Business Daily (Nairobi)

Kenya: Gaddafi's Fall Puts Country in a Tight Diplomatic Spot

Kenya was yesterday left at a diplomatic crossroads after rebel forces swept through the Libyan capital ending Muammar Gaddafi's 42-year grip on power in the oil rich North African state.

Nairobi, which has only recently rebuffed the Obama administration's pressure to freeze Gaddafi's multi-million shillings investments in Kenya, appeared unmoved with Sunday events that saw the rebels enter Tripoli and capture the Libyan leader's two sons.The Gaddafi administration's symbol of power - the green flag - continued to flutter atop the Nairobi Embassy yesterday, affirming Kenya's continued recognition of the besieged strongman as the Libyan leader despite signs that his stay in power had become untenable.

Calls went unanswered at the Loita Street office but the green flag made a clear statement that the regime change in Tripoli had yet to get official recognition in Kenya.

Muammar Gaddafi's government was last evening tottering on the brink of total collapse as rebels - helped by NATO helicopter gunships - swept through Tripoli with little resistance.

In several European nations, the rebels' crescent and star emblazoned red-black-green flag replaced Gaddafi's green flag, a symbol of his revolution that was adopted in 1977.

At Nairobi's Laico Regency, owned by the Gaddafi government's Libya Arab African Investment Company (Laico), it was business as usual as guests and tourists flocked to the five-star hotel as if oblivious of the changes.

Last month, the Kenya government said it won't "accede to pressure by third-parties" to sever diplomatic ties with Libya or freeze the regime's assets in Kenya.

Acting Foreign Affairs minister, Prof George Saitoti said the matter would be forwarded to the African Union.

Gaddafi regime has been close to the Kibaki government ever since the Kenyan leader made a State Visit to Tripoli in June 2007.

To expand Libya's commercial influence in Africa, Gaddafi had his country admitted to the Common Market for Eastern and Southern Africa (Comesa), promising cheap oil to member states that were being economically strangled by rising oil prices.

Libya's entry into the Comesa in 2005 not only gave Gaddafi a strong foothold in the region but also offered his companies a stepping stone to competing with established western interests for lucrative tenders.In Kenya, the Gaddafi regime's interest has been represented by Uhuru Highway-based Laico Regency and the Libya Oil Kenya Limited, whose flagship is the Oilibya brand.

The two are backed by the $5 billion Libya Africa Portfolio for Investments (LAP) investment fund that Gaddafi established five years ago.

Initially, Libya Oil Kenya had planned intended to serve as the distribution arm of Libya's oil wealth. The plan however ran into trouble because of inadequate fuel storage facilities in Kenya forcing the company to playing in the retail market -- in the hope that once the storage capacity improved it would have a firm foot in the region.

The entry of Gaddafi in Kenya's business scene followed a meeting by former Narc chairman, the late Alex Mureithi shortly after Kanu was swept out of power in 2002.

Mr Mureithi, a relative of President Kibaki, was pivotal in seeking early contacts in Tripoli and wooing Libyan investors to East Africa.

Soon, a Libyan company had placed a bid to build an oil pipeline from Eldoret to Uganda and another to supply five countries in the region with oil products from a Ugandan refinery.

Gaddafi combined this commercial entry with politics and used his influence to purchase choice service stations in Kenya in 2007 with the exit of Mobil Oil from Kenya.

It was at the same time that Tamoil Africa Holdings Limited, which is fully owned by the Gaddafi regime through the Libyan-African Investment Portfolio (LAP), bid to acquire downstream assets of the American company, ExxonMobil.

These included the Mobil's network of 64 retail service stations, a blending plant for lubricants in Mombasa, the aviation business, terminals at Mombasa and Nairobi and fuel depots in Nakuru, Eldoret and Kisumu.A year earlier, Tamoil had signed an agreement with the ministry of energy - then headed by Kiraitu Murungi - in which Libya was to provide Kenya with petroleum products at concessional rates.

Coming at a time when the Kibaki government was short of western friends and was looking east for economic bolsters, the Libyan friendship came with no strings attached.In 2007, Kibaki and Gaddafi signed an agreement that included the opening of direct air transport between the two countries and the formation of a Joint Commission for Bilateral Co-operation - giving Libyan diplomat and foreign affairs officials a chance to see Kibaki at his hotel room; whenever he went for AU meetings.

With this closeness, Kenya was hoping that it would be able to tap into US$ 5 billion investment plan that Gaddafi's had put aside for Africa.

Among the projects that Mr Kibaki discussed with the Libyan government are the Tamoil undertaking to upgrade of the Kenya Oil Refinery and construction of a Liquefied Petroleum Gas import storage and distribution facility in Mombasa.These may now go with Gaddafi.

The most significant for the business community was the trade agreement in which Libya and Kenya agreed to grant each other most favoured nation treatment in all matters relating to customs duties. This saw several Kenya traders open shop in Tripoli and had to be airlifted as the uprising on Gaddafi began.The fate of the Gaddafi investments in Kenya now lies in limbo.

At first, the Libyan African Arab Investment Company had shown interest in setting up a 5-6 Star hotel in Nairobi before the Grand Regency hotel was dangled to them.

The sale, whose controversy and secrecy has the hallmarks of deals with the Gaddafi government, sparked a national row that saw the then Finance Minister, Amos Kimunya step aside.

The Governor of the Central Bank, Prof Njuguna Ndung'u, was to tell a commission that was investigating the sale that the government offered the hotel to the Libyans without tendering.

Grand Regency was a public property and its sale should not have been shrouded in any secrecy whatever value it was given. The Libyans were also preparing to set up a Conference Centre in Mombasa before the Arab world revolts started toppling the ageing regimes.

Gaddafi had hoped that his US$.5 billion investment plan in Africa might shield him. Ironically, he supported various rebel movements in Africa in 1970s and 80s and fell out with former President Moi in 1986, who accused the Libyan Embassy of espionage.Moi not only closed the Libyan embassy but jailed several University of Nairobi student leaders.

While various governments - including the US - have handed the frozen Libyan assets to the rebels, Kenya has been left with Gaddafi assets that it has to make a political stand on.

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