials, including the mayor of Tshikapa, reiterated their
protests to Econoffs during a recent visit to Kasai
Occidental. The mayor of Tshikapa also added to the list of
grievances the fact that "Air Kasai does not permit
government officials to fly for free."

7. (SBU) Meanwhile, a rival aviation firm, Thom's Airways,
requested and was denied the use of Air Kasai's private
airstrips. Thom's Airways also complained to RVA and the
Ministry of Transportation, claiming that Air Kasai was
engaging in unfair business practices. Air Kasai responded
that it had paid for the land and constructed the airstrips,
and was therefore entitled to their exclusive use. (Comment:
Thom's Airways owns only a single AN-2 which it operates
infrequently. Air Kasai claims that Thom's Airways is little
more than a front for its owner's diamond business. End
Comment.)

Intervention
------------

8. (SBU) Under pressure from the chieftans, local authorities
in Tshikapa, Thom's Airways, and RVA, the Minister of
Transportation signed a decree expropriating Air Kasai's
airstrips without compensation. The expropriation is still
pending, and Air Kasai is fighting the decision. (Comment:
Air Kasai insinuated to Econoffs that Thom's Airways
influenced the Minister of Transportation with contributions
of illegal diamond revenues. End Comment.)

9. (SBU) Air Kasai has since agreed to grant Thom's Airways
landing rights on a fee-per-use basis until the expropriation
issue is resovled. (Note: After receiving permission to use
Air Kasai's airstrips, Thom's Airways promptly began
undercutting Air Kasai's prices, flying freight into Kasai
Occidental for a third of its rivals' prices. End Note.)
However, the chefs coutumiers and officials in Tshikapa have
not been placated, and continue their complaints. Grievances
against Air Kasai were a common theme of Econoffs' recent
visit to Tshikapa.

Comment
-------

10. (SBU) RVA and Ministry of Transportation attempts to
expropriate Air Kasai's airstrips demonstrate the frailty of
property rights and commercial law in the DRC. With investor
confidence tenuous at best, government expropriation of
private assets can only further discourage new investment.

11. (SBU) Air Kasai's troubles also illustrate several
unwritten rules of business in the DRC. Local chieftains
should be treated with caution and respect as they carry
influence beyond their official status. Small favors (such
as occassional free flights for local government officials)
or outright payments are sometimes necessary to grease the
wheels of private commercial ventures. Finally, official
permission and legal documentation offer scant protection
when political or social interests are aligned against a
firm, especially if the firm is a small or medium-sized
business without international backing. End Comment.
MEECE

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