MOVEMENT ON THE EXXON-MOBIL DISPUTE

UNCLAS SECTION 01 OF 02 LIMA 001660

SIPDIS

SENSITIVE

DEPT FOR WHA/AND, WHA/EPSC, EB/IFD/OFD, EB/CBA, EB/IFD/OIA
TREASURY FOR OASIA/INL, DO/GCHRISTOPOLUS
COMMERCE FOR 4331/MAC/WH/MCAMERON
USTR FOR BHARMAN/DWEINER

E.O. 12958: N/A
TAGS: EINV EFIN ECON EPET KIDE PE
SUBJECT: MOVEMENT ON THE EXXON-MOBIL DISPUTE

REF: A) Lima 534

B) Lima 171


1. (SBU) Summary. The Economic Commission of Congress is
expected to deliberate on the Ministry of Finance (MEF)
amendment to the tax law in upcoming weeks. The amendment
would grant Exxon-Mobil a $15 million credit over the next
three and half years. The Mining and Petroleum Society
(SNMPE) has agreed to spearhead the effort in the Peruvian
Congress. Exxon-Mobil has hired two lobbyists to garner
support for the bill in the Economic Committee. If there is
unanimous consensus on the bill, the MEF is confident the
Congressional Plenary will easily pass the bill. If the
ruling is not unanimous, Post, working with the MEF, will
meet with key APRA officials to obtain support. Exxon-Mobil
predicts the Economic Commission will approve the bill in
three weeks, by the end of April. The bill should reach the
full Plenary for a vote proximately 45 days later. Post
expects the dispute to be resolved by late June. End
Summary.

Tax Law Hurts all International Companies
--------------


2. (SBU) Exxon-Mobil General Manager Peter Hartmann met with
officials from the Peruvian Mining Society (SNMPE) and
Spanish-owned Repsol on March 31 to discuss the MEF's
proposed amendment. (Note: Repsol, a provider of both
airline and maritime fuel, faced the same problems as Exxon-
Mobil. Instead of joining forces with Exxon-Mobil, Repsol
supported the current law, which established an exemption
for taxes on bunker fuel. Repsol, which gained an $80
million credit on bunker fuel, opted to forego the $13
million in airline fuel reimbursement (ref B). The MEF's
amendment would also grant Repsol its VAT credit. End
Note.) Exxon-Mobil explained that the amendment would not
just benefit one company, but all international companies
that sold airline fuel. The SNMPE agreed, and pledged to
support Exxon-Mobil's efforts to garner support for the
MEF's bill.

New Plan of Action
--------------


3. (SBU) Exxon-Mobil, working with SNMPE, hired two
lobbyists to help build consensus among the Economic
Commission for the amendment. (Note: One of the lobbyists
is a former public ombudsman with many Congressional
contacts. End Note.) SNMPE's main public relations
official, who happens to be the daughter of Congress
President Flores-Araoz, is also working to gain
Congressional support for the bill. The lobbyists believe
that if there is a unanimous consensus for the amendment
within Economic Commission, the Congressional Plenary will
pass the bill with little problem. However, if Commission
does not unanimously agree, Exxon-Mobil and SNMPE will look
to the Embassy and the MEF to advocate on their behalf. If
this situation occurs, Post will meet with key Congressmen,
including APRA's Juan Valdivia, to push for support of the
bill.


4. (SBU) According to Peter Hartmann, the Economic
Commission should approve the bill within the next three
weeks, perhaps by the end of April. Once the bill is
approved, it will move to the Plenary for action. Exxon-
Mobil expects the Plenary to make a decision on the bill
within a 45-day period.

Comment
--------------


5. (SBU) By joining forces with the mining society, Exxon-
Mobil is likely to garner more support for the MEF's
amendment. Congressmen should no longer view the bill as
correcting problems for one large American company, but for
all international companies that sell airline fuel. We will
continue to work closely with Exxon-Mobil, the SNMPE, and
the MEF to press the Congress for quick resolution of this
issue.
STRUBLE