Archive for the ‘Wikileaks Cables that matter in Switzerland’ Category

BULGARIA: 2010 ANTI-TRAFFICKING IN PERSONS (TIP) REPORT

Wednesday, June 29th, 2011

ID 10SOFIA123

SUBJECT BULGARIA: 2010 ANTI-TRAFFICKING IN PERSONS (TIP) REPORT

DATE 2010-02-22 00:00:00

CLASSIFICATION UNCLASSIFIED//FOR OFFICIAL USE ONLY

ORIGIN Embassy Sofia

TEXT UNCLAS SECTION 01 OF 07 SOFIA 000123

DEPARTMENT FOR G/TIP (Hall), INL, DRL, PRM, EUR/PGI, EUR/SCE

SENSITIVE

SIPDIS

E.O. 12958: N/A

TAGS: PHUM, KCRM, KWMN, SMIG, KFRD, ASEC, PREF, ELAB, BU

SUBJECT: BULGARIA: 2010 ANTI-TRAFFICKING IN PERSONS (TIP) REPORT

REF: STATE 2731

SOFIA 00000123 001.2 OF 007

 

1. (SBU) SUMMARY: Bulgaria is primarily a point of origin and transit, and to a lesser degree destination for human trafficking. The government continued its energetic anti-trafficking  prevention campaign and stepped up efforts in the area of victim protection.

It also passed legislation to increase punishments for traffickers and introduced penalties for the clients of minor prostitutes and trafficking victims. The new government has actively pursued high-profile cases against corrupt officials, including former ministers and agency heads. It fired several police officers accused of aiding traffickers and arrested a high-level Interior Ministry official in charge of migration policy for helping trafficking groups obtain fake documents. The court sentenced two elected local government officials charged with leading a trafficking criminal network.

2. (SBU) Primary point of contact on trafficking is Political Officer XXXXXXXXXXXX. Approximately 100 hours of staff time were required for the completion of this report.

END SUMMARY.

 

REPORTING QUESTIONS

——————-

25. (U) BULGARIA’S TIP SITUATION:

— A. Several agencies, including the Prosecution Service, the Ministry of Interior, the Ministry of Justice, and the Ministry of Labor and Social Policy maintain information about trafficking trends, criminal proceedings, traffickers and victims. The National Commission for combating trafficking in human beings (the Commission) collects and summarizes all government-generated data, which is generally inclusive and reliable. The International Organization for Migration (IOM) and NGOs also compile data on the destination, source points, and recruitment methods compiled from trafficking victims that they have assisted.

— B. Bulgaria continues to be primarily an origin point for trafficking of women and children, mostly for purposes of commercial sexual exploitation. To a lesser extent it is a transit and destination point for sexual exploitation of foreign victims of trafficking. Bulgarians are also subjected to trafficking conditions within the country. Internal trafficking, particularly to resort areas, is primarily for sexual exploitation, and victims are often later trafficked to Western Europe. The ratio between external and internal trafficking for sexual exploitation is almost equal. Bulgarian victims of sexual exploitation are traditionally recruited from several regions of the country: victims from Sliven, in southeast Bulgaria, are primarily trafficked to Belgium and the Netherlands; victims from Plovdiv and Pazardzhik, in central Bulgaria, are mostly trafficked to France, Austria, and Italy; victims from northeast Bulgaria are mostly trafficked to Germany, Czech Republic, and the Scandinavian countries; victims from Blagoevgrad, in southwest Bulgaria, are usually trafficked to Greece, Italy, and Spain. Bulgarian victims are also trafficked to Poland, SWITZERLAND, Finland, Turkey, Cyprus and Macedonia.

NGOs report few recent cases of Bulgarian victims trafficked outside Europe, primarily to the U.S. and South Africa. Law enforcement officials report that more than 80 percent of the trafficking investigations involve sexual exploitation. However, Greece, Italy, Spain and Great Britain are known also as destinations for labor trafficking of Bulgarian victims.

— C. Victims are subject to forced prostitution, physical and psychological abuse. They are frequently limited in their movement and face punishments for failing to comply with the traffickers’ rules. Victims are also deprived of their identity documents and are controlled through threats against their relatives. Some victims are forced to pay large debts or are sold to other traffickers. Occasionally, in order to keep them dependent, victims are given drugs, mostly heroin.

— D. The most vulnerable populations for human trafficking are young women between the ages of 18 and 24, low income or unemployed persons, and those with less education and problematic family relations. According to NGO estimates, Roma account for approximately 15 percent of victims. Roma children are more vulnerable to being trafficked for begging and delinquency and Roma women are vulnerable to being trafficked for sexual exploitation. NGOs report that female students, particularly from high-schools or universities specializing in dance, have recently become more vulnerable to trafficking.

— E. Law enforcement and NGOs identify four types of traffickers: freelancers, independent pimps (who usually control 2 to 5 victims), partner associations (typically comprised of 2 to 9 traffickers who control up to 7 victims each), and organized crime networks. Freelancers and independent pimps have limited access to territories outside Bulgaria, while partner associations and OC groups largely control the international trafficking. Bulgarian victims are lured by promises of profitable work, often through close friends, acquaintances, or boyfriends. In some cases victims are recruited through false job offers for receptionists, waitresses, models or au pairs. Some victims directly approach the traffickers and voluntarily accept to work as companions but are later exploited.

Occasionally victims are kidnapped, forced to pay back unreasonable debts, or are sold by their relatives. Both Bulgarian and foreign trafficking victims generally use genuine rather than forged documents and cross borders legally. Victims are also moved frequently from one place to another, avoiding detection by authorities for undocumented stays. Children trafficked abroad generally travel with the full consent of their parents as required by Bulgarian border control.

26. (U) SETTING THE SCENE FOR THE GOVERNMENT’S ANTI-TIP EFFORTS:

— A. The government acknowledges that human trafficking is a problem in the country.

— B. The Commission, which by law is comprised of deputy ministerial level representatives of different agencies, serves as the focal point for coordinating the government’s anti-trafficking efforts. The Commission is supported in its efforts by six local commissions, which are located in regions identified as major source or destination points for trafficking. In 2009, the Commission continued its energetic prevention campaign and stepped up efforts in the area of victim protection. On the prosecution front, the Ministry of Interior and the Prosecution Service maintained high rates of investigations against sex and labor traffickers.

— C. The government’s challenges to combat trafficking include an overly formalistic judicial process, inadequate compensation for government officials, and lingering public corruption. Different agencies within the Ministry of Interior have the authority to investigate trafficking cases. Some of the agencies’ local branches lack sufficient expertise or administrative capacity to handle complex investigations. Additionally, the lack of a centralized approach in investigating organized crime groups sometimes allows the groups’ leaders to conceal their criminal activities by sacrificing low to mid-level accomplices.

— D. The Commission regularly collects data from all relevant agencies to refine its prevention campaigns and training programs. The National Commission publishes an annual report of the government’s anti-trafficking efforts and hosts a quarterly meeting with international donors and local NGOs. These quarterly meetings provide a forum for sharing accomplishments and coordinating efforts.

— E. The government has a reliable system for birth registration. Regardless of ethnicity or social status, Bulgarian women have traditionally chosen to give birth at hospitals providing specialized medical care. According to latest studies 99.4 percent of all births take place at hospitals and are registered immediately thereafter. In 2009, the government continued to implement measures in order to meet EU Schengen requirements. As part of this effort, starting March 2010 the government will begin to re-register citizens, which is necessary for the issuance of new identity documents containing biometric data on all Bulgarian nationals.

— F. The government generally has the capabilities to gather data for law enforcement assessment. However, the lack of a systematic approach and modern equipment as well as the poor administrative capacity, especially at local level, are challenges acknowledged by the government. In part to overcome these challenges, the government establishment permanently functioning task forces in 2009, comprised of vetted law enforcement officers and prosecutors. These task forces are already running at full speed and target organized crime in a more systematic manner.

27. (U) INVESTIGATION AND PROSECUTION OF TRAFFICKERS:

— A. Section IX of Bulgaria’s Criminal Code, which was adopted in 2002, specifically prohibits trafficking for both sexual and labor exploitation. The law covers internal and transnational forms of trafficking. The victims’ consent is not defense to trafficking charges under Bulgarian law, even when the victim is an adult. Amendments adopted in April 2009 increased punishments for traffickers. More specifically the government significantly increased fines for traffickers and increased the minimum time of imprisonment for internal trafficking. The law also increased the maximum prison sentence for international traffickers, repeat offenders, and organized crime group members. Changes to the law introduced specific penalties for the clients of minor prostitutes and for those who use trafficking victims for sexual abuse, forced labor, organ removal or servitude. The Criminal Code also punishes rape, slavery, forced prostitution and activities related to prostitution. Trafficking is among the offenses covered by the 2005 Asset Forfeiture Law, which allows for confiscation of illegally acquired property. Victims of trafficking can also sue for civil damages. The exact text of section IX, article 159 is included below.

TRAFFICKING IN PEOPLE

Art. 159a.

(1) A person who gathers, transports, hides or receives individuals or groups of people in order to be used for vicious practice, involuntary servitude, seizure of body organs or to be kept under compulsory submission regardless of their consent, shall be punished by imprisonment of two to eight years and a fine from three thousand to twelve thousand levs.

(2) When the act under para 1 is committed:

1. regarding a person under eighteen years of age;

2. by compulsion or by deceiving the person;

3. by kidnapping or illegal deprivation of freedom;

4. by using a state of dependence;

5. by malfeasance;

6. by promising, providing or obtaining benefit,

the punishment shall be imprisonment of three to ten years and a fine from ten thousand to twenty thousand levs.

(3) In case the act under para 1 has been committed with regards to a pregnant woman with the purpose of selling the child, the punishment shall be imprisonment of three to fifteen years and a fine of twenty thousand to fifty thousand levs.

INTERNATIONAL TRAFFICKING

Art. 159b

A person who gathers, transports, hides or receives individuals or groups of people and transfers them through the border of the country with the purpose under art. 159a, para 1 shall be punished by imprisonment of three to twelve years and a fine from ten thousand to twenty thousand levs.

(2) If the act under para 1 is committed under the conditions of art. 159a, para 2 and 3 the punishment shall be imprisonment of five to twelve years and a fine from twenty thousand to fifty thousand levs.

CLIENTS OF TRAFFICKING VICTIMS

Art. 159c.

Whoever uses a person, victim of traffic of people, for acts of debauchery, for forced labor, for deprivation of corporal organs or to be kept in forced obedience regardless of his consent shall be punished by imprisonment from three to ten years and fine from ten thousand to twenty thousand levs.

REPEAT OFFENDERS AND ORGANIZED CRIME GROUP

Art. 159d.

When the act under art. 159a – 159c represents a dangerous recidivism or it has been committed by an errand or in fulfillment of a decision of an organized criminal group the punishment shall be imprisonment of five to fifteen years and a fine from twenty to one hundred thousand levs, as the court can also rule confiscation of a part or of the entire property of the offender.

— B-C. All forms of human trafficking are equally penalized, regardless of the form of exploitation. The punishment for trafficking in persons is two to eight years in prison and fines up to approximately USD 8,800 (BGN 12,000). If aggravated circumstances exist — e.g., a minor or kidnapping was involved — penalties increase to three to ten years in prison and fines of up to approximately USD 14,700 (BGN 20,000). Penalties for trafficking persons across borders increased to three to 12 years imprisonment and fines of up to approximately USD 14,700 (BGN 20,000). The same increased punishment is provided for trafficking of pregnant women for the purpose of baby selling. If the act of trafficking is carried out in connection with an organized crime group or constituted a serious repeat offense, penalties increase to five to 15 years imprisonment with fines of up to approximately USD 74,000 (BGN 100,000) and the possibility of forfeiture of assets. Labor recruiters and employers who falsely entice workers or forcibly hold them in the destination countries can be punished with up to ten years imprisonment.

— D. Sentences for rape range between two and eight years imprisonment; sentences increase to between three and ten years if the perpetrator is a repeat offender, or if the victim is underage or a close relative. In cases where rape results in serious bodily injury or suicide of the victim, sentences range between ten and 20 years.

— E. In 2009, the prosecution service investigated a total of 226 trafficking cases, 21 of which involved forced labor. Of the 226 cases, 95 were from previous years and 131 were launched in 2009. Of the 131 newly launched investigations, 122 of them concerned trafficking for sexual exploitation and nine dealt with labor exploitation. In 2009, prosecutors filed indictments against two labor traffickers, including one foreigner, and 79 sex traffickers, including 2 foreigners. A total of 97 persons were convicted on trafficking charges. Of the 97, 94 were sentenced for trafficking for sexual exploitation and three for labor exploitation. Fourteen people were convicted based on a new provision which criminalized the use of trafficking victims for sexual abuse. Fifty-one of the traffickers received effective sentences, 45 received suspended sentences and one was sentenced to probation. Thirty-seven traffickers received fines in addition to their sentences. Offenders convicted of trafficking generally served the full sentences mandated by the court. In some of the cases, the prosecutors pressed multiple charges against the perpetrators, and where there was not sufficient evidence to prove the trafficking charges, the perpetrators were prosecuted for enticement into prostitution. In January 2010, the police arrested six people for sexually abusing 12 boys ages 12 to 16 years who were recruited through the Internet. The investigation is ongoing.

— F. The government and NGOs trained law enforcement officers on investigating trafficking and differentiating between trafficking victims and offenders. As part of its regular curriculum, the National Institute of Justice, the government’s magistrates’ training institution, trained 34 judges and 19 prosecutors on organized crime issues, including human trafficking and trans-border crimes. The International Organization for Migration (IOM) trained 60 Bulgarian labor inspectors on issues such as trafficking victim identification, sectors most vulnerable to trafficking exploitation, protection mechanisms, and penalization of violators. IOM also trained 60 law enforcement officers on trafficking victim identification and referral and migration management.

— G. The Bulgarian government cooperated with other governments in the investigation and prosecution of trafficking cases. The MOI Border Police unit cooperated with counterparts in Poland, Great Britain, Belgium and Greece. The MOI anti-organized crime unit held 17 joint investigations targeting human traffickers with law enforcement from Austria, Germany, France, Belgium, the Netherlands, Italy and Great Britain.

— H. Bulgarian law allows extradition of both foreign nationals and Bulgarian citizens. In 2009, the government initiated 33 extradition cases on trafficking charges. Of them, four were against foreigners and 33 against Bulgarian nationals.

— I. Corruption is by far Bulgaria’s biggest challenge with numerous allegations of government officials providing “no look” protection to organized crime figures, including traffickers. The new government, which won the July 2009 elections on an anti-corruption platform, has made strides against corrupt practices, including launching investigations against four former ministers and several other high-level officials. The new government also replaced 26 of the 28 regional police chiefs and established permanently functioning joint police-prosecutors investigative teams targeting major organized crime figures.

— J. In 2008 police arrested 24 members of an organized crime group involved in human trafficking and money laundering in the coastal city of Varna. Three of the group’s members were elected government officials and served on the city council at the time of their arrest. In June 2009 two of the municipal councilors, a father and a son, plea bargained and received a three-year and one-year effective sentences, which they are currently serving. A total of 19 members of the group plea bargained and received reduced sentences. The trial is ongoing against one municipal councilor and four members of the group, who refused to plea-bargain.

Additionally, nine out of eleven officers of the local anti-organized crime unit in Vratsa were dismissed from office on suspicion of aiding a trafficking group. In February, the government arrested the Head of the Migration unit within the Interior Ministry for reportedly aiding a criminal group in securing Bulgarian identity documents for foreigners smuggled in Bulgaria.

— K. Reporting not applicable to Bulgaria

— L. Bulgaria does not have an identified child sex tourism problem. However, resort areas along the Black sea coast and border towns, especially with Greece, are destination points for internal sexual exploitation. Trafficking victims in these areas are often young girls between 14 and 18, who are considered children under Bulgarian law. The Prosecution service identified 18 children victims of sexual exploitation in 2009. In October 2009 the court sentenced an Australian pedophile to five years and six months imprisonment. The Australian was arrested in November 2008 for performing acts of debauchery with three Bulgarian minors in the coastal city of Varna and videotaping them. A Bulgarian national was also sentenced to nine months imprisonment for aiding the Australian to get in contact with the victims. In March 2009, prosecutors filed in court an indictment against an Italian national accused of pedophilia. The trial against him is ongoing. In September 2009, police arrested a German pensioner who was videotaping naked Bulgarian minors of Roma origin who were between four and eight years old for an Internet pedophile forum. The investigation against the German is ongoing as is the investigation against national of Great Britain who was arrested on charges of pedophilia in December 2009. Bulgarian Criminal Code has extraterritorial coverage and Bulgarian nationals are punishable for child abuse abroad.

28. (U) PROTECTION AND ASSISTANCE TO VICTIMS:

— A. The government provides victims with shelter, counseling, medical, and legal assistance, consistent with its laws.

— B-C. Bulgaria has six state-run children’s shelters and one adults’ shelter which are accessible to victims of trafficking. Additionally several NGO’s, including Animus (Sofia), Samaritans (Stara Zagora), SOS Families at Risk (Varna), Diva (Plovdiv), Open Door (Pleven), and Demetra (Burgas) have care facilities and offer legal, medical and psychological service to victims of trafficking.

