PANAMA: 2006 REPORT ON INVESTMENT DISPUTES

UNCLAS PANAMA 001104 SIPDIS SIPDIS STATE FOR EB/IFD/OIA - ROSELI ALSO FOR L/CID - DAUGHTRY E.O. 12958: N/A TAGS: EINV EFIN KIDE CASC OPIC PGOV PM SUBJECT: PANAMA: 2006 REPORT ON INVESTMENT DISPUTES REF: A. STATE 60294 ¶B. 2005PANAMA01458 ¶1. Below is Embassy Panama's input for the Congressionally mandated annual report on investment disputes as contemplated in Section 527 of the FY 94-95 Foreign Relations Authorization Act. Text is keyed to reftel. The United States is aware of four claims of United States citizens that may be outstanding against the Government of Panama. Post has included five claims listed in Ref B which have since been resolved. Energy Sector ¶1. Last update: 27 April 2006 a. Claimant A b. 1999 and 2000 c. Following the 1998 energy market privatization, Claimant A, an electricity generator, assumed existing contracts between government power generation entities and private distributors. When energy spot prices fell below the contract prices, the Energy Regulatory Commission (ENTE) unilaterally altered the contracts between the generation and the distribution companies (December 1999). Claimant A estimates damages of $9 million USD. Claimant A has 16 court cases (filed in 2000 and completed since 2003) waiting ruling by the Panamanian Supreme Court. POST ACTION: Post is seeking to reinstitute the bilateral investment dispute committee with the Ministry of Economy and Finance (MEF) and the Ministry of Industry and Commerce (MICI) to provide a general forum for resolution of disputes which remain unactioned by the Panamanian Judiciary. In the case of Claimant A, however, Post has not received the requisite advocacy questionnaire and does not plan any further advocacy until this is received. Claimant A is also waiting the return of $1.5 million in tariffs improperly collected on imported machinery. (Then) Minister Daniel Delgado applied Law 6 favorable to Claimant A in a letter for (then) Customs Director Villalaz confirming Claimant A's exemption from said tariffs. On October 23, 2003, the (then) Controller requested formal notice of Claimant A's request for return of the improperly levied tariffs. This formal notification was sent on May 19th, 2004. In October 2005, Claimant A notified Embassy that rather than refund the tariff, the GOP was pursuing back tariff payments for others in the Energy Sector who had received the applicable exemptions. This was confirmed by other U.S. electric companies operating in Panama. The Tax Office (DGI) has not followed up to collect back tariff payments but neither have they officially retracted the request. POST ACTION: Claimant A requested no further advocacy be taken on this matter at this time. ¶2. Last update: October 2005 a. Claimant B b. 1998 c. Claimant B alleges it paid an inflated price for its electricity concession during the privatization of the Panamanian electricity sector because the GOP knowingly withheld and misrepresented pertinent data. A subsequent report by the Ministry of Economy and Finance (MEF) confirmed Claimant B's interpretation of events. Claimant B filed for arbitration of this matter in Miami in 2002 and received a 2-1 verdict in favor of the GOP in December ¶2003. POST ACTION: Claimant B was purchased by a non-U.S. citizen investor in October 2005. Post considers this dispute closed. ¶3. Last update: 11 October 2005 a. Claimant C b. 2005 c. In 1998, Claimant C invested $11 million in a Panamanian energy company's equity and arranged for the company to receive a bank bridge loan for $17 million for conversion to bonds. Claimant C alleges that both the stock and bond investments are subject to equal value tax credits under 1995 Law #28. In March of 2005, the Vice-Minister of Finance notified Claimant C's legal counsel that the sale of any of the original $11 million in stock enjoys no tax benefits. Claimant C has taken the matter to arbitration under the U.S. - Panama Bilateral Treaty. POST ACTION: None, pending outcome of arbitration. Communication Sector ¶4. Last update: 17 April 2006 a. Claimant D b. 2002 c. In 1999, the Panamanian Postal Service (COTEL) insisted that Claimant D qualified only as a "courier" and violated Panama's constitution by providing physical mailboxes. GOP Executive Decree 135 (April 15, 2004) allowed Claimant D to operate fully including the provision of physical mailboxes with the payment of additional fees. However, the additional fees made