DOMINICAN REPUBLIC: 2006 INVESTMENT DISPUTES AND

UNCLAS SANTO DOMINGO 001941

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: CASC DR ENIV KIDE PGOV OPIC
SUBJECT: DOMINICAN REPUBLIC: 2006 INVESTMENT DISPUTES AND
EXPROPRIATION CLAIMS UPDATE

REF: SECSTATE 60294


1. This cable provides the 2006 Investment Disputes and
Expropriation Claims Report for the Dominican Republic. The
tracked changes version was sent via email on June 9, 2006 as
directed.


2. The United States Government is presently aware of
seventeen (17) claims (including five new ones for 2005) by
US persons/entities against the Government of the Dominican
Republic (government). No new claims were reported in 2006.
In mid-2005 a USAID-sponsored consultant finished working
with the Dominican Government on implementing a system for
evaluating and resolving claims through the use of bonds. In
1999, Law 104-99 was passed, offering to claimants whose
disputes arose on or before August 16, 1996, the option of
circumventing the traditional method of claim resolution (at
the "Bienes Nacionales"),and instead to seek compensation
from a specially appointed Commission, provided the claimants
are willing to accept payment in bonds. A total of 247
claims were solved under Law 104-99 with USAID assistance.
This law expired on November 9, 2005 and it is unlikely that
any additional claims will be paid with bonds.


3. Action on resolution of claims slowed when the Fernandez
administration took office in August 2004. The Office of
Public Credit within the Ministry of Finance is responsible
for expropriations and investment disputes. The current
Director has maintained his position for a little over a
year. The office has had four directors in two years. This
high turnover rate with the change in administration has
delayed consideration of claims. The Office of Public Credit
states that several claimants have either never registered
their claim formally with the Office of Public Credit or the
claims have not been passed to the Office of Public Credit
from other government offices. The Embassy raises these
expropriation and investor dispute cases with the government
on a regular basis, and all information provided herein was
last updated in June 2006.

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The Claims
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1. Claimant A - 1999

Eight independent power producers (IPPs),six of which are
US-owned, provide approximately 30 percent of the Dominican
Republic's electricity. In 1999, the IPPs entered into a
"Definitive Agreement" with the government under which an
escrow account would be established in order to permit the
capitalization of the State electricity company's
(Corporacion Dominicana de Electricidad (CDE)) power
generation and distribution facilities. This escrow account
would receive payments from the new distribution companies
that would be used to pay the IPPs for both current invoices
and accumulated arrears. The government did not live up to
its commitment to implement this escrow arrangement; CDE
failed to keep its payments current to the IPPs; and the
government breached several agreements to make up the
shortfall, which exceeded $100 million.

In September 2002, the government announced that seven of the
eight IPP,s had agreed in principle to give up their
existing long-term contracts. To date, the government has
successfully renegotiated only one new contract with these
IPP's. In February 2004, the government and CDE signed a
short-term agreement with two of the Claimants whereby the
government agreed to increase tariff rates, make payments on
current invoices and negotiate accumulated arrears. Although
tariff rates were increased CDE and the government have
continuously failed to make timely payments to Claimants A,
resulting in cash flow problems and credit difficulties, and
they are presently in default to Claimants A, and other
generating companies in the sector, in excess of $400
million. Of additional concern, the contracts with Claimants
A are backed, in part, by guarantees. Should Claimants A's
lenders call those guarantees, the government faces liability
of more than $425 million. The Embassy has made repeated
approaches to high government officials in an effort to
resolve this ongoing problem.


2. Claimant B - 1998

Claimant B purchased land located on the access road to Santo
Domingo's Las Americas Airport. In 1998, the Public Works
Department built the ramp for a highway overpass on Claimant
B's land. Embassy contacted Public Works on behalf of
Claimant B and was informed that Claimant B will be included
in whatever settlement (i.e., cash payment or relocation) was
to be offered to Dominican landowners affected by this
construction. The government has yet to authorize funding to
settle Claimant B's claim, and it fell too late to be

included in the original bond issuance program. A possible
government initial settlement offer will likely be in the
form of bonds. No time has been set for a decision.