The Government rents facilities to NGOs, at below market rates and provides police protection for NGO-operated safe houses. Several local governments, including in Varna and Pazardzhik, outsource provision of social services to NGOs by allocating them premises and funding. Each of the six children’s shelters offers psychological and medical assistance to  victims and has the capacity to shelter ten kids between ages six and 18 years for a period of up to six months. The government provides an annual state allowance of 7,750 ($5,000) BGN/year per child. NGOs and government agencies do not distinguish between foreign and Bulgarian citizens in providing assistance to trafficking victims. The Commission is finalizing standards for minimum care that all facilities should offer to trafficking victims.

— D. The 2003 Anti-Trafficking Act created a special immigration status for foreign trafficking victims who cooperate in trafficking investigations. The status provides for full residency and employment rights until the end of criminal proceedings. For foreign citizen victims who choose not to cooperate in trafficking investigations, the GOB provides ten days plus one month for recovery before they are returned to their country of origin. The recovery period for foreign citizen child victims is ten days plus two months.

— E. The government shelters children victims of trafficking for a period of up to six months. The shelter’s social workers seek to ensure the safe return of the children to their biological families after this period expires and, whenever necessary, to find them accommodation in a specialized institution or a foster family.

— F. The government has an institutionalized referral process for children victims of trafficking and law enforcement routinely referred children victims to the six state-run shelters. Law enforcement referred adult victims to NGOs. In 2009, the Commission continued to work with NGOs in a multinational project funded by the Dutch government to develop a transnational referral mechanism. The Commission is currently finalizing a set of standard operative procedures under this mechanism.

— G. In 2009, the government identified 289 victims of trafficking, of which 44 were minors. Of the children victims, 40 were sexually exploited and four were labor exploited. All children victims received government-funded assistance. Of the adult victims, 213 were women and 32 were male. Of the 32 men, 28 were victims of labor exploitation and five men were sexually exploited. 202 women were victims of sexual exploitation and 11 were labor exploited. In 2009, IOM assisted 47 victims of trafficking, two of whom were foreign nationals. Forty of the assisted were victims of sexual exploitation and seven were victims of labor exploitation. Animus NGO assisted 45 adult victims referred by law enforcement or their sister organizations throughout Europe.

— H. Bulgarian law enforcement, particularly border police, have been trained on victim identification and have a system for screening potential victims. Prostitution is not specifically legalized in Bulgaria.

— I. NGOs reported that victims’ rights were respected, according to international norms. Victims were generally not detained, fined, or prosecuted for minor offenses with one notable exception involving two Moldovan women who received a six month suspended sentence for illegal border crossing. The two were meanwhile referred to IOM for assistance but the charges against them were not dropped.

— J. The government encourages victims to assist in the investigation and prosecution of trafficking cases and provides special status for foreign citizen victims who cooperate. Victims can also file civil suits for material and moral damages suffered and generally victims have unimpeded access to such redress. Victim witnesses are permitted to obtain other employment or leave the country pending trial proceedings. Trafficking victims who have not been compensated through judicial process can seek redress for material damages from a special government fund. The fund is operated by a National Council under the Ministry of Justice which allocates compensations from BGN 250 (approximately USD 170) to BGN 5,000 (approximately USD 3,520) to victims of a specified list of crimes, including trafficking.

— K. The government provides training for government officials on identifying and assisting trafficking victims. In 2009, experts of the Commission made presentations to Border police, school teachers, and social workers at the children shelters. The Police Academy under the Ministry of Interior has included human trafficking course in its standard curriculum for police officers. The Ministry of Foreign Affairs Diplomatic Institute includes a module on trafficking in its courses for junior diplomats and consular officers as well as officers from the Ministry of Defense, the General Staff, and the Military Academy. The officers posted to Bulgarian embassies and consulates are taught how to recognize trafficking victims and how to refer victims to NGOs for legal, medical and psychological assistance. In 2009, the IOM helped repatriate and provided social assistance to three adults and three children who were victims of labor exploitation in Spain. All of the victims were referred to IOM by the Bulgarian embassy in Madrid.

— L. The Government provides medical aid, shelter, psychological, and reintegration assistance, as well as education to children victims of trafficking. It refers repatriated adult trafficking victims to NGOs for legal, medical and psychological aid. The Anti-Trafficking Act provides for repatriated Bulgarian trafficking victims to receive the same assistance and care as trafficking victims identified within the country.

— M. The IOM and NGOs, including Animus, Nadia Center Foundation, Samaritans, Diva, and SOS Families at Risk provided medical, legal, psychological and reintegration assistance to trafficking victims. IOM and NGOs report strong cooperation with Government officials, on a national and local level. The government supported and protected organization conducting awareness/prevention campaigns.

29. (U) PREVENTION:

— A. In 2009, the government organized and/or supported numerous public awareness programs on national and local level. In October 2009, the Commission launched an Open Door campaign by opening its office to students every Friday. In 2009, the Commission hosted 350 students who received information brochures and participated in video screenings and discussions. The Commission also organized a student contest for trafficking awareness presenting 50 awards for anti-trafficking illustrations and 30 awards for best essays. The local commission in Varna, in partnership with an employment agency and local universities, organized a prevention campaign against labor exploitation titled “Where are you travelling?”. Experts at the local commission in Burgas held discussions with students. The local commission in Sliven held a charity concert under the slogan “There is always a choice” and organized in partnership with the local theater a prevention campaign for the visitors of the autumn theater festival. The government also opened three information centers under the local commissions in Varna, Burgas and Pazardzhik.

— B. The National Border Police actively monitors airports and land border crossings for evidence of trafficking in persons. However, effective monitoring of immigration and emigration patterns is hampered by visa-free travel between Bulgaria and its neighbors.

— C. The Commission is a multi-agency body specifically tasked with coordinating Bulgaria’s anti-trafficking efforts. The Commission’s secretariat ensures effective communication between the various agencies represented on the Commission and serves as the main point of contact for international and local partners on trafficking issues. Under the leadership of the Commission’s secretariat, an expert advisory group, with representatives from all member agencies, meets regularly to address operational issues. The Commission’s secretariat also hosts quarterly meetings of a coordination group, comprised of international donors and NGO representatives, to advance anti-trafficking efforts.

— D. The government adopts annually a plan of action for combating human trafficking. The 2009 plan was approved by the Council of Ministers in April 2009. It was developed in consultation with all relevant government agencies, as well as NGOs and the IOM.

— E-F. In April 2009, the government introduced penalties for the clients of children prostitutes and also criminalized the use of trafficking victims for sexual abuse. The government sentenced six persons under these new provisions. As described above, Bulgarian Criminal Code has extraterritorial coverage and applies to Bulgarian clients of minor prostitutes abroad.

30. (U) PARTNERSHIPS

— A. In 2009, the Bulgarian government cooperated with the Norwegian government under a joint police cooperation project aimed at increasing police capacity to handle trafficking cases. The government also implemented a bilateral police project with the Dutch government.

— B. Bulgaria is one of four source countries, along with Albania, Macedonia and Romania, which implements a project aimed at developing a transnational referral mechanism for trafficking victims. The project also promotes sharing of best practices among the eight cooperating countries.

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ADDED 2011-06-29 12:00:00

STAMP 2011-06-29 20:39:13

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FINGERPRINT1

North Corea’s Tanchon Commercial Bank and Lloyds TSB Bank-Geneva

Thursday, June 9th, 2011
D
09STATE48525
SUBJECT
DATE
2009-05-12 23:23:00
CLASSIFICATION
SECRET//NOFORN
ORIGIN
Secretary of State
TEXT
S E C R E T SECTION 01 OF 06 STATE 048525 

SIPDIS NOFORN

E.O. 12958: DECL: 04/26/2019 TAGS: EFIN ETTC KNNP PREL PARM XE ZO KN

REFS: A) 06 STATE 055463 B) 08 ABU DHABI 000325 C) 08 STATE 30247 D) 08 SEOUL 650 E) 08 SEOUL 1207 F) 06 STATE 180512 G) 07 STATE 064579 H) 07 ABU DHABI 873 I) 07 STATE 162279 J) 09 STATE 19783 K) 08 STATE 123035 L) 06 STATE 43354 M) 06 SINGAPORE 3187 N) 06 MOSCOW 12396 O) 06 BERLIN 1285

Classified by: ISN Acting A/S C.S. Eliot Kang for reasons 1.4 (b) and (d).

¶1. (U) This is an action request. Please see paragraph 3.

——————
SUMMARY/BACKGROUND
——————

¶2. (SBU) In response to the April 5, 2009 launch of a Taepo Dong-2 (TD-2) ballistic missile by the Democratic Peoples Republic of Korea (DPRK), the UN Security Council issued a Presidential Statement (PRST) on April 13, 2009. The PRST stated that the TD-2 launch was in contravention of UN Security Council Resolution (UNSCR) 1718 and indicated the Security Councils agreement to adjust the sanctions measures imposed by paragraph 8 of the resolution through the designation of entities and goods. If the UNSCR 1718 Sanctions Committee did not act by April 24, the PRST indicated that the Security Council itself would do so by April 30. On April 24, the Sanctions Committee designated three DPRK entities to be subject to the asset freeze provisions in paragraph 8 (d) of UNSCR 1718. These entities are: Korea Mining Development Trading Corporation (KOMID), the Korea Ryonbong General Corporation (Ryonbong), and Tanchon Commercial Bank. The United States wants to provide background and identifier information to all States on the newly designated entities and their affiliates, and urge States to implement immediately the asset freeze obligations of UNSCR 1718 to prevent further proliferation-related activities by the DPRK. Under paragraph 8(d) of UNSCR 1718, the asset freeze provisions also apply to funds, financial assets, and economic resources that are owned or controlled directly or indirectly by designated entities, and to persons and entities acting on behalf of or at the direction of the designated entities.

————————-
OBJECTIVES/ACTION REQUEST
————————-

¶3. (S/NF) All posts are requested to deliver the nonpaper in paragraph 4 to relevant host government officials in the foreign affairs and finance ministries. Embassies Abu Dhabi, Berlin, Bern, Cairo, Copenhagen, London, Moscow, New Delhi, Sanaa, Seoul, Singapore, and Stockholm are requested to deliver additional classified points in paragraph 5 as appropriate. Embassies Beijing, Kuala Lumpur, and Consulate Hong Kong are requested not to deliver this demarche. Washington is preparing a targeted demarche to these three posts with additional classified information that will be provided at a later date. The text of UNSCR 1718 can be found at under S/RES/1718 (2006). The text of the Presidential Statement (PRST) can be found at under S/PRST/2009/7 of 13 April 2009. The text of the Security Council determination of items and entities subject to measures imposed in Resolution 1718 can be found at: tm. Posts should pursue the following objectives:

— Note the new designations of Tanchon Commercial Bank, KOMID, and Ryonbong and provide host governments with
background and identifier information on these entities and their affiliates.

— Urge host government officials to investigate whether these entities have a presence in their jurisdiction and, if so, request that they immediately freeze the assets of the three designees, as well as any funds, other financial assets or economic resources that are owned or controlled, directly or indirectly, by the designated entities and those of persons or entities acting on the behalf of or at the direction of designated entities, per UNSCR 1718.

— Recommend host government officials also take steps to prevent their nationals or persons or entities within their territories from engaging in transactions with those designated entities, per UNSCR 1718.

FOR Embassies Abu Dhabi, Berlin, Bern, Cairo, Copenhagen, London, Moscow, New Delhi, Seoul, Singapore, and Stockholm:

— Urge host government officials to investigate whether financial institutions within their jurisdiction maintain correspondent relationships with Tanchon Commercial Bank, and ensure that any Tanchon correspondent accounts are frozen.

For Embassies Abu Dhabi and Sanaa:

— Request host governments to refrain from engaging in any cooperation with KOMID.

¶4. (SBU) BEGIN TEXT OF SENSITIVE BUT UNCLASSIFIED NONPAPER

— In response to the April 5, 2009 launch of a Taepo Dong-2 (TD-2) missile by the Democratic Peoples Republic of Korea (DPRK), the UN Security Council issued a Presidential Statement (PRST) on April 13, 2009. The PRST stated that the TD-2 launch was in contravention of UNSCR 1718 and indicated the Security Councils agreement to adjust the sanctions measures imposed by that resolution. If the UNSCR 1718 Sanctions Committee did not act by April 24, the Security Council indicated that it would do so itself. On April 24, the Sanctions Committee designated three DPRK entities to be subject to the asset freeze provisions in paragraph 8 (d) of UNSCR 1718. These entities are: Korea Mining Development Trading Corporation (KOMID), the Korea Ryonbong General Corporation (Ryonbong), and Tanchon Commercial Bank.

—————————-
IMPLEMENTATION OF UNSCR 1718
—————————-

— The United States is urging immediate enforcement of the sanctions in paragraph 8(d) of UNSCR 1718 against the newly designated entities. Paragraph 8(d) of UNSCR 1718 instructs Member States to “freeze immediately the funds, other financial assets and economic resources which are on their territories at the date of the adoption of this resolution or at any time thereafter, that are owned or controlled, directly or indirectly, by the persons or entities designated by the Committee or by the Security Council… or by persons or entities acting on their behalf or at their direction.” Member States must also “ensure that any funds, financial assets or economic resources are prevented from being made available [to the designated entities] by their nationals or by any persons or entities within their territories, to or for the benefit of such persons or entities.”

— With the designation of these three DPRK entities pursuant to UNSCR 1718, it is each States responsibility to ensure that the requirements of paragraph 8(d) are implemented immediately with respect to these entities and persons and entities acting on their behalf or at their direction.

— We urge you to investigate whether there are any assets belonging to these entities in your jurisdiction, and ensure that they are immediately frozen.

— We also urge you to take steps to prevent nationals or persons or entities within your territory from engaging in transactions with those designated entities unless approved as an allowable exemption.

— We specifically request that you investigate whether
financial institutions in your jurisdiction maintain correspondent relationships with Tanchon Commercial Bank, and ensure that any Tanchon correspondent accounts are frozen.

— The newly designated North Korean entities are vital to the progress of the DPRKs ballistic missile and other weapons programs.

— In addition to implementing the asset freeze pursuant to Resolution 1718, we ask you remain vigilant and ensure that no North Korean proliferation-related activities and transactions whatsoever take place in your jurisdiction.

— We look forward to working with your government to ensure full implementation of UNSCR 1718, as well as the additional measures described above.

——————————————— ——-
KOREA MINING DEVELOPMENT TRADING CORPORATION (KOMID)
——————————————— ——-

— The Korea Mining Development Trading Corporation (KOMID) is North Koreas primary arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons. KOMID offices are located in multiple countries and facilitate weapons sales while seeking new customers. The United States has repeatedly applied sanctions to the KOMID organization over the past ten years for trading in missile technology.

— In June 2005, KOMID was designated by the President in the Annex to U.S. Executive Order (E.O.) 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters,” for material contributions to the proliferation of weapons of mass destruction or their means of delivery.

— E.O. 13382, issued on June 28, 2005, blocks the assets under U.S. jurisdiction of foreign persons and entities named in the Executive Order or subsequently designated by the U.S. Departments of Treasury or State for materially contributing to (or for posing a risk of materially contributing to) the proliferation of weapons of mass destruction; for providing or attempting to provide financial or other support to such proliferation activities; or for being owned or controlled by, or acting for or on behalf of, another designee. In addition to the asset freeze, E.O. 13382 prohibits all transactions between any U.S. person and the designated persons and entities.

— Identifier information for KOMID is as follows: a.k.a. Changgwang Sinyong Corporation; a.k.a External Technology Trading Corporation; a.k.a. North Korean Mining Development Trading Corporation; a.k.a. KOMID, Central District, Pyongyang, North Korea.

— In October 2005, two KOMID subsidiaries, Hesong Trading Corporation and Tosong Technology Trading Corporation, were also designated under E.O. 13382. Both Hesong and Tosong are located in Pyongyang, North Korea.

———————–
TANCHON COMMERCIAL BANK
———————–

— Tanchon Commercial Bank, headquartered in Pyongyang, assumed from Korea Changgwang Credit Bank Corporation (KCCBC) the role as the main DPRK financial agent for sales of conventional arms, ballistic missiles, and goods related to the assembly and manufacture of such weapons. Since the late 1980s, Tanchon Commercial Bank and its predecessor, KCCBC, have collected revenue from weapons-related sales that were concentrated in a handful of countries mainly located in the Middle East and several African states. These revenues provide the DPRK with a significant portion of its export earnings and financially aid the DPRKs own development of nuclear-related, other weapons of mass destruction- related, and ballistic missile-related programs and arms-related purchases.

— Tanchon has been involved in financing ballistic missile sales from KOMID to Irans Shahid Hemmat Industrial Group (SHIG). SHIG is the Iranian organization charged with developing Irans liquid- fueled ballistic missile program and is designated under UNSCR 1737 for an asset freeze similar to that in UNSCR 1718.

— Since 2005, Tanchon has maintained an active relationship with Irans Bank Sepah, which is linked to the provision of extensive financial services to Irans ballistic missile program and was also designated by the UN Security Council in the annex of UNSCR 1747 for an asset freeze.