Claimant D's business operation unviable. In May 2005, the GOP issued Executive Decree 314 abolishing Decree 135 and reiterating the GOP's exclusive right to provide postal services. In April 2006, GOP issued Executive Decree 88 reestablishing the right for companies to offer premium postal services. POST ACTION: Post has met with Claimant D and the relevant GOP authorities throughout the dispute. The most recent legislation allows Claimant D to operate fully with a competitive cost structure. However, the decree leaves open the possibility of further GOP intervention contrary to Claimant D's interest. Until such a time that this occurs, Post considers this dispute closed. Maritime Sector ¶5. Last update: 3 May 2006 a. Claimant E b. 1999 c. Note: Claimant E's original disputes as described in Ref B does not constitute an investment dispute as defined in paragraph 4 of Ref A. Nonetheless, Claimant E's dispute regarding the acquisition of land adjacent to its current site in Colon (the waterfront) was resolved in June 2005 when this land was officially included in Claimant E's concession. POST ACTION: Post considers this dispute closed. ¶6. Last update: 24 January 2006 a. Claimant F b. 1997 c. The current Director of Panama's Maritime Authority (AMP) is reviewing the proposed amendments to this clients original 1997 concession at the request of the Controller. The Director is concerned that the amendments are too generous and well beyond the original damage suffered by Claimant F when some of its assets were awarded the Panama Ports Company. The AMP Deputy Director believes the damages suffered by Claimant F to be equal to the approximately $2.4 million USD that Claimant F has withheld in payments to the GOP. Claimant F contends that an additional 10 years on the concession is owed and continues to seek resolution through international arbitration. POST ACTION: Claimant F was sold to a non-U.S. citizen investor in January 2006. Post considers this dispute closed. ¶7. Last update: 20 April 2006 a. Claimant G b. 2003 c. On January 18, 2003 the Panama Canal Authority (ACP) began refusing entry of boats to Claimant G's boat club facility. Claimant G contends the ACP must compensate the club for improvements made to the leased facility. Claimant G alleges the value of improvements made to the facility at $1 million USD and lost revenue of $200,000 USD. POST ACTION: Claimant G reincorporated as a Panamanian non-profit organization in 2000 and has occupied its original location rent free since that time. Claimant G does not have a legal basis for its compensation claim nor continued occupancy on its current site. This land became the property of the ACP upon the expiration of the Panama Canal Treaty on December 31, 1999 and has had ample time to locate an alternate site and relocate its assets. No Post action pending at this time. ¶8. Last update: June 2004 a. Claimant H b. 2002 c. In 2003, the AMP requested that Claimant H move from its current location and informally communicated an offer of $750,000 USD. An appeal regarding the amount of the compensation was pending as of June 2004. POST ACTION: No assistance has been requested from the Embassy since 2004. Post considers this dispute closed. Property Disputes ¶9. Last update: 3 May 2006 a. Claimant I b. 1999 c. Claimant I owns the only private property in the former Canal Zone which was purchased in 1921 and held continuously since then. The GOP claims that this property is in now Panama federal property claiming the Canal Treaty of 1977 contains no special remarks, but Senator Dole entered into the record a letter from GOP recognizing Claimant I's property rights. The Ministry of Economy and Finance (MEF) has done a valuation and agrees that Claimant I is owed compensation for its property. POST ACTION: Emboffs are continuing to follow up with the AMP to assist with the resolution of the pending claim. List of Claimants: Claimant A: Bahia Las Minas (BLM) Claimant B: Constellation Power/Electra Norests Claimant C: Corporacion Panamena de Energia, S.A. (COPESA) Note: Claimant C is 70% owned by U.S. controlled companies Unisource Energy Corporation (Nations) and Electric Machinery Enterprises Inc. (EME). Claimant D: Mailboxes, Etc. (MBE) Claimant E: Manzanillo International Terminal (MIT) Claimant F: Braswell Shipyards Claimant G: Pedro Miguel Boat Club Claimant H: Panama Canal Yacht Club Claimant I: Sojourners Lodge of the Ancient and Free Masons EATON