TRINIDAD GOVERNMENT ALLEGES CORRUPTION IN

UNCLAS SECTION 01 OF 02 PORT OF SPAIN 000374

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EINV PGOV KCOR TD
SUBJECT: TRINIDAD GOVERNMENT ALLEGES CORRUPTION IN
AWARD OF DESALINATION PLANT CONTRACT TO U.S. INVESTOR

REF: POS 239


1. SUMMARY: The Attorney General of Trinidad & Tobago
has declared that a water supply contract with
desalination company Desalcott, in which GE has a 40%
stake, should be terminated due to fraudulent and
corrupt dealings in its negotiation during the late
1990s. The announcement came as the GOTT water utility
lost its arbitration case to Desalcott, and follows
similar actions involving major contracts that were
concluded when the opposition party was in power. It
is unclear whether charges/indictments will follow the
statement or if it is only pre-election posturing. End
summary.


2. In a statement that could have ramifications for a
major U.S. direct investment in Trinidad & Tobago,
Attorney General John Jeremie announced in Parliament
on March 14 that the contract for supply of water by
Desalcott to state utility WASA should be voided
because of alleged corruption and bribery in its late
1990s negotiation. The announcement, which provoked
headlines like "Government Dumps Desalcott Deal" and
"Top Officials to be Charged," caused a flurry of
reactions from Desalcott and opposition political
figures like Ganga Singh, United National Congress
(UNC) whip in the lower house of parliament, who was
minister for public utilities when the contract was
negotiated. Singh denounced Jeremie's speech as a
witch-hunt, and stood by the decision for the
desalination plant.

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The case so far
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3. Desalination Company of T&T (Desalcott) is a private
company, 60% owned by T&T firm Hafeez Karamath
Engineering Services, Ltd., and 40% owned by U.S.
company Ionics (since February 2005 part of GE).
Desalcott began producing desalinated fresh water in
April 2002 under a 20-year contract to sell water to
the Water and Sewerage Authority (WASA) for resale to
petrochemical and other industrial companies in the
Point Lisas industrial estate. In April 2003 Desalcott
sought a price hike in accordance with terms of the
water services agreement. WASA had a differing
interpretation of the agreement terms, and when
yearlong mediated discussions between Desalcott and
WASA failed to find a solution, the matter moved to
dispute resolution in the International Chamber of
Commerce (ICC) in London. That process began around
June 2004 and ended with an arbitration decision this
month that largely favored Desalcott.


4. It was about one day after the ICC panel revealed
its decision that Jeremie made his statement in
Parliament. The GOTT claims that a recently completed
report, which it commissioned from forensic
investigator Bob Lindquist of Citigate Global
Intelligence, concluded that the contract that the
previous United National Congress (UNC) government
awarded to Desalcott in 1999, involved fraud and
bribery. That report is not a public document, and
GOTT has not revealed many details other than to
suggest that a foreign national could be among those
subject to extradition requests. No local officials,
apart from Singh, have been implicated thus far either.

--------------
Witch-hunt or Anti-Corruption zeal?
--------------


5. The GOTT assertions come in the midst of a highly
charged political atmosphere in which the ruling
Peoples National Movement (PNM) has accused the
opposition UNC of having made poor (if not outright
corrupt) decisions during its term in office, which
ended in 2001. There are several pending or ongoing
legal cases involving UNC officials. Among them are
the following:

-- Piarco Airport - More than a dozen businessmen
(including at least two Floridians) and UNC officials
have been served with charges of bid rigging and other
corrupt dealings with construction of the airport
terminal, which then prime minister Basdeo Panday
opened in 2000. No cases have come to trial

-- Panday bank case - the former prime minister went on
trial this month for having misrepresented his assets

PORT OF SP 00000374 002 OF 002


while prime minister. The chief charge is failing to
declare details of an account with Natwest bank in
London.

-- Calmaquip - the Florida-based company, whose CEO
Raoul Guiterez is one of those accused in the Piarco
case, saw its service contract with the Airports
Authority canceled this week.


6. For its part, the opposition UNC has attempted
without much success to deflect corruption allegations
by laying corruption charges on the ruling PNM. The
Desalcott announcement, in fact, came during a
parliamentary debate in which a UNC MP sought to raise
the issue of the long-stalled Scarborough Hospital
construction project and a Tobago real estate
development called Landate that involves Minister of
Housing Keith Rowley.

--------------
GE and Desalcott reactions
--------------


7. Officials of Ionics/GE have briefed Ambassador on
several occasions since 2003, most recently in January
when it was seeking to settle with WASA and avoid an
arbitration decision that GE believed would sour
relations and set the stage for a future dispute.
Ambassador raised the issue with Energy Minister Lenny
Saith (reftel),who recently had become involved and
whom GE believed was interested in reaching a
settlement (the line ministry for WASA is Public
Utilities).


8. GE executives we have spoken to believe that the
timing of Jeremie's declaration suggests that GOTT is
seeking to save money on the decision of the
arbitrator, which will impose a decision in 30 days if
the parties are unable to do so. He was not sanguine
that such an agreement was likely if a year of
mediation, followed by more than two years of
arbitration failed to do so.


9. Econ Chief asked GE about media reports that
suggested that GOTT was looking to extradite a foreign
national in connection with the case. GE says it is
sure the suspect is not one of the company's employees.
Our contact thought that the individual could be an
Israeli. We spoke with Desalcott officials who said a
former UN employee, now working for the Israeli
government, was an adviser to GOTT on the project in
the late 1990s.


10. Desalcott has not received anything official from
GOTT on this matter other than an indication from WASA
that it will continue to purchase water from the
company. A company official told Econ Chief that the
contract was reviewed by OPIC before it was
implemented, and that GOTT has the right to purchase
the company if fraud is proven. A coordinating
committee representing all sides is supposed to reach
agreement; failing that, dispute settlement proceedings
would occur. An ultimate settlement would be several
years off in view of the pace of Trinidadian
jurisprudence.


11. Karamath, the majority local partner of GE in
Desalcott, has stayed largely out of public view. His
company is one of the four or so major contracting
firms in T&T, and he reputedly is well connected on
both sides of the political aisle. WASA previously
sought to buy him out, according to Desalcott
officials, but terms could not be reached.


12. COMMENT: It is unlikely that GOTT would seek to
seize Desalcott; even Jeremie stated merely that GOTT
had the right under the contract to purchase Desalcott.
It is less clear what amount of compensation would be
paid if litigation proved necessary to establish that
amount. The issue may even fade or remain as a cloud
over the UNC as the date nears for general elections,
which must be held within the next 18 months. Post
remains in active contact with GE, and will be vigilant
to any GOTT action that might deprive GE of its
investment without proper compensation.

AUSTIN