— Tanchon was also designated by the President of the United States in the annex to E.O. 13382.

— Identifier information for Tanchon Commercial Bank is as follows: f.k.a. Changgwang Credit Bank; f.k.a. Korea Changgwang Credit Bank, Saemul 1-Dong Pyonchon District, Pyongyang, North Korea.

——————————————
KOREA RYONBONG GENERAL TRADING CORPORATION
——————————————

— The DPRK defense conglomerate Korea Ryonbong General Corporation specializes in acquisition for DPRK defense industries and support to that countrys military- related sales. An English-language DPRK trade journal (Foreign Trade of the DPRK) has carried advertisements from International Chemical, a subsidiary of Korea Ryonbong General Trading Corporation, offering ammonium diuranate (ADU), a processed form of yellowcake, for sale on the international market.

— Identifier information for Korea Ryonbong General Trading Corporation is as follows: a.k.a. Korea Yonbong General Corporation; f.k.a. Lyongaksan General Trading Corporation, Potonggang District, Pyongyang, North Korea; Rakwon-dong, Pothonggang District, Pyongyang, North Korea.

— Korea Ryonbong General Trading Corporation was also designated by the President in the annex to E.O. 13382. On October 21, 2005, six DPRK entities that are subsidiaries of Korea Ryonbong, were were also designated under E.O. 13382. These entities are:

– Korea International Chemical Joint Venture Company. a.k.a. Chosun International Chemicals Joint Operation Company; a.k.a. International Chemical Joint Venture Corporation; a.k.a. Choson International Chemicals Joint Operation Company, Hamhung, South Hangyong Province, North Korea; Mangyongdae-kuyok, Pyongyang, North Korea; Mangyungdae-gu, Pyongyang, North Korea. Korea International Chemical Joint Venture Company is a subsidiary company of Korea Ryonbong General Corporation.

– Korea Ryonha Machinery Joint Venture Corporation. a.k.a. Korea Ryenha Machinery J/V Corporation; a.k.a. Chosun Yunha Machinery Joint Operation Company; a.k.a. Ryonha Machinery Joint Venture Corporation), Central District, Pyongyang,North Korea; Mangungdae-gu, Pyongyang, North Korea; Mangyongdae District, Pyongyang, North Korea. Korea Ryonha Machinery Joint Venture Corporation is a subsidiary company of Korea Ryonbong General Corporation.

– Korea Complex Equipment Import Corporation, Rakwon- dong, Pothonggang District, Pyongyang, North Korea. Korea Complex Equipment Import Corporation is a subsidiary company of Korea Ryonbong General Corporation.

– Korea Kwangsong Trading Corporation, Rakwon-dong, Porhonggang District, Pyongyang, North Korea. Korea Kwangsong Trading Corporation is a subsidiary company of Korea Ryonbong General Corporation.

– Korea Pugang Trading Corporation, Rakwon-dong, Pothonggang District, Pyongyang, North Korea. Korea Pugang Trading Corporation is a subsidiary company of Korea Ryonbong General Corporation.

– Korea Ryongwang Trading Corporation. a.k.a. Korea Ryengwang Trading Corporation), Rakwon-dong, Pothonggang District, Pyongyang, North Korea. Korea Ryongwang Trading Corporation is a subsidiary company of Korea Ryonbong General Corporation.

END SENSITIVE BUT UNCLASSIFIED NONPAPER

¶5. (S/REL UAE, SWITZERLAND, SWEDEN, EGYPT, DENMARK, UNITED KINGDOM, RUSSIA, INDIA, YEMEN, SOUTH KOREA,

SINGAPORE) BEGIN SECRET POINTS

FOR UAE, SWITZERLAND, SWEDEN, EGYPT, DENMARK, UNITED KINGDOM, RUSSIA, INDIA, SOUTH KOREA, SINGAPORE: — In 2006 (REF A, L), we noted our concern that Tanchon maintained one or more correspondent accounts in your jurisdiction.

— Given the continuation of DPRK proliferation activities and the designation of these three entities to be subject to the measures in paragraph 8(d) of UNSCR 1718, we strongly reiterate our request that you use the following information to take action to close such an account, in order to prevent North Korea from using your jurisdiction to facilitate proliferation-related financial transactions.

FOR DENMARK ONLY: — We previously raised with you in March 2006 our concern (REF L) that Tanchon Commercial Bank maintained a correspondent account with Den Danske Bank AS- Copenhagen. According to April 2009 Bankers Almanac information, Tanchon still maintains that account.

FOR SWEDEN ONLY: — We previously raised with you in March 2006 our concern (REF L) that Tanchon Commercial Bank maintained a correspondent account with Nordea Bank Sweden- Stockholm, Skandinaviska Enskilda Banken-Stockholm, and Svenska Handelsbanken-Stockholm. According to April 2009 Bankers Almanac information, Tanchon still maintains all three accounts.

FOR SWITZERLAND ONLY: — We previously raised with you in March 2006 our concern (REF L) that Tanchon Commercial Bank maintained a correspondent account with Lloyds TSB Bank-Geneva. According to April 2009 Bankers Almanac information, Tanchon still maintains that account.

FOR UNITED KINGDOM ONLY: — We previously raised with you in March 2006 our concern (REF L) that Tanchon Commercial Bank has correspondent accounts with Bank of China International- London, British Arab Commercial Bank-London, Havin Bank- London, HSBC Bank Plc.-London, Lloyds TSB Bank-London, Moscow Narodny Bank-London, and National Bank of Egypt International-London. According to April 2009 Bankers Almanac information, Tanchon still maintains those accounts.

FOR EGYPT ONLY: — We previously raised with you in April 2006 our concern (REF A) that Tanchon Commercial Bank maintains a correspondent account with National Bank of Egypt; Cairo, Egypt. According to April 2009 Bankers Almanac information, Tanchon still maintains that account.

— We strongly urge Egypt to refrain from engaging in any cooperation with KOMID, particularly in light of this UN designation under UNSCR 1718.

FOR INDIA ONLY: — We previously raised with you in April 2006 our concern (REF A) that Tanchon Commercial Bank maintains a correspondent account with State Bank of India; Mumbai, India. According to April 2009 Bankers Almanac information, Tanchon still maintains that account.

FOR SINGAPORE ONLY: — We previously raised with you in 2006 our concern that Tanchon Commercial Bank maintains correspondent accounts with Deutsche Bank AG; Singapore (REF A) and United Overseas Bank Limited; Singapore (REF M). You reported to us (Ref M) that the Tanchon account at UOB had been closed, but according to April 2009 Bankers Almanac information, Tanchon still maintains accounts at Overseas Bank Limited and Deutsche Bank.

— We are requesting confirmation that this account remains closed, and request that you ensure that any Tanchon correspondent accounts in your jurisdiction are frozen.

FOR GERMANY ONLY: — We previously raised with you in April 2006 our concern (REF A) that Tanchon Commercial Bank maintains a correspondent banking account with Deutsche Bank AG- Singapore branch. You informed us in May 2006 that that account had been closed (REF O), but the April 2009 Bankers Almanac information indicates that Tanchon still maintains that account.

— We are requesting confirmation that this account remains closed, and request that you ensure that any Tanchon correspondent accounts in your jurisdiction are frozen.

FOR UAE ONLY: — In March 2008 (REF B, G, H, I), you told us that Tanchon Commercial Bank was not licensed to operate in the UAE and that the Central Bank had frozen its accounts in the UAE based on a U.S. request. We want to ensure that this is still the case and that Tanchon has not tried to renew its presence in UAE jurisdiction.

— We also have recently raised with you our concerns regarding recent KOMID activities in the UAE and urge you to refrain from engaging in any cooperation with KOMID, particularly in light of KOMIDs UNSC designation (REF K) under UNSCR 1718.

FOR YEMEN ONLY: — We have recently raised with you our concerns regarding information that KOMID may be involved in a Scud missile-related project in Yemen. We strongly urge the ROYG to refrain from engaging in any cooperation with KOMID, particularly in light of KOMIDs UNSC designation (REF J) under UNSCR 1718.

FOR ROK ONLY: — We have on numerous occasions discussed (REF C, D, E) the proliferation activities of Bank Mellat Seoul with you. We wish to highlight a point we previously raised (REF C), specifically that Hong Kong Electronics, almost certainly a front company for Tanchon Commercial Bank, has been involved in proliferation-related transactions with Bank Mellat Seoul.

— We note that the ROKs obligations under Resolution 1718 require it to freeze the assets of entities acting on the behalf of or at the direction of designated entities. We believe Hong Kong Electronics meets this criterion based on its demonstrated link to Tanchon, and we urge you to extend the asset freeze requirements of UNSCR 1718 to both Hong Kong Electronics and Bank Mellat Seoul.

FOR RUSSIA ONLY: — We previously raised with you in April 2006 our concern (REF A) that Tanchon Commercial Bank maintains a correspondent banking relationship with Bank for Foreign Trade (Vneshtorgbank) and Moscow Narodny bank-Singapore branch.

— You reported to us (REF N) that the Tanchon correspondent account at VTB had been closed and we are requesting confirmation that this account remains closed, and that any Tanchon correspondent accounts in your jurisdiction are blocked.

END SECRET POINTS

——————
REPORTING DEADLINE
——————

¶6. (U) Post should report results within seven business days of receipt of this cable. Please slug replies for ISN, T, EAP, and TREASURY. Please use the caption SIPDIS in all replies.

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http://www.wikileaks.ch/cable/2009/05/09STATE48525.html

EU’s Galileo Global Navigation Satellite System (GNSS)

Thursday, June 9th, 2011
ID
09BERLIN1324
SUBJECT
DATE
2009-10-22 15:40:00
CLASSIFICATION
CONFIDENTIAL
ORIGIN
Embassy Berlin
TEXT
C O N F I D E N T I A L BERLIN 001324 

SIPDIS STATE FOR EUR/CE PETER SCHROEDER STATE FOR OES/SAT DAVID TURNER STATE FOR EUR/ERA AND EB/IFD/OMA

E.O. 12958: DECL: 10/22/2034 TAGS: ETTC PGOV PINR MCAP PREL TSPA FR GM

REF: A. BERLIN 1319 B. BERLIN 1207 C. BRUSSELS 1153 D. BERLIN 655 E. BERLIN 430 F. BERLIN 429 G. 08 BERLIN 899 H. 08 BERLIN 897 I. 08 BERLIN 264 J. 08 BERLIN 243

Classified By: Acting Global Affairs Unit Chief David L. Fisher for reasons 1.4 (b) and (d).

¶1. (C) SUMMARY: Berry Smutny, the CEO of Germanys top satellite manufacturer, OHB-System, called the EUs Galileo global navigation satellite system (GNSS) “a waste of EU tax payers money championed by French interests.” Nevertheless, Smutny said his company would gladly accept contracts to build the satellites. Smutny anticipates the EU Commission (EC) will award his company a contract this December to build a significant portion of the Galileo satellites. According to a recent media report, the EC is scaling back the Galileo project by about 25 percent off the previously planned 30 satellites ($1.24 billion) due to budget overruns.

¶2. (C) On October 2, EconOffs met with OHB-System CEO, Mr. Berry Smutny for general consultations. Smutny became CEO of OHB-System in June of this year and was previously the CEO of Tesat Spacecom, a German subsidiary of the European Aeronautical Defense and Space Company (EADS). When Smutny arrived at the Berlin Embassy on October 2, he had just finished a high-level meeting with the German Transportation Ministry for Transportation, Building and Urban Development (BMVBS) to discuss OHB-systems bid on the Galileo satellite build contract. Smutny said the meeting went “very well” and his expectation is that OHB will be awarded 40-60 percent of the satellite build. END SUMMARY

GALILEO IS A STUPID IDEA BUT OHB WILL TAKE THE BUSINESS
——————————————— ———-

¶3. (C) Smutny stated frankly, “I think Galileo is a stupid idea that primarily serves French interests” given that GPS already supplies all of Europes position, navigation and timing (PNT) needs. He claimed the EU desire to develop a redundant but alternative to GPS was spearheaded by the French after an incident during the Kosovo Conflict when the US military “manipulated” GPS to support military operations (NFI). Since this time, he said France has aggressively corralled EU support to invest in Galileo development — something Smutny said France wants to ensure their missile guidance systems are free of any GPS reliance. Smutny added, the irony for German investment in Galileo is that some of Frances nuclear missiles are aimed at Berlin.

THE EC COMMISSION IS SCALING BACK GALILEO TO CUT COSTS
——————————————— ——–

¶4. (U) Space News reported that at an October 15-16 conference on European space policy, the EC announced they will reduce the number of Galileo satellites to be built from 28-30 to a maximum of 22 satellites due to cost overruns elsewhere in the program. In addition to soliciting a quote for the entire satellite build, the EC asked both OHB-System and Astrium-Satellites to quote blocks of eight and 16 satellites in the event that the contract is divided. Best-and-final offers are due in November and a final decision on the contract is expected in late December.

¶5. (C) Smutny said the EC is steadfast that the entire Galileo system stay within the allotted 3.4 billion euro budget. In Smutnys opinion, the EU has grossly underestimated the complexity of the complete Galileo system and additional cost overruns and schedule slips are likely. He said industry experts estimate the final Galileo cost to be about 6.5 billion euros (assuming the previously desired 32 satellite constellation), but in his opinion the finalcost will balloon to around 10 billion euro.

GALILEO CAN NOT BE BUILD ITAR FREE
———————————-

¶6. (C) Smutny said no matter how much the French would like Galileo to be built International Traffic in Arms Regulation (ITAR)-free, this is highly unlikely given that there are not sufficient replacements for some radiation-hardened US ITAR-controlled components that Galileo will need. Smutny pointed out that the EU already strayed from the concept of a completely indigenous EU system when they procured the Galileo clock – the heart and soul of the system – from the SWISS. Smutny said he recommended early on that Galileo try an procure an US-origin clock, but this idea was immediately rejected by Galileo decision makers (NFI).

¶7. (C) Smutny feels that the Galileo program, as it currently looks, is either doomed for failure or will have to undergo drastic scalebacks for survival. He said OHB-System is serious about their bid and will deliver contracted product “on time, within budget, and per requirements” (something OHB-System has a good track record of), but his company is preparing for the possibility that the contracts will be canceled if the EC can no longer stomach the ballooning costs.

Murphy

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PERU 2007 INVESTMENT CLIMATE STATEMENT (PART 1/2)

Friday, June 3rd, 2011
ID
07LIMA221
SUBJECT
PERU 2007 INVESTMENT CLIMATE STATEMENT (PART 1/2)
DATE
2007-01-26 18:36:00
CLASSIFICATION
UNCLASSIFIED
ORIGIN
Embassy Lima
TEXT
UNCLAS LIMA 000221 

SIPDIS

SIPDIS

DEPT FOR EB/IFD/OIA, WHA/AND, WHA/EPSC
PASS EXIM, OPIC, TDA
COMMERCE FOR 4331/MAC/WH/MCAMERON
USTR FOR BHARMAN AND MCARRILLO
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: EINV EFIN ETRD KTDB ELAB PGOV OPIC USTR PE
SUBJECT: PERU 2007 INVESTMENT CLIMATE STATEMENT (PART 1/2)

REF: 06 STATE 178303

The following is Part 1 of Embassy Lima’s submission of the 2007 Investment Climate Statement for Peru.

Openness to Foreign Investment
——————————

The Peruvian government seeks to attract investment — bothforeign and domestic — in nearly all sectors of theeconomy. The U.S.-Peru Trade Promotion Agreement (PTPA),pending approval by the U.S. Congress, would enable Peru toattract additional investment by clarifying rules forinvestors, increasing transparency, reducing barriers totrade, establishing faster customs procedures, andimproving the dispute settlement process. Peru does nothave a bilateral investment treaty (BIT) or tax treaty withthe United States, but these provisions are contained inthe PTPA. The U.S. Congress extended unilateral tradepreferences under the Andean Trade Preferences Act(modified by the Andean Trade Preferences and DrugEradication Act, or ATPDEA) to Peru, Colombia, Bolivia andEcuador through June 2007. The U.S. Government recognizedPeru’s progress in economic policy and other issues byselecting Peru for the Millennium Challenge Account’sThreshold Program for fiscal year 2007.

During the early 1990s, the Peruvian government promotedeconomic stabilization and liberalization policies bylowering trade barriers, lifting restrictions on capitalflows and opening the economy to foreign investors. Peruexperienced marked growth in foreign investment from 1993-1998. Economic reform and privatization slowed in the late1990s however, leading to a discernible drop in direct andindirect foreign investment flows. Investment remainedstagnant following the collapse of President AlbertoFujimori’s government in November 2000, and through theperiod of an interim government and the election ofPresident Alejandro Toledo in 2001.

During his tenure, President Toledo implemented severalpro-investment policies. In April 2002, the governmentestablished ProInversion, building on the foundation ofCOPRI, the privatization agency created in 1991.ProInversion seeks to be a “one-stop shop” for current andpotential investors, and has successfully completed bothconcessions and privatizations of state-owned enterprisesand natural resources. In 2004, Las Bambas, a copperdeposit, was concessioned to Xstrata TLC, a SWISS company,for USD 121 million plus 19 percent VAT. In 2005, Bayovar,a state-owned phosphate rock deposit, was concessioned to aBrazilian company for a 3 percent royalty, and ProInversiongranted British-owned Rio Tinto a concession for the LaGranja copper deposit for USD 22 million. Additionally,from January-November 2006, the oil and gas leasing agencyPetroperu granted 15 exploration concessions to foreign oilcompanies, including 8 to 5 U.S. companies, along thenorthern coast and in the jungle.

