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