ANOTHER ATPDEA DISPUTE NEAR RESOLUTION

UNCLAS SECTION 01 OF 02 LIMA 004033

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 ECON ETRD PGOV PE
SUBJECT: ANOTHER ATPDEA DISPUTE NEAR RESOLUTION

REF: A) LIMA 2017 B) LIMA 995


1. (SBU) Summary. According to GOP's Commercial Dispute
Coordinator, Aurelio Loret de Mola, the Luz del Sur/PSEG
dispute should be resolved shortly, pending SUNAT valuation
of any back taxes owed by the company. The remaining ATPDEA
cases -- Engelhard, Princeton Dover, and LeTourneau -- are
still unresolved. The Superior Court issued its ruling, 3-2
against both Engelhard and Princeton Dover in August; both
companies have appealed to the Constitutional Court. On
LeTourneau case, Loret de Mola appears close to providing
the company with the GOP's final monetary offer of
approximately $10 million. LeTourneau continues to insist
that a third-party assessment be used to determine the
market value of the expropriation and will likely not accept
the GOP's offer. End Summary.

Luz del Sur: Light at the End of the Tunnel
--------------


2. (SBU) According to the GOP's Commercial Dispute
Coordinator Aurelio Loret de Mola and company
representatives, the Luz del Sur dispute is on the verge of
being fully resolved. The Tax Court issued a ruling on July
26 that accepted the CONATA revaluation of the U.S.
company's assets (Ref A). The Tax Court instructed SUNAT to
use that valuation to determine any back taxes that Luz del
Sur owes. Loret de Mola informed us that the amount should
be minimal, probably less than $150,000. He also noted that
SUNAT would not appeal the Tax Court ruling; SUNAT also told
the local Luz del Sur general manager that it would not
appeal. The final step is for SUNAT to issue its
resolution, which we are told should be ready shortly.

Cases in Appeal
--------------


3. (SBU) Engelhard: In mid-August, the Superior Court
issued its final ruling, 3-2 against the company, denying
there were violations of due process. The company was
notified in late August of the decision, and it filed its
last appeal to the Constitutional Court on September 14.
Engelhard, in its final appeal, continues to claim that its
rights and due process had been violated. The
Constitutional Court will take at least two months to rule,
if the case is expedited.


4. (SBU) Princeton Dover: In early August, the Superior
Court issued its final ruling, 3-2 against Princeton Dover.
Princeton Dover filed its appeal with the Constitutional
Court on August 8. The company seeks to overturn the ruling
of the Tax Court, which refrained from issuing a resolution
until after the criminal case concludes.



5. (SBU) Princeton Dover and Engelhard await whether their
local executives will be included in the criminal case;
according to the Princeton Dover representative, the judge
is nearing a decision to begin a trial (after nearly 5
years) and determine who of the more than 200 accused will
be included.

LeTourneau: Challenges Remain
--------------


6. (SBU) Loret de Mola is working with a local consulting
firm, MacroConsult, to calculate the GOP's final
compensation offer for LeTourneau. MacroConsult is using
the 1968 LeTourneau letter, signed by then Vice President
Walter Knowles, which stated that the total value of the
road constructed was 38 million soles oro (approximately $10
million in market prices) as the basis for the compensation
rate (ref A). Loret de Mola predicts that the final offer
will total approximately $10 million, including interest.


7. (SBU) LeTourneau continues to argue that the GOP should
not/not use the 1968 letter as its basis for compensation.
According to LeTourneau, the letter bases its calculation on
a 1967 appraisal, which was done before LeTourneau completed
the road and three years before the actual expropriation.
The company has sent several emails to Loret de Mola,
emphasizing the need for a transparent process and re-
suggesting that a panel of independent experts be convened
to determine the scope and value of the work performed by
LeTourneau in 1968 and how to translate that value into
market prices. LeTourneau's attorney informed Econoff on
September 12 that the company would not accept any GOP offer
that was not fair and transparent.

Comment: One Step Closer
--------------


8. (SBU) After discussions with Luz del Sur/PSEG, we are
confident that SUNAT will act quickly to resolve this case,
perhaps in the next few weeks. The three remaining cases
will take more time. Loret de Mola is encouraging the
Constitutional Court to expedite both the Engelhard and
Princeton Dover cases. Even with expeditious treatment, we
do not expect a ruling within the next two months. The
LeTourneau case is another thorny problem - we fully expect
LeTourneau to refuse the GOP's final offer, claiming that
$10 million does not adequately reflect the value of
LeTourneau's work.

STRUBLE