In addition to the 1993 Constitution (enacted January 1,1994), major laws concerning foreign direct investment inPeru include the Foreign Investment Promotion Law(Legislative Decree (DL) 662 of September 1991) and theFramework Law for Private Investment Growth (DL 757 ofNovember 1991). The two 1991 laws were implemented bySupreme Decree 162-92-EF (October 1992). Two otherimportant laws are the Private Investment in State-OwnedEnterprises Promotion Law (DL 674) and the PrivateInvestment in Public Services Infrastructure Promotion Law(DL 758).

The 1993 Constitution guarantees national treatment forforeign investors and permits foreign investment in almostall economic sectors. Prior approval is only required inthe banking (for regulatory reasons, also applies todomestic investment) and defense-related sectors. Foreigninvestors are advised to register with ProInversion toobtain the guarantee that they will be able to repatriatecapital, profits and royalties. Foreigners are legallyforbidden from owning a majority interest in radio andtelevision stations in Peru; nevertheless, foreigners havein practice owned controlling interests in such companies.Under the Constitution, foreign interests cannot “acquireor possess under any title, mines, lands, forests, waters,or fuel or energy sources” within 50 kilometers of Peru’sinternational borders. However, foreigners can obtainconcessions and rights within the restricted areas with theauthorization of a supreme resolution approved by theCabinet and the Joint Command of the Armed Forces. Allinvestors — domestic and foreign — need prior approvalbefore investing in weapons manufacturing industries.

In 1991, the Peruvian government began an extensiveprivatization program, encouraging foreign investors toparticipate. From 1991 through September 2005,privatization revenues totaled USD 9.4 billion, of whichforeign investors were responsible for the vast majority.Over three-quarters of these transactions took place from1994 to 1997. Through September 2005, privatization andconcessions proceeds totaled USD 35.1 million, andgenerated investment commitments of USD 1.3 billion. Thegovernment has made only limited progress on privatizationssince then, and prospects for future direct privatizationsare not encouraging. The government has consequentlyshifted to a strategy of promoting multi-year concessionsas a means of attracting investment into major projects.In 2000, the Lima airport was concessioned to a privategroup (Lima Airport Partners), and in August 2006, nine ofPeru’s northern airports were concessioned for 25 years toSWISSport. Peru’s other airports, as well as variouselectricity, water, sewage, and oil (Petroperu) companiesremain state-owned and operated. In June 2006, theContainer Terminal-South Pier of the important seaport ofCallao was concessioned for 30 years to a consortium of Pand O Dover (U.K.) and Uniport (Spain).

In June 2004, the Congress passed a law to exclude thestate-owned oil company Petroperu from privatization andauthorized Petroperu to conduct exploration and productionactivities. This modified the government’s policy sincethe early 1990s, when it sold all of Petroperu’sexploration and production units and a major oil refinery.Under this new law, the government still has an option ofgranting concessions on remaining Petroperu assets,including one pipeline and several refineries. In July2006, Congress defeated an executive veto of a bill to”strengthen and modernize” Petroperu. Under the new law,Petroperu can resume exploration, production and relatedactivities, including petrochemicals; is freed fromcontracting approval by CONSUCODE, the state procurementsupervision agency; is exempted from the approval of itsinvestment projects by the Government Projects Office(SNIP); and will have a worker on its board of directors.Petroperu has a strategic alliance with Brazil’s Petrobras.

Under the 1993 Constitution, foreign investors have thesame rights as national investors to benefit from anyinvestment incentives, such as tax exemptions.

Conversion and Transfer Policies
——————————–

Under Article 64 of the 1993 Constitution, the Peruviangovernment guarantees the freedom to hold and dispose offoreign currency; hence, there are no foreign exchangecontrols in Peru. All restrictions on remittances ofprofits, dividends, royalties, and capital have beeneliminated, although foreign investors are advised toregister their investments with ProInversion (as notedabove) to ensure these guarantees. Exporters and importersare not required to channel foreign exchange transactionsthrough the Central Reserve Bank of Peru, and can conducttransactions freely on the open market. Anyone may openand maintain foreign currency accounts in Peruviancommercial banks. U.S. firms have reported no problems ordelays in transferring funds or remitting capital,earnings, loan repayments or lease payments since Peru’seconomic reforms of the early 1990s.

The 1993 Constitution guarantees free convertibility ofcurrency. There is, however, a legal limit on the amountthat private pension fund managers can invest in foreignsecurities. In May 2004, the Central Reserve Bank of Peru(BCR) increased this limit from 9 percent to 10.5 percent.The low limit has created local market distortions,trapping liquidity in Peru that is diverted into localequities and bonds, driving up their prices to artificiallyhigh levels. The BCR’s new board, appointed by the GarciaAdministration, intends to gradually raise this limit, beginning with an increase to 12 percent.

The BCR is an independent institution, free to managemonetary policy to maintain financial stability. The BCR’sprimary goal is to maintain price stability, via inflationtargeting. Inflation in Peru was 1.6 percent in 2005 and 2percent in 2006. The government has also implemented policies to de-dollarize the economy, and deposits in thelocal currency (nuevo sol) now account for about 36percent.

Expropriation and Compensation
——————————

According to the Constitution, the Peruvian government canonly expropriate private property on public interestgrounds (such as for public works projects) or for nationalsecurity. Any expropriation requires the Congress to passa specific act. The Government of Peru has expressed itsintention to comply with international standards concerningexpropriations.

Dispute Settlement
——————

Dispute settlement continues to be problematic in Peru,although the GOP took steps in 2005 to improve the disputesettlement process. From December 2004 through 2006, the GOP established 24 commercial courts to rule on investmentdisputes, including two courts of appeal. All of thesecourts are located in Lima. The commercial courts havesubstantially improved the process for commercial disputes.Prior to the existence of the commercial courts, it took anaverage of two years to resolve a commercial case throughthe civil court system. These new courts, which havespecialized judges, have reduced the amount of time toresolve a case to two months. Additionally, theenforcement of court decisions has been reduced from 36months to 3-6 months. While about 40 percent of decisionsare appealed, most of these are resolved at the appealslevel; very few are appealed to the Supreme Court.

The criminal and civil courts f first instance and appealare located in the provinces and in Lima. The SupremeCourt is located in Lima. In principle, secured interestsin property, both chattel and real, are recognized.However, the judicial system is often extremely slow tohear cases and to issue decisions. In addition, courtrulings and the degree of enforcement have been difficultto predict. The capabilities of individual judges varysubstantially, and allegations of corruption and outsideinterference in the judicial system are common. ThePeruvian appeals process also tends to delay finaldecisions. As a result, foreign investors, among others,have found that contracts are often difficult to enforce inPeru. The exposure in 2000 of a network of corrupt judgescontrolled by Fujimori advisor Vladimiro Montesinos led topromises by subsequent governments to address corruptionand reform the judiciary, but progress has been slow.

Under the 1997 Law of Conciliation (DL 26872), which wentinto effect on January 1, 2000, disputants in many types ofcivil and commercial matters are required to considerconciliation before a judge can accept a dispute to belitigated. Private parties often stipulate arbitration toresolve business disputes, as a way to avoid involvement injudicial processes.
Peru’s commercial and bankruptcy laws have proven difficultto enforce through the courts. There is an administrativebankruptcy procedure under INDECOPI (the National Institutefor the Defense of Free Competition and the Protection ofIntellectual Property), but it has proven to be slow andsubject to judicial intervention. The creditor hierarchyis similar to that established under U.S. bankruptcy law,and monetary judgments are usually made in the currencystipulated in the contract.

International arbitration of disputes between foreigninvestors and the government or state-controlled firms isincluded in the 1993 Constitution. Although Perutheoretically accepts binding arbitration, on a fewoccasions over the past three years, parastatal companiesand Government Ministries disregarded unfavorablejudgments. Previously, the Government of Peru turned thesearbitration cases over to the judiciary, where they werebureaucratically delayed until the companies conceded thecases. However, effective July 2005, the Supreme Courtruled that all arbitration findings and awards are finaland not subject to appeal.

Peru is a party to the Convention on the Recognition andEnforcement of Foreign Arbitral Awards (the New YorkConvention of 1958), and to the International Center forthe Settlement of Investment Disputes (the WashingtonConvention of 1965). Disputes between foreign investorsand the Government of Peru regarding pre-existing contractsmust still be submitted to national courts. However,investors who conclude a juridical stability agreement foradditional investments may submit disputes with thegovernment to national or international arbitration ifstipulated in the agreement. In 2005, the governmentresolved a high-level dispute by upholding the decision ofan arbitration panel and making payment.

Several private organizations — including the UniversidadCatolica, the Lima Chamber of Commerce and the AmericanChamber of Commerce — operate private arbitration centers.The quality of these centers varies, however, and investorsshould choose a venue for arbitration carefully.The U.S.-Peru Trade Promotion Agreement, currently pendingapproval by the U.S. Congress, includes a chapter ondispute settlement and, upon implementation, should furtherclarify the resolution process in Peru.

Performance Requirements and Incentives
—————————————

Peru offers both foreign and national investors legal andtax stability agreements to stimulate private investment.These agreements guarantee that the statutes on incometaxes, remittances, export promotion regimes (such asdrawback), administrative procedures, and labor hiringregimes in effect at the time of the investment contractwill remain unchanged for that investment for 10 years. Toqualify, an investment must exceed USD 10 million in themining and hydrocarbons sectors or USD 5 million in othersectors within two years. An agreement to acquire morethan 50 percent of a company’s shares in the privatizationprocess may also qualify an investor for a juridicalstability agreement, provided that the infusion will expandthe installed capacity of the company or enhance itstechnological development.
There are no performance requirements that applyexclusively to foreign investors. Legal stabilityagreements are subject to Peruvian civil law, which meansthey cannot be altered unilaterally by the government.Investors are also offered protection from liability foracquiring state-owned enterprises.

Laws specific to the petroleum and mining sectors alsoprovide assurances to investors. However, in 2000, thegovernment modified the General Mining Law, substantiallyreducing benefits to investors in that sector. Among thechanges were: a reduction in the term concessionaires aregranted to achieve the minimum annual production; anincrease in fees for holding non-productive concessions; anincrease in fines for not achieving minimum productionwithin the allotted time; a reduction in the maximumallowable annual accelerated depreciation; and revocationof the income tax exemption for reinvested profits. In2004, Congress approved a bill charging a 1 to 3 percentroyalty on mining companies’ sales. The changes do notaffect those investors who have signed legal stabilityagreements with the government.
In December 2006, after increased social demands for ashare of mining profits, the Garcia Administration andmining companies agreed to a “voluntary contribution”system whereby mining companies will invest in communityinfrastructure projects. This agreement averted adoptionof a more restrictive mining law, allows mining companiesto control where they invest their contributions, andceases to apply if the prices of mined products drop.
Parties may freely negotiate contractual conditions relatedto licensing arrangements and other aspects of technologytransfer without prior authorization. Registry of atechnology transfer agreement is required for a payment ofroyalties to be counted against taxes. Such registrationis automatic upon submission to ProInversion.

Current laws limit foreign employees to no more than 20percent of the total number of employees in a local company(whether owned by foreign or national interests), andrestricts their combined salaries to no more than 30percent of the total company payroll. However, DL 689(November 1991) provides a variety of exceptions to theselimits. For example, a foreigner is not counted against acompany’s total if he or she holds an immigrant visa, has acertain amount invested in the company (currently about USD4,000) or is a national of a country that has a reciprocallabor or dual nationality agreement with Peru. Foreignbanks and service companies, and internationaltransportation companies are also exempt from these hiringlimits, as are all firms located in free trade zones.Furthermore, companies may apply for exemption from thelimitations for managerial or technical personnel.

Right to Private Ownership and Establishment
——————————————–

Foreign and domestic entities are generally permitted theright to establish and own business enterprises and toengage in most forms of remunerative activity. Subject tothe restrictions listed earlier in this document, bothforeign and domestic entities may invest in any legaleconomic activity — including foreign direct investment,portfolio investment, and investment in real property.Private entities may generally freely establish, acquire,and dispose of interests in business enterprises. In thecase of some privatized companies deemed important by thegovernment, privatization agency ProInversion has includeda so-called “golden share” clause in the sales contract,which allows the government to veto a potential futurepurchaser of the privatized assets.

Protection of Property Rights
—————————–

As noted in the Dispute Settlement section, in principle,secured interests in property (both chattel and real) arerecognized. However, the Peruvian judicial system is oftenvery slow to hear cases and to issue decisions, outcomeshave been difficult to predict and enforce, and corruptionis frequently alleged. The Peruvian appeals process alsodelays final outcomes of cases. Thus, foreign investors,among others, have found that contracts are often difficultto enforce in Peru. Improving the judicial system is astated priority of the Peruvian Government.
Protection of intellectual property rights (IPR) in Peruhas improved over the past decade, but still falls short ofU.S. and international standards in several areas. Peruremains on USTR’s Special 301 “Watch List” due to concernsabout continued high rates of copyright piracy, a lack ofprotection for confidential test data submitted for themarketing approval of pharmaceutical and agrochemicalproducts, and inadequate enforcement of IPR laws,particularly with respect to the relatively weak penaltiesthat have been imposed on IPR violators.

The Peruvian government agency charged with promoting anddefending intellectual property rights is the Institute forthe Defense of Competition and Protection of IntellectualProperty (INDECOPI, www.indecopi.gob.pe), established in¶1992. Legislative Decree 822 of 1996 and Andean CommunityDecisions 344 and 486 protect patents, trademarks, andindustrial designs. Copyrights are protected byLegislative Decree No. 822 of 1996 and by Andean Community Decision 351.

Peru belongs to the World Trade Organization (WTO) and theWorld Intellectual Property Organization (WIPO). It isalso a signatory to the Paris Convention on IndustrialProperty, Geneva Convention for the Protection of SoundRecordings, Bern Convention for the Protection of Literaryand Artistic Works, Brussels Convention on the Distributionof Satellite Signals, Phonograms Convention, SatellitesConvention, Universal Copyright Convention, the WorldCopyright Treaty, and the World Performances andPhonographs Treaty and the Film Register Treaty. InDecember 1994, the Peruvian Congress ratified the WorldTrade Organization’s Agreement on Trade-Related Aspects ofIntellectual Property (TRIPs).
Peru’s legal framework provides for easy registration oftrademarks, and inventors have been able to patent theirinventions since 1994. Peru’s 1996 Industrial PropertyRights Law provides an effective term of protection forpatents and prohibits devices that decode encryptedsatellite signals, along with other improvements. Peruvianlaw does not provide pipeline protection for patents orprotection from parallel imports. Although Peruvian lawprovides for effective trademark protection, counterfeitingof trademarks, copyrighted products, and imports of piratedmerchandise are widespread. The International IntellectualProperty Alliance estimates that the piracy level in Perufor recorded music was 98 percent in 2004-2005, with damageto U.S. industry estimated at USD 100 million. IIPAestimates motion picture piracy accounts for 60 percent ofthe market for a loss of USD 5.5 million. Indecopiconsiders that software piracy levels remained the same as2004 levels, at 56 percent.

Peru’s Copyright Law is generally consistent with the TRIPsAgreement. However, textbooks, books on technicalsubjects, audiocassettes, motion picture videos andsoftware are widely pirated. While the government, incoordination with the private sector, has conductednumerous raids over the last few years on large-scaledistributors and users of pirated goods, and has increasedother types of enforcement, piracy continues to be asignificant problem for legitimate owners of copyrights inPeru.

Despite increased enforcement actions by INDECOPI, thejudicial branch has failed to impose sentences thatadequately deter future IPR violations. The Peruviangovernment in July 2004 increased the minimum penalty forpiracy to four years imprisonment, although there have yetto be any convictions under the new law. Peru now has sixprosecutors (two fiscalias) dedicated full-time tointellectual property cases. In a major breakthrough, inNovember 2006, four special courts of first instance andone special appeals court in Lima were assigned IPR duties,effective 2007.

An IPR Toolkit for Peru can be found on the Embassy andCommercial Service Lima’s websites. Besides being a guideto registering and protecting IP, it contains a list oflawyers and other organizations that can provide support onan on-going basis.

