US embassy cable - 04SANAA2742

UNCLAS SECTION 01 OF 02 SANAA 002742 
 
SIPDIS 
 
STATE FOR NEA/ARP, EB/IPR, EB/TRD 
STATE PLEASE PASS TO USTR FOR J.BUNTIN 
STATE ALSO FOR USAID ANE 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, KCOR, YM, ECON/COM 
SUBJECT: YEMEN'S TENDERING SYSTEM - A TEST OF PATIENCE 
 
 
1. Summary:  Yemen's non-transparent government procurement 
process tops the list of frustrations for Western companies 
interested in investing in Yemen.  The poorest and least 
developed country in the Middle East, government projects offer 
one of the better ways for foreign companies to invest in Yemen. 
A drawn-out tendering process that is often overturned for 
"political reasons" discourages foreign companies.  On the 
positive side, unlike its Gulf neighbors, Yemen has no laws 
explicitly favoring Yemeni companies.  Foreign companies are 
permitted to bid alongside their domestic competitors.  In 
practice, however, domestic companies usually manage to win the 
contracts often acting as the major partner to an international 
company.  End Summary. 
 
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Political Pressure Takes Precedence Over Laws 
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2. As part of an IMF-directed economic reform initiative, the 
ROYG issued Law Number 7 of 1997 by presidential decree to 
organize government procurement.  In addition to establishing a 
government tendering process and procurement system, the law 
created the High Tendering Board, chaired by the Deputy Prime 
Minister and Minister of Finance, and is composed of the 
Ministers of Planning and International Cooperation, Public Works 
and the appropriate line Minister.  The law gives authority to 
the Ministry of Finance to supervise the tendering process and 
the Ministry of Public Works to oversee technical aspects of the 
tender. (Note:  MOD Procurements are governed by another process. 
End Note).  The High Tendering Board considers tenders between 
150 million Yemen Riyals (YR) and 450 million YR (850,000 to 2.5 
million USD).  The entire cabinet votes on government tenders 
above 2.5 million USD.  Ministry level committees handle all 
tenders below YR 150 million Riyals (850,000 USD). 
 
3. In certain cases, the ROYG may issue a "limited tender" 
reducing the competition to three or more contracts for the 
following reasons: the need to maintain privacy, the risk of 
endangering public safety, urgent need, when there are only a few 
contractors who are able compete for the bid, and if the tender 
has been advertised twice without eliciting winning bid. 
 
4.  Despite the law, in practice the President can intervene on 
any tender and award the contract to a party of his choosing. 
The President and other high-placed officials have interfered 
several times to give tenders to parties of their choosing, 
rather than to the parties the High Tendering Committee awarded 
the contract. 
 
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Foreign Applicants Restricted In Practice 
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5. While the law treats foreign applicants equally, in practice 
Yemeni firms are treated favorably.  According to the tender law, 
the ROYG can conduct a "pre and post- qualification process" to 
verify that foreign bidders meet the terms of the contract. 
Foreign companies must appoint an agent or an authorized 
representative to be present when the bid is submitted. 
Investment Law Number 22 of 2002 gives preference to local 
agricultural and industrial products and allows the ROYG to issue 
a winning contract to those tenders that are as much as fifteen 
percent above the lowest bid if local materials and or 
contractors are used. 
 
6. This past summer revisions to the commercial law were 
announced that favor Yemenis.  Details about the law remain 
unclear, but as proposed, the law states that Yemenis must own a 
51 percent interest in all companies.  When asked to explain the 
new law, several ROYG contacts admit that they are equally 
confused and are seeking clarification.  If enacted this law 
could have a negative effect on future business. 
 
 
 
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Tendering Process 
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7. Tenders are advertised through international and local media. 
The ROYG employs local advertising only when the Ministry or High 
Tendering Committee determines that local contractors using 
locally procured products can carry out the project.  Foreign 
contractors may still bid on these projects, but they are not 
advertised internationally.  All government tenders are 
advertised in the government paper "al-Thawra."  Tenders are not 
presently advertised on government websites, although the ROYG is 
developing its e-business capabilities and could do so in the 
future. 
 
8. The tendering law outlines standardized timelines, but in 
practice they do not exist.  The law stipulates that tenders are 
to be opened publicly a minimum of one month after the tender is 
announced.  Bids are to be submitted with bank guarantees of 2.5 
percent of its price.  Article Six of the tendering law states 
that "all respective authorities ensure equally fair treatment 
for all tender competitors, and any applicant, contractor or 
importer, can challenge the chief of that authority or any higher 
official or resort to judiciary when prone to any harm or damage 
as per stated in this law and the regulating by-laws."  Due to 
weaknesses in the judiciary, however, this is not a viable 
recourse. 
 
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Yemeni Firms Favored 
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9. While the tendering law is generally fair as written, in 
reality American and Western firms face substantial 
discrimination.  Post has heard allegations that American firms' 
secret bids were given to local companies who were then able to 
 
SIPDIS 
submit lower bids.  In one case an American company won a tender 
but no date was ever announced for its award. In Yemen, once a 
tender is awarded it is by no means final.  Intervention, 
cancellation, and recall are common. 
 
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Comment 
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10. Comment: Post has engaged the ROYG at the highest levels 
concerning non-transparent and unfair bidding practices.  While 
Yemeni officials continually seek to bring in more Western 
investment, they have yet to heed Post's advice that attracting 
foreign investors requires that the ROYG first live up to 
international standards on transparency and accountability. 
Until the ROYG reforms its tendering system to allow foreign 
firms to compete, Government procurement will remain only a 
potential market for American firms.  End comment.