(C) CORRUPTION ALLEGATIONS IN THE BELIZE OIL SECTOR

C O N F I D E N T I A L BELMOPAN 000624

SIPDIS

SIPDIS

DEPARTMENT OF ENERGY FOR LINDSAY EINSTEIN
STATE FOR WHA/CEN -- ROIS BEAL

E.O. 12958: DECL: 10/19/2017
TAGS: EPET PGOV ECON EFIN ENRG KCOR BH
SUBJECT: (C) CORRUPTION ALLEGATIONS IN THE BELIZE OIL SECTOR

Classified By: Ambassador Robert J. Dieter for reason 1.5d.


1. (C) Summary: Several U.S. firms have complained to the
Embassy that bribes are determining which companies are being
awarded oil exploration contracts in Belize. One company
claims to have recorded several government ministers
soliciting bribes. The opposition party has taken the
information and gone public. Another political scandal is in
the works and the businessman who made the recordings tells
us that he fears for his life. End Summary.

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Two companies ) same song and dance
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2. (U) Lagoon Resources: In May 2005 the government
awarded oil exploration company Lagoon Resources (a U.S.
company) a 2-year Seismic Option Agreement (SOA) to compile
and evaluate geological data on six blocks of land
(approximately 1.1 million acres). The SOA entitled the
government to the results of the seismic studies. Lagoon was
free to apply for a full Production Sharing Agreement (PSA)
and Lagoon spent USD 100,000 in seismic studies and just
prior to expiration of the SOA the government requested a
full update of all materials and work completed.


3. (C) Lagoon Resources was subsequently the first to
submit a PSA application to the Department of Geology and
Petroleum (DGP) for land under the SOA. During negotiations,
Lagoon accepted all terms and conditions proposed by the
government, including increased royalty and tax rates.
Nevertheless, the DGP awarded the contract to a politically
connected local company with no prior experience in oil
exploration. Lagoon Resources noted that they offered the
government far higher royalty and production sharing rates
than those extended to the local company that was awarded the
PSA, and alleged that the Minister of Natural Resources
accepted a bribe of USD 1.5 million from the company that was
awarded the contract. Lagoon claimed that the money was
routed to the Minister through the purchase of a cable
television business in northern Belize. (Comment: Embassy
investigation confirmed the Minister's family recently
acquired two cable companies. End Comment.)


4. (C) Miles Tropical Energy: Miles Tropical Energy (MTE)
shared with Econoff a similar experience. They were awarded
a SOA and spent nearly USD 100,000 and were asked just prior
to expiration to submit all work completed to the government.
They allege that they were subsequently told that the
contract would be awarded to "our friends" unless MTE would
agree to a financial contribution of USD 300,000 to the
government's re-election campaign. They alleged that they
were also told that the "friends" would become 50 percent
owners of a new company that would then be awarded the
contract. The Miles Tropical Energy principal refused the
offer and lost the contract. He subsequently told the
Embassy that he could support his accusations because he had
electronically recorded all the conversations.


5. (C) Separately, the Belizean Director of Geology and
Petroleum (protect) (a "non-political" bureaucrat) confirmed
to us that the decisions at the department were made, not for
business reasons, but were predetermined at a higher level
for political reasons. When questioned about the companies
that were actually awarded the contracts he explained that
they were local companies whose shareholders are strong
supporters of the governing People's United Party. He also
noted that the companies have no experience in the oil
industry.


6. (C) While the events unfolded the Minister of Natural
Resources was replaced. The former minister recently claimed
that the terms originally offered by the local companies were
more favorable to the Government than Lagoon's. He noted
that he would not have supported the lower rates that were
eventually accepted. The agreements were subsequently
approved by the Cabinet on the more favorable terms.

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Political Fallout
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7. (C) On October 17, MTE contacted us stating that digital
recording materials had been turned over to a local radio
station. The MTE representative stated that the recordings
implicated several government ministers in a bribery scandal
concerning oil rights. He also noted that he had been
threatened and was leaving the country in fear for his life.
He explained that a USD 100,000 fee had been sent to the
government by MTE to obtain a new agreement but that he
thought the fee could be considered a bribe. Econoff advised
consulting with legal counsel.


8. (U) The opposition United Democratic Party (UDP)
received the recordings and copies of contracts and
correspondence from both companies and detailed the
allegations at a press conference called by opposition leader
Dean Barrow. In response the CEO (Deputy Minister
equivalent) of the Ministry of Natural Resources went on
record to try to explain and justify how the PSAs were
awarded.


9. (C) Comment: As one scandal fades, another rises, and
the latest is untimely for the government as elections must
take place before March 2008. The opposition has thus far
been unable to take political advantage of the missteps and
seemed ill prepared at their press conference.


10. (C) These recent allegations come on the heels of a
significant drop in Belize's ranking in the Transparency
International Corruption Perception Index. While proof is
often elusive in these sorts of cases and there has never
been a successful prosecution for corruption here, it is
apparent that Belize's political elite has a serious and
growing problem when it comes to ethics and accountability.
The lack of any sort of campaign finance law leaves the door
wide open for abuse. End Comment.

DIETER