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JAMAICA: A TRAFIGURA SCANDAL PRIMER

Thursday, June 2nd, 2011
ID
06KINGSTON2021
SUBJECT
JAMAICA: A TRAFIGURA SCANDAL PRIMER
DATE
2006-10-12 12:30:00
CLASSIFICATION
CONFIDENTIAL
ORIGIN
Embassy Kingston
TEXT
C O N F I D E N T I A L KINGSTON 002021 

SIPDIS

SIPDIS

STATE FOR WHA/CAR (BUDDEN, NICHOLS)

E.O. 12958: DECL: 10/11/2016
TAGS: ECON EFIN EINV PGOV PINR PREL SOCI KCOR JM
XL, XK
SUBJECT: JAMAICA: A TRAFIGURA SCANDAL PRIMER

REF: A. KINGSTON 1592
¶B. KINGSTON 1903
¶C. KINGSTON 402
¶D. KINGSTON 1342

Classified By: Ambassador Brenda L. Johnson, reasons 1.4 (b) and (d)

——–
Summary
——–

¶1. (SBU) The six-month old administration of People’s National Party (PNP) Prime Minister Portia Simpson Miller faces embarrassing and intense scrutiny over its acceptance of JMD 31 million (approximately USD 475,000) from a Dutch-based oil trading firm. The firm, Trafigura Beheer BV, holds the contract to lift, market, and trade oil that Jamaica receives from Nigeria under a concessionary financing arrangement. The powerful Minister for Information and Development, Colin Campbell, already has resigned, and opposition leader Bruce Golding has called for the entire government to follow suit and allow general elections to be held as soon as possible. Simpson Miller has admitted meeting recently with Trafigura executives in New York, but claims to have known nothing of any transfer of funds. If the Prime Minister herself becomes more deeply implicated, there could in fact be a dissolution of Parliament and snap elections; if not, the scandal seems more likely to push back the timetable for elections until later next year – ironically, something the Opposition Jamaica Labor Party (JLP) admits privately it can ill afford. End summary.

———- Background ———-

¶2. (SBU) The Government of Jamaica (GOJ) has had concessionary oil deals with Nigeria since the 1970s. The quotas have varied as the agreements are renegotiated, but have always been in the range of 20-30,000 bpd. The GOJ claimed, however, that the PetroJam refinery in Kingston (ref. A) cannot process the type of crude that is sourced from Nigeria. Over the ensuing years, the GOJ has contracted with various oil traders to lift, market, and trade the oil. In October, 2000, the GOJ signed an agreement a Dutch oil trading company named Trafigura Beheer BV (headquartered in SWITZERLAND) for this purpose.

¶3. (SBU) The proceeds from the sale of the Nigerian oil were intended to be used to purchase finished petroleum products that would be received to and distributed from the PetroJam refinery. Therefore, the profits were routed to the Petroleum Corporation of Jamaica (PCJ). In April, 2005, however, Finance Minister Omar Davies directed that the funds be deposited directly into the National Treasury, under the GOJ’s “Consolidated Fund.” It is unclear how this money was then spent.

————————
The JLP on the offensive
————————

¶4. (SBU) On October 4, Opposition Jamaica Labor Party (JLP) leader Bruce Golding announced in Parliament that his party had uncovered “shady dealings” between the ruling People’s National Party (PNP) and Trafigura Beheer BV. Golding alleged that Trafigura had paid the PNP JMD 31 million (approximately USD 475,000) through accounts belonging to Minister of Information and Development ) and PNP General Secretary – Colin Campbell. These monies, he continued, were used to fund the lavish PNP National Convention (ref. B) held September 21-24.

¶5. (SBU) Golding called for the resignation of prominent PNP officials, and for immediate elections. Private sector organizations also have criticized the PNP’s acceptance of the money. On October 5, PNP Minister of Housing, Transport, Water and Works (and PNP Party Chairman) Robert Pickersgill stated that the money was a campaign “donation,” and as such there was no impropriety (Note: It was Pickersgill, in his capacity as Minister of Mining and Energy, who renegotiated the deal in 1999-2000. End note). On October 6, however, Trafigura stated that it was not a campaign contribution at all, and that the company’s dealings in Jamaica are “strictly commercial.”

¶6. (C) The campaign by Golding has been partially successful thus far. On October 9, Colin Campbell resigned his positions as Minister of Information and Development and as General Secretary of the Party, although he retains his Senate seat, to the irritation of some (Senators are appointed, and thus some feel that he should resign from that position, as well). Other prominent JLP targets are the Minister of Industry, Technology, Energy and Commerce (MITEC), Phillip Paulwell, Attorney General A.J. Nicholson, and Minister Pickersgill.

——————–
A Political Mistake?
——————–

¶7. (C) As post will report septel, PolEconCouns, PolOff and EconOff met with JLP MP James Robertson on October 10. Robertson indicated that he thought the JLP leadership had made a mistake in bringing the issue into the public domain too soon. He argued that the revelations have only served to ensure that the ruling PNP will not call elections this year, as many (particularly the JLP) had hoped. He opined that the JLP’s party machinery “does not have a sixth gear,” and worried that they would sputter due to lack of funds if the PNP waited that long.

———————–
Who Leaked and Why Now?
———————–

¶8. (SBU) At issue is also the question of how the Opposition came to uncover the scandal. Rumor and speculation abound, but it is clear that the official of First Caribbean Bank, Sonia Christie, who discovered the unusual money transfers is the wife of JLP Deputy Mayor of Falmouth, Fitz Christie. While JLP contacts maintain that, by virtue of her position at the bank, she was duty-bound to report the suspicious transfers of amounts over USD 10,000, PNP supporters clearly see this as a partisan attack and a crime against privacy laws, for which Christie should be prosecuted. First Caribbean has put Christie on leave while it investigates the matter.

¶9. (C) Others, reflecting the Jamaican penchant for conspiracy theories, perceive the hand of Minister of National Security Peter Phillips at work. Phillips was defeated in a close and sometimes rancorous internal party election for the leadership by Simpson Miller (ref. D), and it is an open secret that the two are not working well together, despite public appearances suggesting PNP internal unity. There have been rumors that Phillips and his supporters in the PNP are willing to “throw” this election in order to oust Simpson Miller, and the current scandal only abets this claim.

——-
Comment
——-

¶10. (C) If Simpson Miller can weather this storm without too many more disastrous leaks, she will likely wait some time before calling general elections, as Robertson predicts. However, the possibility cannot be ruled out that she herself will become deeply implicated, perhaps thus forcing her resignation. In such a scenario, her likely successor, Phillips, also would prefer to wait to call elections, but the clamor of public opinion might well be too great to ignore.

JOHNSON

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NICARAGUA: AN ECONOMIC PERSPECTIVE ON EIGHT MONTHS OF ORTEGA RHETORIC

Wednesday, June 1st, 2011
ID
07MANAGUA2223
SUBJECT
SUBJECT: NICARAGUA: AN ECONOMIC PERSPECTIVE ON
DATE
2007-09-28 23:33:00
CLASSIFICATION
CONFIDENTIAL
ORIGIN
Embassy Managua
TEXT
C O N F I D E N T I A L SECTION 01 OF 06 MANAGUA 002223

SIPDIS

SIPDIS

STATE PLEASE PASS TO USTR
STATE FOR WHA/CEN, WHA/EPSC, EEB/TPP, EEB/IFD
TREASURY FOR SARA GRAY
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR

E.O. 12958: DECL: 09/27/2017
TAGS: ECON ETRD EINV NU
SUBJECT: SUBJECT: NICARAGUA: AN ECONOMIC PERSPECTIVE ON EIGHT MONTHS OF ORTEGA RHETORIC

Classified By: Ambassador Paul Trivelli, Reason: E.O. 12958 1.4 (d)

¶1. (C) Summary: Eight months into Daniel Ortega’s term as president, his socialist rhetoric continues to worry potential and current investors in Nicaragua. Beginning on the day of his inauguration, Ortega launched into anti-capitalist, anti-neoliberal, and increasingly anti-American rhetoric, implying that what had transpired in Nicaragua during the past sixteen years was all wrong. A consistent economic theme has been the need for Nicaragua to reduce its dependency on the United States and international financial institutions. Ortega believes that this theme provides him with the political cover he needs to forge closer economic relations with the likes of Venezuela, Cuba, Iran, Libya, and North Korea. When it comes to private sector investment, Ortega seems to be of two minds. He acknowledges the fundamental role that the private sector plays in creating jobs, generating growth, and improving social well-being, but in practice never really accepts that this is true. One of Ortega’s most palatable messages is that capital investment in Nicaragua needs to incorporate some social component. End summary.

¶2. (C) Eight months into Daniel Ortega’s term as President, his socialist rhetoric continues to worry current and potential investors in Nicaragua. Ortega rarely misses an opportunity to denounce “imperialism” and “savage capitalism,” although his tone and presentation often varies with his audience. A review of Ortega’s public discourse since his inauguration on January 10, 2007, reveals a worldview adorned with disdain for what he terms “global capitalism” and its imperialist champion, the United States. Ortega borrows heavily from Marx to explain the success of capitalism, which he views as being fundamentally opposed to the welfare of poor people throughout the world. Recently, he has been focusing more on historical inequities, drawing a causal relationship between the wealth of developed countries and the poverty of underdeveloped countries.

¶3. (C) Ortega has avoided criticizing specific individuals or businesses in Nicaragua, with a few exceptions in the energy sector. He has forcefully criticized electricity distributor Union Fenosa (Spain), liquid fuels importer and distributor Glencore (SWITZERLAND), geothermal power producer Polaris (Canada), power producer Geosa (Nicaragua), and through his tax and customs directors general and other party stalwarts, refiner and liquid fuels distributor Esso (United States). Every company that Ortega has criticized publicly has become the object of state-led legal and tax challenges.

Out of the Starting Gate
————————

¶4. (C) Beginning on the day of his inauguration attended by Venezuelan and Bolivian Presidents Hugo Chavez and Evo Morales, Ortega and his Communications Coordinator (wife Rosario Murillo) launched a propaganda campaign to reestablish socialist values in Nicaragua. The campaign contrasts greatly with his election campaign, also managed by Murillo, both in tone and content. Ortega’s election campaign was little more than the repeated play of a Nicaraguan version of John Lennon’s “Give Peace a Chance” as a silent candidate waived to the masses from a slowly driven vehicle. Ortega now makes great use of the bully pulpit to constantly assert that Nicaragua’s “neoliberal” experiment in “global capitalism” the last sixteen years has failed.

¶5. (C) The day after his inauguration, Ortega signed onto the Bolivarian Alternative for the Americas (ALBA), since heralded as the centerpiece of Nicaragua’s foreign economic relations and the alternative to the Central American Free Trade Agreement (CAFTA) and a Free Trade Agreement of the Americas (FTAA). Ortega has consistently trumpeted economic relations with ALBA countries (Venezuela, Cuba, and Bolivia) at the expense of his relations with Central American countries and as a substitute to economic relations with the United States. His socialist fire only dimmed for his first press conference in January, to calm nervous investors. By May, his anti-capitalist, anti-neoliberal, and anti-American rhetoric picked up another head of steam. This culminated in 20-minute inflammatory speech at the United Nations on September 25 2007, in which Ortega railed against the United States as the imperial power (septel).

America Is Bad
————–

¶6. (C) An underlying theme for Ortega’s speeches has been the need for Nicaragua to reduce its political and economic dependence on the United States, developed country donors, and international financial institutions, which he believes “are controlled by the United States.” He argues that global capitalism has enslaved the world by helping the rich get richer at the expense of the poor, and exploiting natural resources and polluting the world’s environment. Further, he argues that international financial institutions are the tools of “yankee imperialism,” that neoliberalism is a modern version of imperialism, and that privatization and neoliberalism in Nicaragua have failed to lift Nicaragua out of poverty.

¶7. (C) A corollary to these arguments is that CAFTA should never have been negotiated because of inherent and insurmountable economic asymmetries between poor, small Central American countries and the United States. Ortega asserts that if such a trade agreement had to be negotiated, then Central American countries should have negotiated it as a single, unified entity to strike a more balanced deal. Because this did not happen, CAFTA surely favors the United States. Ortega further asserts that by definition small agricultural producers cannot compete with large U.S. producers who, he laments, receive state subsidies. Therefore, he concludes, CAFTA is inherently unfair.

¶8. (C) Ortega often deploys this logic as political justification for forging closer economic relations with Venezuela, Cuba, Bolivia, Iran, Libya, and even North Korea. For more political cover, he will elaborate on the historical and lasting evil of “imperialism,” “global capitalism,” and “the empire,” all euphemisms for the United States. (Note: In his speech before the United Nations on September 25 2007, Ortega clearly tied the United States to these euphemisms). Ortega compares these evils to honest and well-meaning foreign assistance and commerce from and with ALBA countries and Iran.

¶9. (C) Ortega’s anti-American rhetoric often varies with the occasion. He never used the word “empire,” for example, to refer to the United States in his public meeting with World Bank Vice President Pamela Cox on February 1. However, during his July 21 address to the Sao Paulo Forum, a conference composed of leftist and nationalist political parties and social movements in Latin America and the Caribbean, Ortega bandied the term an astounding twenty-one times. Left to his own resources, Ortega will almost always weave in a few minutes of anti-American epithets into one of his patented 100-minute speeches to loyal followers. The rhetoric flows especially freely during visits from Venezuelan President Hugo Chavez.

Capitalism Is Bad; Some Investment Might Be Good
——————————————— —

¶10. (C) Ortega seems to be of two minds when it comes to capital investment. He claims to welcome capital investment on the one hand, but on the other decries the evils of “global capitalism.” He asserts that privatization has failed in Nicaragua, that “neoliberalism” has corrupted government to serve selfish interests “of those with family names we all know,” but claims to be open to dialogue with business. He accepts the need to negotiate a new Poverty Reduction Growth Facility with the IMF, but issues a blanket condemnation of all international financial institutions as being “the mere tools of capitalism.” He acknowledges the fundamental role that capital investment plays in creating jobs, generating growth, and improving social wellbeing, but never really accepts the notion that capitalism works. He equates “global capitalism” with imperialism, vilifies the United States as chief imperialist, and equates “original capital” to original sin -) since, according to his accounting of history, “original capital” was derived from slavery and colonialism.

¶11. (C) Ortega repeatedly quotes Pope John Paul II to draw a distinction between “savage capitalism” and presumably “not-so-savage capitalism.” This gives Ortega the pretext to support some forms of capital investment, e.g., that which “serves the interests of the people,” especially the poor. Clearly, Ortega feels better about an investment if there is some form of social contribution included. He has repeatedly referred to Cone Denim’s $100 million investment in a textile manufacturing plant near Managua as an example of the kind of long-term, “non-maquila” investment that he welcomes. Cone Denim (United States) makes some social contributions. However, Cone Denim is a free trade zone investment like all other Nicaraguan “maquilas,” and will, in fact, employ fewer people than most maquilas. The difference is that Cone Denim will manufacture cloth rather than finished goods.

The A to (almost) Z of Ortega’s Rhetoric
—————————————-

¶12. (SBU) Below are unofficial translations of statements made by Ortega during his first eight months in office. They identify the range of his economic thinking, and not just the anti-American quality of his rhetoric.

a. “Every time that I speak about this issue with the same representatives from the IMF, the World Bank, the European Union, and representatives of the North American Government, I say to them, ‘What are the results of these policies that His Holiness the Pope John Paul II called savage capitalism?’ That is what His Holiness called it! I ask them, and I say to those who continue insisting that the neoliberal model is the only way that our people can progress, I say to them, ‘I am going to put it to the test here in Nicaragua!'” (Presidential Inauguration, January 10, 2007).

b. “This treaty with the United States, CAFTA, that was approved a few years and months ago …we said that, in all clarity, this treaty was not thought out, not considered as to the condition of a country like the United States with great and enormous resources and economic subsidies versus the economies of our countries. They had to understand this (inequity) to negotiate. Finally they signed a treaty that brings some benefits to some sectors, but not to others. We have talked with North American representatives and told them about the problem, that they have not taken into account economic asymmetry with these countries. How can a small Nicaraguan producer compete with a North American producer who is subsidized?” (Presidential Inauguration, January 10, 2007).

c. “There does not exist, in these times, a situation that signifies that economic activity in our country is paralyzed or is decreasing. To the contrary, we feel that economic activity is being maintained …the year is beginning. There have been the normal movements for the start of a year and a dialogue has continued with the national businesses through INCAE (the Central American Institute for Business Administration). Vice President Jaime Morales is in charge of working with them, that already is the commitment…. It was a grave error to have negotiated CAFTA in bilateral form; it put us in a weak situation.” (Press Conference, January 22, 2007)

d. “This is a new government. We have a conception, a philosophy that is very different from the governments that preceded us. We are interested in developing, establishing, consolidating good relationships with (international) organizations, with the (World) Bank as well as with the
(International Monetary) Fund.” (Meeting with World Bank Vice President Pamela Cox, February 1, 2007).