3. Claimant C - 1994 and various

In 1996, Claimant C discovered that various components of the
government had, over time, built facilities (including an
airport runway extension) on a parcel of land near the town
of Barahona that Claimant C's company had owned since the
1920s. The Embassy raised this case on numerous occasions
with senior Dominican officials and facilitated meetings
between Claimant C and the government. In 1999, Claimant C
accepted an offer of settlement in partial payment of the
claim of approximately $1.5 million, which the government
paid in three equal payments. Efforts by Claimant to recoup
the remainder of its claim have been rebuffed by the
government, which takes the position that the claim has been
satisfied in full. The matter is presently in litigation.


4. Claimant D - 1991

In 1988, the government asked Claimant D to build 1,000 homes
for sugar cane workers. Claimant D never signed a contract
with the government. Materials were shipped to the Dominican
Republic for the first phase of construction (30 homes) and
Claimant D had invoices showing that the materials arrived.
In 1989, Claimant D was informed that, due to heavy rains and
a bad crop, construction of the homes would be delayed.
Claimant D arranged with port authorities to have the
materials remain in the port until construction could begin.
In 1991, Claimant D discovered that all of the materials had
disappeared. Claimant D alleged that some of the materials
were auctioned off, and some given to government entities.
Claimant D estimates losses at $1.3 million. Claimant D's
case was disqualified under Law No. 104-99. Claimant D has
since initiated legal action in a Dominican court.


5. Claimant E - 1990

In 1989, Claimant E purchased a 75 percent interest in
beachfront property near Barahona. Claimant E's Dominican
partners owned the remaining 25 percent. Claimant E's
interest in the land had an estimated value of $112,000. On
September 18, 1989, the government seized the land, stating
that it intended to use it for the construction of a power
plant. Following this action, Claimant E entered into a new
agreement with its Dominican partners, under which Claimant E
would cease payments on the land and would reduce its
interest in the property to 15 percent. It was agreed that
&legal actions would be undertaken jointly, the proceeds of
which would be distributed between the co-owners in the same
proportion as their interest in the property.8 Claimant E
and its Dominican partners have sought compensation in
Dominican courts, and reported to the Embassy in 1994 that
the courts had ruled in their favor. No compensation was
received so in January 2000, Claimant E applied for bonds
under Law No. 104-99. The Embassy was advised in 2003 that
the government was reevaluating the matter. No time has been
set for a decision.


6. Claimant F - 1983

Claimant F is the owner of land with an assessed value of
approximately $1 million in the Puerto Plata area of the
Dominican Republic. In 1983, the government seized the land,
which is now part of the "Isabel de Torres Scientific
Preserve." Claimant F sought compensation, but none was
approved. According to Claimant F, the government previously
valued the land at $330,000. Claimant F reported that it has
an assessment valuing the land at approximately $990,000.
Claimant F is willing to negotiate. The Embassy raised this
matter in all discussions of investment disputes with the
government. To date there has been no resolution, and the
matter continues to experience payment opposition on behalf
of Claimant F.


7. Claimant G - 1980's

The government expropriated Claimant G's property in the
1980's, which Claimant G valued at several million dollars.
The Embassy continues to include the matter in all
discussions of investment disputes with the government. To
date there has been no resolution.


8. Claimant H - 1986

Pursuant to a presidential decree in 1986, the government
expropriated 823,495.70 square meters of land belonging to
Claimant N for use in the construction of the Maria Montez
Airport in Barahona. Claimant H has sought compensation for
the land, improvements to the land, crops located thereon,
and for three million cubic meters of raw materials extracted

from the land. The claim was brought to the attention of the
Embassy in May 2001, and has been included in all discussion
of investment disputes with the government since that time.
To date there has been no resolution. The matter continues
to be considered for settlement.


9. Claimant I - 1998

Claimant I's land was expropriated in 1998 for highway
expansion in Santo Domingo. The claim is for 15,342,840
pesos (approximately $340,950),but as it arose after August
16, 1996, Claimant I was not eligible for the bond program
under Law 104-99.


10. Claimant J - 1987

Claimant J's contract claim involves the unpaid commission
for loan guarantees on a real estate transaction brokered in

1976. Claimant J asserts he is entitled to 2% of $12
million, the loan guarantee amount. Claimant J has a default
judgment from the US Court of Appeals for the Ninth Circuit,
entered in 1987, for $240,000. Claimant J asserts that with
interest, the claim is now valued at approximately $2
million. Embassy has raised this issue with government
officials and facilitated a meeting between Claimant J and
government officials, and the parties are presently in
discussion. The government provided the loan guarantees.


11. Claimant K - 2003

In 1998 Claimant K and family responded to advertisements by
the Dominican Republic seeking US investment by purchasing
two adjacent parcels of land located in Cumayasa, San Pedro
de Marcoris. In March of 2003 Claimant K, while visiting his
property, discovered that almost 700 mature coconut trees had
been bulldozed and other property destroyed by the Dominican
Consejo Estatal de Azucar (CEA). When Claimant K contacted
the CEA office in Santo Domingo to request an immediate
evacuation of the area a CEA engineer recommended that
Claimant L instead request that the properties be replaced
with other unspecified parcels in unspecified areas, citing
the CEA had incurred expenses in grading the land and
uprooting the fruit trees. Claimant K immediately contacted
a local attorney and initiated legal action in a Dominican
Court. The Embassy contacted government officials in regard
to this claim. The matter is currently pending a judicial
decision.


12. Claimant L - 1992

In 1991 as an insurer to an international company with a
contract to provide the sale of power station spare parts for
the Dominican Corporacion Dominicana de Electricidad (CDE),
Claimant L paid $2,829,112.63 to the insured and accepted
transfer of all rights to settlement in the dispute with the
Dominican government. On May 12, 1992 an Italian court ruled
in favor of Claimant L and ordered the payment of
approximately $5,369,781 (original sum plus accrued interest
and expenses) by the CDE/government. In early 2003,
government officials sought to retain a law firm in the US to
negotiate a final settlement with Claimant L. The retainer
was never completed. On May 27, 2004 the Ministry of
Finance's Legal Department issued its opinion on the issue.
The Embassy had been in repeated contact with government
officials in regard to this claim and brought it to the
specific attention of the Ministry of Finance at every
available opportunity. Claimant L will continue to engage
government officials through their local attorney. The
estimated amount owed by the government is now approximately
$10 million. In February 2006 the government issued an offer
of $3,758. 275 dollars. The Claimant has not responded to
the government.


13. Claimant M - 1992

Claimant M owned 400 square meters of land bordering the road
to the Santo Domingo Las Americas Airport. The land was
expropriated by the government in the 1990,s for highway
expansion. Claimant M's claim is being held up in the
Ministry of Finance's Office of Engineering. In order for
Claimant M to receive compensation, the Office of Engineering
must evaluate the claim and then pass it to the Office of
Public Credit for payment. The Office of Engineering has had
the paperwork since April 2002. The Embassy contacted the
Office of Engineering in June 2005, asking the staff to look
into the matter and pass the paperwork on to the Office of
Public Credit for payment. The claim is worth around 400,000
Dominican pesos or about $14,000.


14. Claimant N - 2003

Claimant N is involved in a contractual dispute with the
Dominican Procuraderia Nacional (Attorney General) concerning

a telephone system for Dominican prisons. Claimant N's
company, in partnership with a California-based equipment
maker, is having trouble activating the system in the prisons
due to bureaucratic delay in the Dominican Procuraderia. His
telephone equipment has already been installed in the central
offices of the Procuraderia General and the Najayo, Puerto
Plata and La Victoria prisons. In 2004, when representatives
Claimant N went to activate the equipment at the central
office, they were informed they could not operate the
equipment until they had a letter of authorization from the
Procuraderia's office. Claimant N has invested over $150,000
and is currently losing $7,000 a month waiting for the
Procuraderia to sign the appropriate letter. Claimant N
signed a contract with the government on Sept 4, 2003. A new
presidential administration began on August 16, 2004 and
appears reluctant to honor the agreements of the previous
administration. The Embassy has met with the Deputy Attorney
General for Prisons and the Dominican telecommunications
regulating agency of behalf of Claimant N.