e. “We are meeting many businessmen, many investors, capitalists who are ready, and in addition to their (financial) investments, to make social investments. But there are others in the minority, in the case of Nicaragua, who bring an entirely selfish attitude, who want to accumulate more riches each day and to whom it does not matter if the people are in poverty, in misery.” Sixteen years of neoliberalism has passed in Nicaragua. And what do we have? We have economic growth. Of course, we have economic growth, but with whom does this wealth reside? Where does wealth stop?” Celebration of the 29th Anniversary of the Sandinista Insurrection in Monimbo February 24, 2007)

f. “What is the root of the problem (speaking of power outages throughout the country)? It is in the deed of having privatized. This was the original sin. Who privatized? The democrats, those who say they are democrats. They privatized the power plants, giving concessions (to the electricity distributor). Thank God they did not sell it, because all this involves corruption, selling (the power plants) for pennies — but what they did was to rent it.” (Celebration of the 29th Anniversary of the Sandinista Insurrection in Monimbo February 24, 2007)

g. “We will have a world filled with justice, where all families live in dignity, where hearts are filled with the feeling of love, and where we will have buried forever feelings of hatred, of selfishness, of individualism, of ‘savage capitalism’ that His Holiness Pope John Paul II called by name ) ‘savage capitalism’…. We are not fighting with the Yankees. They are the ones who have been fighting with the world. This is the history of the imperialists.” (Ortega with Hugo Chavez in Leon, March 11, 2007)

h. “We are against polluting the environment, a result that must be viewed in the (context of) policies of consumption, imposed by the capitalist model and that will not stop for anything.” (Ortega with members of his Cabinet, April 3, 2007)

i. “At the height of neoliberalism, with all the support that is possible in terms of policies and capitalist material wellbeing, capitalist countries, with all the support that the Government of the United States had offered to previous governments…. How much would it mean for the United States to donate (a power plant) to Nicaragua? They did not donate it … It is neoliberal political nature to forget about the people, about the poor, and simply do things every day to become richer.” (Inauguration of the Venezuelan Hugo Chavez Power Plant at Las Brisas, Managua, April 17, 2007)

j. “During these sixteen years in which neoliberalism was imposed on Nicaragua, what was considered the most important was to maintain structural reforms — the privatizations, privatizing education, health — all at a cost of greater poverty for the Nicaraguan people.” (Meeting with a Russian Delegation, April 25, 2007)

k. “Never as today, has the world been so divided between the minority that possess wealth and the immense majority (living) in poverty. This has occurred at both the national and international level. Here in Nicaragua, where the scheme of world capitalist domination is replicated by the ‘land imperialists,’ as our General Sandino called them, a few with wealth and the majority in poverty…. Who is the imperialist bourgeois? The one who is of ‘savage capitalism,’ the imperialist who tries to break, to conquer our people.” (Labor Day, May 1, 2007)

l. “We have to liberate ourselves from this dependency on external resources because of all the problems they bring, the conditions that they put on us.” (Cabinet Meeting on the National Infrastructure Plan, May 3, 2007)

m. “Neoliberalism not only has meant denying education, health, and work to the people, denying financing to the farmers, but also it has meant the destruction of the environment, of the forests…. This is where it is clear that what the world is questioning is the model. There has to be questioning, from all sides, of the model that savage capitalism has imposed on the world and which is leading to the destruction of the environment.” Cabinet meeting on the National Environment Plan, May 8, 2007)

n. “The greatest acts of violence, of barbarism, have been committed by rich, developed countries. Violent crimes of all kinds — not for hunger, not for poverty, not for unemployment. Simply put, what has provoked this kind of situation has been the deformity, the destruction of the human spirit by savage capitalism.” (Appointment of Cardenal Obando y Bravo as Chair of the Reconciliation Commission, May 9, 2007)

o. “In our attempt to generate quick employment, we can be killing ourselves. This is the great problem: as we say, bread for today, hunger for tomorrow. We cannot run that risk… We want investment with a sense of respect, to the workers and to the environment — an investment that is accompanied with social sense.” (Institute of Social Security Presentation, May 22, 2007)

p. “Our country, throughout its history, has suffered wars imposed by the politics of imperial North America…. This is what permits us to break with unipolar politics to establish a new equilibrium in the world, where we transform in a profound way the current world order, as much in the areas of economics and commerce between counties as in the area of law. What we will really achieve is to democratize relations between people, between nations, by putting an end to the dictatorship of the global capitalism of the empire. And then we can ensure a world of peace, of justice, of liberty…. And in the dialogue that we hold with the United States, we have been clear to demonstrate our position against imperialist policies, against the dictatorship of global capitalism….” (Greeting Iranian President Ahmadinejad, June 10, 2007)

q. “This is the greatest battle that escapes human history — the concept that development policy has been in the hands of global capitalism which sets the norms, imposes its economic policy through blood and fire, and for which certain periods and eras a conquered Africa, Asia, and American continent submitted to colonization, responding to a development model that was determined in the European metropolis, simply trying to grow, but in these moments, the world population, technological development, and pollution that was generated in the form of epic exploitation, was brutal. It turned into an economic policy that practiced systematic genocide in order to steal natural resources.” (Closing Remarks to the Natural Resources and Environment Conference of Central American Ministers, June 18, 2007)

r. “These gentlemen that today are the owners of the world economy, who impose upon us schemes such as neoliberalism, who wish to obligate us to accept the conditions of the International Monetary Fund, they accumulated their wealth in the most abject manner, the most brutal, shameful manner that human history could have ever known.” (Celebration of the 71st Anniversary of the Birth of Carlos Fonseca, founder of the FSLN, June 23, 2007)

s. “The recent meeting of the Group of Seven plus one, in Europe, once again provides evidence of the inflexibility of those who continue defending an exhausted model ) a developmentalist, consumerist (one) that goes against the most vital interests of humanity. And the opposition, the voice that raises concern, from countries belonging to the same exhausted global capitalist scheme, (is against) global capitalism that has imposed its rules throughout the years, that has established norms, and that talks of democracy without practicing democracy.” (Inauguration of the Regional
Conference on UN Coherence, June 25, 2007)

t. “I think that the moment has arrived that, above all the countries of global capitalism, the empire (is the one who) controls the (International Monetary) Fund. Really, the poor (workers at) the Fund are no more than an instrument, because we say here that the Fund is evil. No. What is evil is world economic order imposed by the countries of global capitalism, of the empire, which accumulate their capital at the cost of enslaving Africans for more than 300 years (and) exterminating indigenous people in Latin America. This is the origin of their capital.” (Ortega’s arrival at the airport on a state visit to Mexico, June 27, 2007)

u. “In the sixteen years that they governed quietly, the model they imposed was global capitalism, the imperialist model. What were the results? They said (that) the country achieved take-off because a few became richer. Because of this, they achieved take-off. Those that became richer took off, but the immense majority of the people did not have any take off. What they had was privatization of health care, education, the democratization of hunger, of unemployment. This is what they had. This is the reason why we have (electricity) rationing )- our inheritance from neoliberalism. To put it into simple language, the inheritance of ‘savage capitalism.’ This is our inheritance.” (Inauguration of the Zero Hunger Initiative in Estelli, July 7, 2007)

v. “This is what the Europeans did. All the Europeans who today present themselves as saviors of the world, this is what they did. The primary capital for capitalism has its origins in these forms of exploitation, of theft, of plunder, of corruption, that they established throughout the African and American continent, and also in Asia. They were accumulating this wealth which they later converted into power.” (Closing of the 15th Congress of the Nicaraguan Student Union, July 18, 2007)

w. “The situation is very simple. Those that accumulated this capital, this wealth, with the plunder, the extermination, concentration camps, more than 300 years of slavery of the African population, they are very united, and they are searching a way to keep all of us divided, in order to dominate us, to better oppress us. They practice this policy throughout the world: to divide people, nations, (and) governments. And, each time governments make an effort to become closer, listening to the will of the people, the threats come with sanctions and everything that we already know. But the world lives in a new time. True that global capitalism, headed by the yankee empire, has enormous strength…. Global capitalism threatens destruction, not of the small people because it has already destroyed them, but rather of medium and large producers….” (Celebration of the 28th Anniversary of the Sandinista Revolution, July 19, 2007)

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NICARAGUA: AMBASSADOR MEETS NEW MINISTER OF ENERGY AND MINES

Wednesday, June 1st, 2011
ID
07MANAGUA788
SUBJECT
NICARAGUA: AMBASSADOR MEETS NEW MINISTER OF ENERGY
DATE
2007-03-23 21:06:00
CLASSIFICATION
UNCLASSIFIED//FOR OFFICIAL USE ONLY
ORIGIN
Embassy Managua
TEXT
UNCLAS MANAGUA 000788

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, EB/ESC

E.O. 12958: N/A
TAGS: ENRG EPET EMIN TBIO SENV EINV PINR VE NU
SUBJECT: NICARAGUA: AMBASSADOR MEETS NEW MINISTER OF ENERGY AND MINES

REF: A. MANAGUA 0640

¶B. MANAGUA 0196
¶C. 06 MANAGUA 2384
¶D. MANAGUA 0781

¶1. (SBU) Summary. The Ambassador called on the new Minister of Energy and Mines Emilio de Jesus Rappaccioli Baltodano on February 14 to introduce himself and discuss energy issues in Nicaragua. Rappaccioli summarized recent changes to energy sector governance, including the creation of the Ministry of Energy and Mines. He told the Ambassador that his primary focus will be to increase access to electricity for the poor, especially in rural areas, and the provision of power to productive sectors of the economy. In addition, Rappaccioli wants to “rehabilitate” Petronic, so that it can play a more collaborative role with Petroleos de Venezuela (PDVSA). Rappaccioli outlined his views on and Nicaraguan developments in the petroleum sector, biofuels, as well as hydroelectric, geothermal, and wind power. He welcomed the continuation of technical assistance on regulatory matters, but did not expressly commit himself. End Summary.

¶2. (SBU) The Ambassador called on new Minister of Energy and Mines Emilio de Jesus Rappaccioli Baltodano on February 14 to introduce himself and discuss energy issues in Nicaragua. Rappaccioli was joined by his Vice Minister Lorena Lanza Espinosa and Secretary General Donald Espinosa Romero. Earlier in her career, Lanza served in the Ministry of Trade, Industry, and Development in the Directorate of Hydrocarbons. Most recently, Espinosa served as the Director of Hydrocarbons at the Nicaraguan Institute of Energy. Rappaccioli told the Ambassador that his primary focus will be to increase access to electricity for the poor, especially in rural areas, and the provision of power to productive sectors of the economy. Rappaccioli outlined developments in the hydropower, biofuels, and wind generation. He envisions roles for both private and public sector investment in the energy sector. He did not talk much about mining, except to note that existing mines are primarily in private hands. (Note: Canadian-based Triton owns the rights to three small gold mines in Nicaragua, output from which is exported to the United States at 90-95% purity for refining.)

A New Ministry
————–

¶3. (SBU) Minister Rappaccioli opened the meeting with a brief summary of recent changes to energy sector governance. All functions of the National Commission on Energy (CNE) have been folded into the new Ministry of Energy and Mines (MEM), along with many of the functions of the Nicaraguan Energy Institute (INE), including the authority to grant permission for power generation, contract for power distribution, and award exploration and production concessions to mining ventures and oil and gas companies. The Ministry of Trade, Industry, and Development (MIFIC) will transfer its Directorate of Mines to MEM soon. When this occurs, MEM will bear responsibility for all policy as it relates to electricity, renewable energy, hydrocarbons, and investment in the mining and energy sectors. The power to regulate consumer prices on electricity and propane gas will remain with INE.

¶4. (SBU) Rappaccioli confirmed that Empresa Nacional de Electricidad (the state-owned national electric company, ENEL) and Petronic (the state-owned oil and gasoline distributor) will report to MEM. MEM will supervise the contract with Glencore (SWITZERLAND) for the management of Petronic, and the contract with Union Fenosa (Spanish) for the management of Nicaragua’s two power distribution companies, Disnorte and Dissur.

Making Way for Venezuela
————————

¶5. (SBU) Rappaccioli told the Ambassador that he intends to “rehabilitate” Petronic so that it can play a more collaborative role with Petroleos de Venezuela (PDVSA, the Venezuelan National Oil Company) on the importation and distribution of Venezuelan fuel, the construction of a Venezuelan proposed refinery and transithsmus pipeline, and perhaps oil and gas exploration in Nicaragua. Currently, Petronic is little more than a holding company, contracting the use of oil storage and offloading facilities as well as Petronic’s retail gasoline stations to Glencore. Since Petronic’s contract with Glencore remains in force until June 2009, Rappaccioli is looking to create some other entity in the interim to manage fuel purchases from Venezuela and serve as a counterpart to PDVSA. Rappaccioli believes that such an interim company could forge an arrangement with Glencore for the use of Petronic facilities to receive and store oil, diesel, and gasoline from PDVSA at the Port of Corinto for distribution to power producers, public transport companies, and businesses throughout the country — and even the ESSO refinery over the medium term.

¶6. (SBU) Under the Venezuelan scheme, Rappaccioli explained that 40% of the cost of the fuel would not come due for 25 years (Ref A). If Nicaragua imports $200 million worth of oil from Venezuela in 2007, for example, then as much as $80 million would be available to spend on health, education, and rural development programs. Rappacciolli expects that Nicaragua will conclude a contract for the supply of fuel through Corinto with Venezuela by April. (Note: In 2006, Nicaragua imported $656 million worth of petroleum products, $209 million from Venezuela and $191 million from Mexico.)

Oil and Gas Exploration
———————–

¶7. (SBU) The Ambassador inquired about progress on removing the injunction on exploration concessions off the Atlantic coast awarded to U.S. firms MKJ and Infinity (Ref B). He told the Ambassador that the companies had recently visited MEM, and that the ministry is reviewing their cases. He added that MEM had requested the contracts from INE, but INE had not yet done so. Rappaccioli added that “it is in the interest of the government to resolve the situation as quickly as and in the best form possible.” Contrary to claims supporting the injunction, Rappaccioli observed that the concessions appeared to be “external,” i.e., falling outside the purview of the autonomous regions on the Atlantic. Another positive development, he said, is that Foreign Minister Santos had taken an interest in the case. (Note: In a previous decision, INE had stopped the clock on the concessions to MKJ and Infinity, so that milestones missed as a result of the injunction will not jeopardize the ability of the companies to fulfill the terms of their concessions.)

¶8. (SBU) Rappaccioli did not mention the recent find of Canadian-based Norwood Resources, which has an onshore exploration concession along the Pacific Coast. On the day of this meeting (February 14), Norwood announced that it found gas, condensate, and light oil in separate zones in its exploration well at San Bartolo Rodriguez. The discovery was made below 6000 feet in various tubidite sands. Norwood said that it plans to drill another exploratory well into a similar geological structure located 11 kilometers away.

Biofuels
——–

¶9. (SBU) Rappaccioli said that he thought that Nicaragua could increase ethanol and biodiesel production either for export or domestic use, estimating the potential to substitute up to 30% of Nicaragua’s gasoline requirement in the near term. (Note: Nicaragua may be able to almost double the land under sugar cane production over the next five years, to 100,000 hectares (Ref C).) With more sugar cane production, Rappaccioli observed, power generated from bagasse would also grow. He noted that the Atlantic coast had started to produce biodiesel from African palm for export to nearby Costa Rica, and that there is the potential to produce much more.

¶10. (SBU) The Ambassador offered to bring a U.S. expert to Nicaragua to discuss the prospect for expanding biofuel production in Nicaragua. Rappaccioli tacitly approved of the idea, suggesting that Grupo Pellas also make a presentation on its ethanol production. Rappaccioli added that Pellas’ first shipment of ethanol recently sailed to Europe, and that the next shipment will go to the United States.

¶11. (SBU) Rappaccioli told the Ambassador that President Ortega would soon send a biofuels bill to the National Assembly. (Note: Since this statement, Ortega has joined President Chavez of Venezuela in publicly criticizing ethanol production and U.S. policy on biofuels, stressing food security and the need to keep food and fuel markets separate. In March, Ortega cancelled a trip to Brazil where he was supposed to sign a bilateral cooperative agreement to promote ethanol production. (Ref D))

Hydropower
———-

¶12. (SBU) Rappaccioli believes that Nicaragua has great potential to develop hydropower and hinted that a pipeline of feasibility studies is in the works. Rappaccioli said that ENEL is looking at constructing several small hydroelectric dams. (Note: ENEL has sought assistance from the U.S. Trade and Development Agency for a feasibility study for a 15 MW hydroelectric dam at El Barro). For some time, a group of investors comprising COPALAR has floated a proposal to construct a large hydroelectric dam on the Rio Grande of Matagalpa, which could generate as much as 900 MW and cost more than $1 billion to build. Legislation facilitating the project is pending before the National Assembly. Rappaccioli told the Ambassador that a decision on COPALAR would be made by the end of the year, adding that Mexican billionaire investor Carlos Slim had shown interest in the project during his recent visit to Nicaragua. (Note: Rappaccioli lists COPALAR as one of his consulting clients on his curriculum vitae between 1997 and 2006.)

¶13. (U) Note: Nicaragua currently sources 80% of its electricity from power plants that import oil for fuel. Installed capacity is roughly 650 MW, which meets current demand, but leaves no room for error and is inadequate in the context of projected rising demand. In fact, the lack of new investment in power generation presents a serious obstacle to investors, often raising the cost of a project. ITG Cone Denim’s $100 million denim plant under construction in Ciudad Sandino, for example, includes a $20 million power plant as part of its investment so that the assured supply of power is not an issue. End Note.

Geothermal Power
—————-

¶14. (SBU) Rappaccioli wants Nicaragua to further develop its potential to generate power from geothermal sources. He mentioned the Israeli (Ormat) Italian (ENEL), and Salvadorean investment in a geothermal plant at Momotombo which generates about 20 MW. He also mentioned the Canadian, U.S., and German investment at San Jacinto, now named Polaris, lamenting the fact that San Jacinto is only generating about 7.5 MW although it had the potential to produce 66 MW. As the President of INE eleven years ago, Rappaccioli said that he had signed the contract to develop San Jacinto and not much had happened since. He told the Ambassador that the government was reviewing Polaris’ concession. (Note: Shortly after this meeting, the Attorney General’s office announced its opinion that Polaris’ poor performance constituted sufficient grounds for the government to void its concession. Polaris has been fighting back, pointing out negotiated changes to its concession and work program with INE, and the company’s declaration of force majeure in 2004 as a result of the worldwide shortage of drilling equipment.)

Wind Power
———-

¶15. (SBU) Rappaccioli welcomed the recently launched wind generation project in the Department of Rivas, terming it a very positive development. The $80 million Amayo wind farm involves the erection of 19 wind propelled turbines manufactured in India by a Danish firm and installed by a Spanish firm. The previous day, Vice Minister Lanza attended the signing ceremony for Amayo’s power purchase agreement to supply up to 40MW to Union Fenosa. The project is the brainchild of U.S., Guatemalan, and Nicaraguan investors.

¶16. (SBU) Rappaccioli told the Ambassador that another wind farm similar to Amayo is under development for the Department of Chontales. The plan is to produce up to 20 MW for ENACAL, the state-owned water company. ENACAL will manage the pluses and minuses with Union Fenosa, and thus channel excess power to the grid.

¶17. (SBU) Rappaccioli described the prospects for generating wind power in Rivas and Chontales as excellent, especially during the dry season. Nevertheless, the nature of the enterprise is that sometimes power will not be available. Whatever power these two wind farms generate, he observed, they will be cost competitive, constitute a domestic energy source, and reduce the requirement for oil imports.

Technical Assistance: Energy Regulation
—————————————

¶18. (SBU) The Ambassador explained that before the change in government on January 10, USAID brought two energy experts to Nicaragua to consult with energy sector stakeholders and the government on Nicaragua’s energy regulatory regime, especially as it pertained to power generation and tariffs. Rappaccioli replied that he would welcome the continuation of such technical assistance, but did not expressly commit himself. (Note: A USAID consultant visited during the week of March 19 to explore the possibility of advancing technical assistance in this area.)

Biography: Emilio de Jesus Rappaccioli Baltodano
——————————————— —

¶19. (SBU) Emilio de Jesus Rappaccioli Baltodano returns to government after a hiatus of ten years. From 1979 to 1990, he headed the Nicaraguan Energy Institute under the Sandinista regime. During this time, Rappaccioli earned the nickname “Don Rapagon” (Sir Outage, with a play on the “R” in his last name), for his many power rationing schemes. Rappaccioli continued at the Nicaraguan Energy Institute during the administration of Violeta Barrios de Chamorro. From 1995 to 1997, he served as President of the state owned Nicaraguan Electric Company (Empresa Nicaraguense de Electricidad, ENEL). For the past 10 years, he worked as an international consultant. During this period, he served as President of the FSLN’s National Commission on Judicial and Ethical Affairs.

¶20. (SBU) Rappacciolli received his bachelor’s degree from the University of Central America in Managua and a master’s degree in civil engineering from Northeastern University in Boston, Massachusetts. In the early 1970’s, he taught engineering at the University of Central America and National University of Nicaragua. He remains an active member of the American Association of Civil Engineers, the Nicaraguan College of Engineers, and the Association of Engineers and Architects. He is 65 years old (DOB: 5/5/41), married, and has children.

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ADDITIONAL SWISS INPUT REGARDING CALL FOR FREEZING NON-HUMANITARIAN ASSISTANCE TO NICARAGUA FOLLOWING FRAUDULENT ELECTIONS

Wednesday, June 1st, 2011
ID
09BERN57
SUBJECT
ADDITIONAL SWISS INPUT REGARDING CALL FOR FREEZING
DATE
2009-02-06 15:39:00
CLASSIFICATION
UNCLASSIFIED//FOR OFFICIAL USE ONLY
ORIGIN
Embassy Bern
TEXT
UNCLAS BERN 000057 

SENSITIVE
SIPDIS

DEPT FOR WHAT/CEN (A.KRAAIMOORE) AND EUR/CE (Y.SAINT-ANDRE)

E.O. 12958: N/A
TAGS: EAID PGOV PREL NU SZ
SUBJECT: ADDITIONAL SWISS INPUT REGARDING CALL FOR FREEZING NON-HUMANITARIAN ASSISTANCE TO NICARAGUA FOLLOWING FRAUDULENT ELECTIONS

REF: A. A. SECSTATE 132044
¶B. B. BERN 00655

¶1. (SBU) Further to reftel A request for Switzerland to freeze non-humanitarian assistance to Nicaragua following its fraudulent municipal elections of November 9, and reftel B interim response, Nora Kronig, Regional Coordinator for Central and South America at the SWISS Federal Department of Foreign Affairs (EDA), called Poloff on 28 January 2009 to provide the following input from her SWISS contacts concerned with this issue. Kronig said that EDA took note of the USG position and was interested to know where the U.S. stood in this regard. The GOS is, according to Kronig, aware of the risks associated with the Nicaraguan situation and is following the developments with great attention. Further, SWISS interlocutors are discussing the municipal elections and their consequences within the Donors Group of Nicaragua.

¶2. (SBU) Kronig added that Switzerland has expressed concern with the elections by way of a press communique and has also done so bilaterally with the GON. Given the exclusion of two political parties in this election, Switzerland has addressed its concern at the Minister of Foreign Affairs level between the GOS and GON.

¶3. (SBU) The Budget Support Group, which Kronig explained gives financial assistance to the Nicaraguan government to implement programs, differs from the development/humanitarian aid provided by Switzerland through the SWISS Agency for Development and Cooperation (SDC). Kronig stated that the Budget Support Group met in mid-January to assess the situation and discuss the continuation of providing assistance to Nicaragua, adding that the group decided that Nicaragua’s actions will “bear consequences,” and a suspension of budget support will not be excluded as a possibility. The GOS has, at this time, decided that programs and projects that have been supported by Switzerland for a long time will be maintained, but under increased vigilance.

¶4. (SBU) Kronig closed by explaining that Switzerland has always acted as a constructive partner and an honest broker in its relations with Nicaragua, and that the GOS will continue to opt for open and constructive dialogue. That said, she noted that Switzerland will voice critical views and encourage democracy, non-violence, human rights, and the rule of law, and will seek constructive solutions where problems arise.

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NICARAGUA: ORTEGA PRESSURES EXXONMOBIL TO BUY VENEZUELAN OIL

Wednesday, June 1st, 2011
ID
07MANAGUA2539
SUBJECT
NICARAGUA: ORTEGA PRESSURES EXXONMOBIL TO BUY
DATE
2007-12-07 21:18:00
CLASSIFICATION
CONFIDENTIAL
ORIGIN
Embassy Managua
TEXT
C O N F I D E N T I A L MANAGUA 002539 

SIPDIS

SIPDIS

DEPT FOR EEB/ESC, EEB/BTA, WHA/EPSC, WHA/CEN/TLERSTEN
DEPT PLEASE PASS TO USTR AND OPIC

E.O. 12958: DECL: 12/06/2017
TAGS: EPET ENRG EINV ETRD NU
SUBJECT: NICARAGUA: ORTEGA PRESSURES EXXONMOBIL TO BUY VENEZUELAN OIL

REF: A. MANAGUA 2116
¶B. MANAGUA 2055
¶C. MANAGUA 2016
¶D. MANAGUA 1952

Classified By: Classified By: CDA Richard M. Sanders, Reason: E.O. 1295
8 1.4 (b) and (d)

¶1. (C) President Ortega announced on December 5 that he had instructed the Ministry of Energy and Mines and others “to quickly work out a proposal to nationalize the importation of oil.” Ortega wants Nicaragua to import all oil from Venezuela to take advantage of Hugo Chavez’ offer to contribute half of the resulting revenues to the Bolivarian Alternative (ALBA) Development Bank and Fund. As operators of the country’s only refinery, ExxonMobil supplies more than 70% of the country’s liquid fuel needs, including fuel oil used to generate electricity. ExxonMobil further imports the majority of refined product (gasoline and diesel) to supplement refinery supply. ExxonMobil is willing to discuss a supply contract to import Venezuelan crude oil, but wants to sign the fuel storage and sales agreement first, as was agreed in a memorandum of understanding in September. Talks on crude oil imports are supposed to be in parallel with discussions on a laundry list of tax charges lodged against ExxonMobil by the Ortega administration. Recently, Ortega has publicly referred to “transnationals that import oil” as members of a “mafia,” and castigated ExxonMobil for behaving like “true mercenaries (and) speculators” while “bleeding the Nicaraguan people.” On December 6, Foreign Minister Samuel Santos called CDA Sanders to a meeting with Minister of Energy Emilio Rappaccioli and Petronic President Francisco Lopez, who gave their version of events.

Ortega Appoints Study Commission
——————————–

¶2. (SBU) President Ortega announced at the closing session of the fourth National Security and Defense course for the Ministry of Defense and the Military on December 5 that he had instructed the Ministry of Energy and Mines (MEM), Nicaraguan Institute of Energy (INE), National Electricity Company (ENEL), and Albanisa (a joint enterprise between Petronic and the Venezuelan national oil company PDVSA) “to quickly work out a proposal to nationalize the importation of oil.” Ortega wants Nicaragua to import all oil from Venezuela to take full advantage of Hugo Chavez’ offer to contribute half of all resulting revenues to the Bolivarian Alternative (ALBA) Development Bank and Fund.

ExxonMobil and Glencore Primary Importers
—————————————–

¶3. (C) Currently, ExxonMobil (U.S.) and Glencore (SWISS) import almost all oil consumed in Nicaragua. As operators of the country’s only refinery, ExxonMobil supplies more than 70% of the country’s liquid fuel needs, including fuel oil used to generate electricity. ExxonMobil further imports the majority of refined product (gasoline and diesel). Glencore imports the rest under a contract with Petronic, the national oil company, that expires in 2009.

Ortega Administration Pressure
——————————

¶4. (C) Both ExxonMobil and Glencore have been subject to intense pressure by the Ortega administration to import Venezuelan oil. In April 2007, the Ortega administration challenged the legitimacy of Glencore’s 10-year contract. This resulted in Glencore importing essentially all of its refined product from Venezuela, i.e., about 4000 barrels per day. The Ortega administration then launched a host of questionable tax claims agaiNtDkuIQ\Mobil agreed to negotiate the use and eventual sale of the fuel storage facility that was seized. In each instance, once Glencore and ExxonMobil accommodated the Ortega administration, their near term legal challenges disappeared.

¶5. (C) More is at stake with ExxonMobil than with Glencore  and the road has been bumpier. ExxonMobil tells us that it has negotiated an agreement for the use and sale of the Corinto fuel storage facility, but that the Ortega administration is refusing to sign. Instead, the administration is demanding to negotiate the sale of Venezuelan crude oil to ExxonMobil’s refinery. ExxonMobil wants to sign the fuel storage and sales agreement first, according to the order of events set forth in September’s memorandum of understanding. ExxonMobil also wants to make progress on the laundry list of tax charges that the Ortega Administration has initiated. (Refs A, B)

¶6. (C) In November 2007, FSLN stalwart and Economic Advisor to the President Bayardo Arce replaced Francisco Lopez (Petronic President and former FSLN Treasurer) as point person for negotiations with ExxonMobil. Arce appears to be charged with getting ExxonMobil to agree to buy Venezuelan crude, and is not above using heavy-handed pressure tactics. This may explain why in recent weeks Ortega has publicly referred to “transnationals that import oil” as members of a “mafia,” and castigated ExxonMobil for behaving like “true mercenaries (and) speculators” while “bleeding the Nicaraguan people.” Ortega also charged ExxonMobil with being “uncooperative” and “totally negative” to the idea of “contributing to the Nicaraguan people.” “All this would change,” said Ortega at the December 5th event noted above, “if this transnational would change its attitude, as it had during period 1979-90….” ExxonMobil is scheduled to meet with Bayardo Arce on December 7.

¶7. (C) In the meantime, ExxonMobil has informed us that, in fact, it is amenable to negotiating the importation of crude oil from Venezuela. In the past two months (business confidential information), ExxonMobil has come to terms internally with the idea that Venezuelan ships could be used for transport, provided supply contracts stipulate prompt delivery, late charges, some supply flexibility, and vessels used meet ExxonMobil’s environmental and safety standards (i.e., double hulled tankers). This is because the company would rather not pay demurrage to Venezuelan ports while waiting for an unreliable PDVSA to load product.

CDA Meets with Key Administration Players
—————————————–

¶8. (C) On December 6, CDA was convoked to the Foreign Ministry to meet with Foreign Minister Samuel Santos, who was accompanied by Energy Minister Emilio Rappaccioli and Petronic President Francisco Lopez. Santos led off by saying that the meeting was being held at the instruction of President Ortega, and that he, Santos, wanted to make sure the USG — and especially the Secretary and WHA A/S Shannon — for whom he had high regard, had a “concrete” understanding of the GON’s situation with regard to ExxonMobil’s operations in Nicaragua. He noted the enormous problem which high energy prices present for Nicaragua and asserted that the GON had made “enormous efforts” to reach an agreement with ExxonMobil.

¶9. (C) Santos soon handed the meeting over to Rappaccioli, who briefly recounted his version of the events of the summer-fall of 2006 in which ExxonMobil’s unused storage facility had been seized and used to store a shipment of Venezuelan gasoline which entered Nicaragua. The crisis provoked by this act had been resolved with the signature of a joint memorandum that returned the plant to ExxonMobil, but which contemplated the import of Venezuelan crude into ExxonMobil’s refinery in Nicaragua, “parallel” to the negotiation of arrangements for the rental or eventual sale of the gasoline storage facility. The GON had since been trying to reach a commercial agreement setting forth terms which would actually the Venezuelan crude oil to enter Nicaragua, without success. The inability of the GON and ExxonMobil to reach an agreement was highly prejudicial to Nicaragua, which was unable to take full advantage of the favorable terms which Venezuela offered for its crude through “Albanisa” a joint Venezuelan-Nicaraguan oil-importation entity.

¶10. (C) Petronic President Lopez further elaborated, saying that Venezuela offered Nicaragua up to 27,000 barrels per day, but until now Nicaragua has only been able to import 4,000 barrels a day (in the form of refined products) brought in for Petronic by Glencore. As a result, Nicaragua had lost $230 million in savings from unused Venezuelan concessional funding. Lopez noted the great expense the GON is facing in subsidizing mass transit, and the crisis that the electrical power sector is facing. Lopez said that ExxonMobil had been offered extremely attractive terms on price, volumes, and payment schedules, and would be allowed to use its own ships (vice those of Venezuela state oil enterprise PDVSA). In the current circumstances, getting Venezuelan crude oil into Nicaragua was a matter of “national security.”

¶11. (C) Lopez suggested that the U.S. embassy consider taking part in future negotiations to assure a successful conclusion. Santos finished off the GON’s presentation by handing CDA a copy of a memo, dated December 4, from Lopez to the head of the Nicaraguan Energy Institute (the GON’s energy regulatory authority) entitled “Documentary Recapitulation of Efforts at Agreements with Esso.” Santos also said that as a “personal, not official” opinion, he wondered if ExxonMobihQY4klQ which was far better than taking impressions from the press. Their views would be transmitted to Washington immediately. That said, however, he added that public remarks by President Ortega calling for “nationalization” inevitably provoked concern in Washington. He assured Santos that the USG had no hidden agenda and would be happy to see the GON and ExxonMobil reach agreement. While he could not offer any analysis of why the two parties have not yet reached an agreement; he understood that ExxonMobil was also looking for resolution of the GON’s claims of large amounts of back taxes due from the company which were presented at the time of the earlier seizure of the gasoline storage facility. (Rappaccioli responded that he had heard that the Mayor of Managua had stated that claims for local taxes had been resolved; however, GON economic advisor Bayardo Arce had said that Exxonmobil had not presented needed invoices for taxes due to the central government for review). As to the idea of embassy intervention in the negotiations, CDA noted that at stake were complex commercial matters that seemed best left to the parties directly involved.

Comment
——-

¶13. (C) Comment: Santos seemed most interested in doing damage control following Ortega’s use of the term “nationalization,” which dominated local headlines the day before. Rappaccioli and Lopez’ spin-filled versions of the current state of play seemed aimed at getting the USG to pressure Exxonmobil to bring in the Venezuelan crude oil as soon as possible, under GON terms. ¶14. (C) The actions of the Ortega administration over the past 12 months provide compelling evidence of a lack of understanding of the oil sector, if not political incompetence. Readers may remember that during the 2006 elections, the FSLN created Albanica (now defunct and not to be confused with Albanisa) to import oil under a scheme with Venezuela that would allow FSLN mayors to derive profits. When a shipment of diesel finally arrived, Albanica scrambled to find tanker trucks to transport product to Managua, and then to distribute the product )- ostensibly to transport cooperatives and unions. After Ortega assumed power, Venezuelan President Hugo Chavez announced that PDVSA would build a $2.5 billion refinery in Nicaragua. Several months later, Chavez laid a cornerstone at a chosen site, only to leave the project to a feasibility study that had not been initiated. Between July and November, the Ortega administration forced Glencore to provide storage and to distribute shipments of Venezuelan product. When Glencore ran short of storage capacity in August, the Ortega administration charged ExxonMobil with failure to pay taxes. An administrative oversight was used as the pretext for seizing the storage capacity from ExxonMobil in time to offload a Venezuelan vessel. When members of the National Assembly and the IMF demanded transparency and on-budget accounting of Venezuelan funds derived from oil sales, the Ortega administration created Albanisa, a “private entity”
composed of stated-owned enterprises PDVSA (Venezuela) and Petronic (Nicaragua), to manage Venezuela oil sales off-budget.