15. Claimant O - 2005

On May 7, 2004, Claimant O and the company he represents
signed a contract with the government granting Claimant O the
right to exploit a government-owned salt mine in the area of
Las Salinas, Province of Barahona, for a period of 25 years.
Claimant O alleges the government is not honoring the
contract and is denying his company access to the area.
Claimant O has invested money in equipment and has made other
investments including contractual payments and tax payments
to the government. The contract requires Claimant O to
invest $1.5 million in the mine over the first five years of
the contract and then $150,000 every year thereafter.
Claimant O has been unsuccessful in his attempts to obtain
meetings with government officials. The government has sent
this contract to a newly established government ethics
commission for review. The Embassy has contacted the
government's commission several times, as well as the General
Director of Mining, to advocate on the behalf of Claimant O.


16. Claimant P - 2002

Claimant P entered a contract with Unidad Corporativa Minera
(UCM, a government-owned entity closed in 2004) to determine
the economic viability of sulphate based gold reserves at the
Pueblo Viejo mine. UCM contracted Claimant P to conduct an
environmental study, fish assessment, tailings dam sitings
and an overall technical review. The job was finished in
June 2002, but UCM failed to pay Claimant P more than
$125,0000. Embassy officials have been in contact with UCM
and the Director General de Mineria. Obtaining payment from
the government has been difficult in part because the UCM no
longer exists and changes at the Office of Public Credit has
slowed processing.


17. Claimant Q - 2002

c. Claimant Q is currently involved in a legal dispute
with the Anabalca Shipyard Company (50 percent owned by the
Dominican Navy),the company he contracted to repair his
tugboat. Anabalca is holding his tugboat as collateral for
$40,000 in repairs performed after the tugboat experienced
transmission problems. Claimant Q claims Anabalca did not
correct the transmission problem and he refuses to pay for
the services Anabalca has provided. For the last year years
the case has been before the Dominican Court of First
Instance in Santo Domingo. Claimant Q's tugboat has been in
the Port of Las Calderas, Province of Peravia, since June

2001. Embassy officials have raised this issue with the
managers of the Anabalca Shipyard and the Dominican Armed
Forces.

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Claimant Names
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The list of claimant names follows, all of whom are believed
to be either U.S. citizens or companies with significant U.S.
citizen investment. These claimants have signed no privacy
act waivers.

Claimant A: Smith-Enron CLP, AES Dominican Power
Partners, Coastal Corporation, Seaboard Corporation, Maxon
Engineering Services Inc., and Cogentrix Corporation

Claimant B: Boyd Hernandez Collazo

Claimant C: Hunt Marckwald, Habanero Land Company

Claimant D: Betteroads Asphalt

Claimant E: Ronald Blisset, Blisset Enterprises

Claimant F: Luis M. Bordas and Neyda Lopez Bordas

Claimant G: Mercedes Colwin

Claimant H: Miguel Angel Fuentes Vasallo

Claimant I: Matia de los Angeles Barcelo Salas

Claimant J: Charles V. Meadows

Claimant K: Dante Llacuna

Claiment L: New Hampshire Insurance Company

Claimant M: Carlos Langa

Claiment N: Gabelle Prison Telephones- Ruben Cerezo

Claimant O: Pedro Antonio Martinez, Agregados del Lago,
S.A

Claimant P: Pincock, Allen & Holt, subsidiary of
HartCrowser

Claimant Q: Tugboat Linda W- Gene Martin
End Cable
KUBISKE