¶15. (C) While Albanisa may be capable of importing Venezuelan oil through paper transactions, someone must eventually pay for it. Without the sales and distribution networks of ExxonMobil and Glencore, Albanisa cannot generate ALBA funds from Venezuelan oil. We believe that Ortega’s call to develop proposals to nationalize the importation of oil is the latest attempt to pressure ExxonMobil into monetizing Venezuelan oil. Before nationalizing the process, the Ortega administration will have to convince the National Assembly to revise legislation governing the sector. If a state-owned entity does the importing, then ALBA funds would be subject to National Assembly oversight, something that the Ortega Administration has been trying to avoid.

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NICARAGUA: GOVERNMENT STILL CONTROLS EXXON FUEL DEPOT

Wednesday, June 1st, 2011
ID
07MANAGUA2016
SUBJECT
NICARAGUA: GOVERNMENT STILL CONTROLS EXXON FUEL
DATE
2007-08-31 00:06:00
CLASSIFICATION
CONFIDENTIAL
ORIGIN
Embassy Managua
TEXT
C O N F I D E N T I A L MANAGUA 002016 

SIPDIS

SIPDIS

DEPT FOR EEB/ESC, EEB/BTA, WHA/EPSC, WHA/CEN
SAN JOSE FOR CS/JMCCARTHY
DEPT PLEASE PASS TO USTR AND OPIC

E.O. 12958: DECL: 08/29/2017
TAGS: EINV EPET ETRD NU
SUBJECT: NICARAGUA: GOVERNMENT STILL CONTROLS EXXON FUEL
DEPOT

REF: A. MANAGUA 1952
¶B. MANAGUA 1789
¶C. MANAGUA 640
¶D. MANAGUA 788

Classified By: Ambassador Paul Trivelli, Reason: E.O. 12958 1.4 (b) and
(d)

¶1. (C) Summary: Ten days after the government seized one of Esso/Nicaragua’s fuel depots at the Port of Corinto, it refuses to return the facility to Esso without preconditions. The government wants Esso to honor third party contracts involving the use of the depot; for safety and liability reasons, this is a non starter for Exxon. The implementation of a “peace plan” remains on the table, waiting for Energy Minister Rappaccioli to return from Brazil. Theoretically, Exxon is willing to purchase fuel from Petronic, the state-owned holding company, but will only negotiate a deal after the depot is returned. In return, Exxon wants government harassment, in the form of tax liens and accusations of nonpayment, to stop. While the stalemate continues, Petronic controls Esso’s facility. Petronic has already offloaded fuel from one Venezuelan vessel and is preparing to do the same with another. We believe that the government’s driving motivation for its treatment of Esso is an overwhelming desire to siphon ALBA funding from the sale of Venezuelan petroleum to Nicaragua to fund inter alia the creation of 17,000 citizens’ councils. End Summary.

¶2. (C) As reported in Ref A, the Government of Nicaragua seized one of Esso/Nicaragua’s fuel storage facilities at the Port of Corinto on August 17. The pretext for the seizure was a lien for the nonpayment of taxes, placed on the property by the Director General of Customs Roberto Zepeda. Zepeda charged that Exxon had failed to pay the value added tax on imported petroleum product.

¶3. (C) The issue first surfaced more than a year ago when the government noticed that Exxon had not filed the proper paperwork for an exemption from the value added tax. Industry insiders tell us that this is fairly common, as ships frequently arrive and are offloaded before all the paperwork is finished. Instead of seeking an administrative solution to an administrative problem, the government parlayed a paperwork glitch into something much grander to suit its purposes. Customs insists that Esso/Nicaragua owed as much as $3 million in unpaid value added tax.

¶4. (C) What makes the claim verifiably specious is that Nicaraguan law clearly exempts petroleum products from most normal taxes, including the value added tax. For this reason, no mechanism exists for Exxon to collect value added taxes along the supply chain. Instead, the industry essentially operates under its own tax regime, centered on the energy consumption tax. As the major supplier of refined products to Nicaragua, Exxon helps collect this tax from other fuel distributors on behalf of the government.

“We Pay Our Taxes”
——————

¶5. (C) At no time has Exxon accepted publicly or privately that the government’s charges of tax evasion are correct. Exxon spokesmen Alfredo Fernandez-Sivori and Milton Chavez have publicly stated Esso/Nicaragua has always paid its taxes and is a good corporate citizen, investing in Nicaragua to reliably and safely supply fuel to the country and importing technology. Indeed, as a high profile foreign investor and a major taxpayer, Esso/Nicaragua has long come under regular scrutiny by local tax authorities. Former Director General for Taxation Roger Arteaga was quoted in the press as having said that, in his experience, Esso/Nicaragua was meticulous about paying its taxes.

“I’d Like a Fuel Depot, Judge”
——————————

¶6. (C) As the demandeur, Director General for Customs Zepeda has the right to go to a judge in a district where an Esso/Nicaragua asset resides and demand that a tax lien be placed on it. Zepeda chose an out-of-commission Esso fuel depot called Corinto I.

¶7. (C) Nicaraguan law clearly states that custody of a
property subject to a lien “will be awarded to the owner of the property,” but this did not stop the Sandinista (FSLN) judge from Chinandega, Judge Socorro Toruno, from enlisting the assistance of armed local police to forcefully remove Esso/Nicaragua personnel from Corinto I and awarding custody of the depot to Zepeda. The mission all took place with clockwork precision shortly after close of business on Friday, August 17.

¶8. (C) Zepeda immediately used his ill-gotten authority to request Petronic to prepare Esso’s tanks to receive fuel from a Venezuelan vessel that had arrived in port the day before. The last Venezuelan vessel to call paid demurrage of $400,000, and the GON appeared determined that such a delay was not going to happen again.

Our Friends at Petronic
———————–

¶9. (C) Petronic is a state-owned holding company whose primary responsibility is to oversee a long-term contract with Glencore (SWISS) for the supply and distribution of petroleum products. In April, two months after Evo Morales nationalized Glencore’s mining assets in Bolivia, the Nicaraguan government tried to nullify its ten-year contract with Glencore in its eighth year, arguing that the government official who signed the contract was not authorized to do so. This charge soon devolved into negotiations with Glencore, the outcome of which is unclear. However, Glencore is now onboard with the idea of receiving Venezuelan product through Petronic.

¶10. (C) The local IMF Representative informs us that as a result of IMF negotiations restricting rapid growth in foreign debt, the Sandinista Government will no long siphon funds from the purchase of Petroleos de Venezuela (PDVSA) products through a discount financing scheme as reported in Ref B. Rather, 25% of the proceeds of a sale to Petronic will be deposited into a fund supporting a development bank and 25% into an ALBA Fund. To make this work, real companies with refining or distributive capacity like Exxon have to buy the fuel from Petronic.

Chico and the Man
—————–

¶11. (C) The President of Petronic is Francisco “Chico” Lopez, who despite some reports that he has resigned, apparently still functions as the Treasurer of the FSLN, whose headquarters serve as President Ortega’s official residence and office. As an accounting master with nimble fingers massaging the financial heart of the FSLN, Chico Lopez appears to be just the guy Ortega wants to manage his ALBA funds.

¶12. (C) We note that in a public scandal last April, Amcit Armel Gonzalez implicated Chico Lopez and FSLN Director for Organization Lenin Cerna in a $4.5 million extortion attempt involving a tourism development in the Department of Tola (Ref C). Although Gonzalez recorded the conversations on audio tape verified by experts, Gonzalez has been accused of creating false evidence.

Hard Day’s Night
—————-

¶13. (C) With free run of Corinto I as provided by Judge Toruno, Chico Lopez sprung into action. Within hours, local contractors showed up to perform welding and other metal work on Esso’s tanks to prepare Corinto I to accept 18,000 barrels of Venezuelan diesel, i.e., what remained of Venezuela’s 120,000 barrel shipment. The contractors welded all night. Reportedly, 40,000 barrels of diesel and 20,000 barrels of gasoline were offloaded to a depot managed by Glencore, and 30,000 barrels of diesel were offloaded to a depot managed by the Nicaraguan Port Authority.

¶14. (C) While contractors continued to weld, President Ortega appointed Minister of Energy Emilio Rappaccioli to act as point person for the government in talks with Exxon. Business Federation (COSEP) President Erwin Kruger offered his good offices to broker a deal, and helped Exxon reps to initiate discussions with Rappaccioli on August 21. (Ref D).

“What Do You Really Want?”
————————–

¶15. (C) Exxon soon discovered that the issue was not unpaid taxes. Rappaccioli freely admitted in private conversations and then publicly to the press that the government launched tax cases against Exxon to pressure the company into accepting Venezuelan product ) a bit like the government had pressured Glencore into accepting Venezuelan product last April. Exxon rep Augustin Fuentes (protect) told us that Rappaccioli also broached the possibility of organizing a buyout of Exxon’s refinery. While Rappaccioli had hinted at this possibility before, Fuentes paid closer attention this time.

¶16. (C) Talks with Rappaccioli continued through the week while other parts of the government tried to apply increasing pressure on Exxon. At one point, the government filed twelve claims of tax evasion within five hours. Exxon reps calculated that the government’s tax claims totaled $57 million, the approximate book value of Esso/Nicaragua’s refinery located near Managua.

Misdirection
————

¶17. (C) One of these claims of tax evasion involved the supposed nonpayment of corporate income tax over ten years. Director General of Taxation Walter Porras publicly stated that a company like Exxon should be paying the same income tax that everyone else pays. Under its investment agreement with the government, however, Exxon pays 25%. The general corporate tax rate has since been raised to 30%, but the law allows agreed rates to remain valid. At another point, Attorney General Estrada questioned whether an investment agreement signed by Arnoldo Aleman’s famously corrupt Director General for Taxation Byron Jerez should be honored. Exxon reps inform us Jerez did not sign the agreement, which dates back to Violeta Chamorro’s government, not Aleman’s.

All The News That Is Fit To Print
———————————

¶18. (C) Throughout, headlines raged and talk shows chatted storms. Minister of Finance Alberto Guevara, Director General of Taxes Walter Porras, and an assortment of Sandinista party hacks and diputados continued to rant that Exxon owed taxes — all kinds of taxes. Managua Mayor Marenco claimed that the city’s gasoline stations owed Managua $90 million for unpaid municipal business licenses over the last 10 years — the case just happens to be pending a decision in the Supreme Court. But the propaganda effort did not seem to carry much weight with the press. In front page headlines, La Prensa called the seizure “blackmail” and El Nuevo Diario questioned the ramifications of Exxon delaying its next shipment of fuel. Through it all, Ortega refused to comment much more than to say that that “the case is in the courts.” Exxon spokesmen kept repeating that the assertion that Exxon had failed to pay its taxes was patently false.

¶19. (C) At an August 23rd signing ceremony for a U.S. Trade Development Agency grant to develop a modern ports law, the Ambassador emphasized the importance of the rule of law, of trade and investment to growth and development, and what the United States is doing to help Nicaragua take advantage of CAFTA. He also mentioned how the Exxon case was detracting from the image that Nicaragua was a good place to invest. In comments to the press after the event, the Ambassador stressed the importance of the rule of law, respect for private property, and the need for the government to return Corinto I to Exxon. He continued to encourage both sides to sit down to settle their differences. The Port Authority held the signing ceremony at the hotel owned by Foreign Minister Samuel Santos and Chief Economic Advisor Bayardo Arce, neither of whom bothered to show. Santos was on the agenda, but sent his Vice Minister for Development who nervously mouthed a few words he had scribbled on a quarter piece of paper.

The Peace Plan
————–

¶20. (C) By August 25, it looked as if Rappaccioli and Exxon
had agreed to an orchestrated exchange of letters in a deal that read like an Israeli-Palestinian peace plan. The basics of the deal were pretty much the way Exxon had mapped it out a week before.

¶21. (C) In the first phase, Exxon would regain control of Corinto I as the result of the Director General of Taxation Zepeda’s request to Chinandega Judge Toruno to replace Zepeda with Esso/Nicaragua’s Corinto plant supervisor.

¶22. (C) In the second phase, Exxon would deliver a letter stating its intention to sell/rent the seven small tanks located in Corinto I, or to use them to receive Petronic product. Exxon also would deliver a letter committing to the purchase of 400,000 barrels of crude oil per month from Petronic, about 60% of refinery needs. Presumably, Petronic would source the oil from PDVSA at market prices and sell it to Exxon. Exxon would transport the crude on its own ships, something that Exxon had wanted to do all along because PDVSA is unreliable. In return, the government would commit to jointly reviewing all tax cases that it had thrown at Esso/Nicaragua, with a view to resolving any legitimate claims and dismissing the rest.

¶23. (C) In the third phase, negotiations on the commitments that each side had stated in their letters would take place, in parallel. Exxon’s goal is to extract itself from the government’s onerous tax cases and restore a good operating environment for its business. The government’s goal is to siphon off ALBA funds from the sale of Venezuelan petroleum.

The Conductor Taps His Baton, But No Orchestra
——————————————— –

¶24. (C) On August 27, Judge Toruno showed up at Corinto with an order to reinstate Esso/Nicaragua as the custodian of Corinto I. In a cooperative manner, Petronic and Esso/Nicaragua inspected the depot to make sure that its facilities had not been damaged, and to verify volumes of Venezuelan fuel. Exxon reps told us that there had been a few diesel spills. Before the transfer could proceed, Toruno asserted that the reinstatement of Esso/Nicaragua as custodian would be conditioned on Petronic’s continued control of the seven tanks filled with Venezuelan product.

¶25. (C) Exxon refused to allow its Esso/Nicaragua Corinto supervisor to sign the order. The deal broke down. Compounding the situation, Energy Minister Rappaccioli had had flown to Brazil on August 26. He was therefore unavailable to shepherd implementation of a deal he had brokered, leaving Vice Minister Lorena Lanza behind to answer the phone.

¶26. (C) On August 29, Judge Toruno unilaterally issued a revised order transferring custodianship to Esso/Nicaragua, but obligating Esso/Nicaragua to honor Petronic operations on its property. Exxon again rejected the order and refused to take control of Corinto I until all non-Esso personnel had vacated the premises. Exxon also refused to take responsibility for, or to honor, Petronic contracts that involved Petronic’s continued use of Corinto I. Exxon reps explained that their refusal is a matter of law, safety, and ultimately corporate liability. On August 30, Exxon spokesman Milton Chavez stood up at a press conference in front of a long list operational requirements that Exxon follows for safety and liability reasons, and are presumably ignored by the Petronic usurpers.

¶27. (C) Exxon continues to pursue a mutually acceptable solution with the government while it explores legal recourse. Exxon wants to replace the tax lien on Corinto I with a bank guaranty; such a guaranty would remove any claim that the government may have on Corinto I. On August 29, Chavez and others met with Vice President Jaime Morales Carazo, who in an impromptu press conference that followed, offered some support, saying that he thought that the asset should be returned to Esso.

Exxon’s Immediate Concern
————————-

¶28. (C) Of immediate concern to Exxon has been the safety and security of both its fuel depots at the port, Corinto I and Corinto II. Former Esso/Nicaragua General Manager Augustin
Fuentes explains that these tanks have been in disuse, some for considerable time, and are “not suitable for service” of the kind that Petronic is using them. They require constant vigilance, he said. Some of the tanks have been used recently to store lubricants, but not fuel. One Corinto I tank is larger, capable of storing 30,000 barrels of diesel, and still in use. It was in fact full with Exxon product when Petronic took management control of Corinto I. Moreover, Esso/Nicaragua’s fire fighting equipment for both Corinto I and II is located in Corinto I. This has caused Exxon to halt all operations at Corinto II for safety reasons.

At the Break of Dawn
——————–

¶29. (C) In the early morning ours of August 30, another Venezuelan vessel crept into the Port of Corinto with another 120,000 barrels of fuel. Petronic still controls Corinto I and is again preparing to offload Venezuelan fuel.

Comment
——-

¶30. (C) We strongly suspect that the Sandinista rush to received Venezuelan fuel is tied to FSLN financing needs, inter alia, the creation of 17,000 peoples’ councils, an initiative recently launched by President Ortega. Each Venezuelan ship offloded by Petronic translates directly into $5 million for the GON, given current ALBA financing terms. The level of interagency coordination demonstrated by the government’s assault on Exxon and pressure on Glencore reflects direction from the highest levels of Government and the FSLN, which, in this case, work out of the same office.

TRIVELLI

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http://www.wikileaks.ch/cable/2007/08/07MANAGUA2016.html