PANAMA: 2007 REPORT ON INVESTMENT DISPUTES AND

UNCLAS PANAMA 001112 SIPDIS SIPDIS FOR STATE WHA/CEN - TELLO FOR STATE EB/IFD/OIA - GOETHERT FOR STATE L/CID - MCDONALD E.O. 12958: N/A TAGS: CASC ECON EFIN ENIV KIDE PGOV PM OPIC SUBJECT: PANAMA: 2007 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION CLAIMS REF: STATE 55422 ¶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 Authorizations Act. Test is keyed to reftel. The United States is aware of one claim of United States citizens that may be outstanding against the Government of Panama. Two other cases previously reported, discussed below, have been removed from Post's list of active cases. There are no new cases since Embassy Panama's filing of its 2006 report. ¶2. Last update: 27 April 2006 a. Claimant A b. 1999 and 2000 c. Following the 1998 energy market privatization, Claimant A, a majority-owner of 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 in December 1999 unilaterally altered the contracts between the generation and the distribution companies. Claimant A estimated damages of $9 million. Claimant A has 16 court cases (filed in 2000 and completed in 2003) awaiting rulings by the Panamanian Supreme Court. POST ACTION: At Post's request, the Ministry of Industry and Commerce (MICI) agreed in principle to reinstitute a bilateral investment committee to provide a general forum for resolution of pending disputes before the Panamanian judiciary. In Claimant A's case, Post never received the requisite advocacy questionnaire to proceed with further advocacy. Moreover, as Claimant A has not requested any further advocacy and given that it sold its interest in the electricity generator to a French energy concern in February 2007, Post wil remove Claimant A from its list of active cases. ¶3. Last Update: 14 June 2007 a. Claimant B b. 2005 c. In 1998, Claimant B invested $11 million in a Panamanian energy company's equity and arranged for the company to receive a $ 17 million bank bridge loan convertible into bonds. Claimant B alleges that both the equity and debt investments are subject to equal value tax credits under Panamanian Law No. 28 of 1995. In March 2005, the Vice-Minister of Finance notified Claimant B that the sale of any of the original $11 million in stock was not subject to any tax benefits. Claimant B has taken the matter to arbitration under the U.S.-Panama Bilateral Investment Treaty. Claimant B is also in litigation with various Panamanian banks regarding payment of its bridge loan. Claimant B has been seeking assistance from various USG agencies in this matter, and has requested Post to intercede on its behalf and arrange meeting with high-level GOP Ministers. POST ACTION: Post has urged the GOP to resolve the tax credit dispute promptly and fairly, but given that the matter is in arbitration, plans no further action. Post remains in contact with Claimant B and is following the matter. ¶4. Last update: 3 May 2006 a. Claimant C b. 1999 c. Claimant C owns the only private property in the former Canal Zone. The property was purchased in 1921. The GOP claimed the property became Panamanian federal property as provided for by the Panama Canal Treaty of 1977. Claimant C asserted that Senator Robert Dole entered a letter into the Congressional record recognizing Claimant C's ownership of the property. POST ACTION: On September 15, 2006, Post informed Claimant C that tenants and owners of property in the former Canal were permitted to retain use of their property subject to payment of a reasonable price (in the case of individuals or businesses) or minimal (in case of non-profit organizations) to the GOP. Since the GOP had no record of Claimant B availing itself of this right during the applicable period (until 1999),the GOP is entitled to possession of the property without payment. Post will remove Claimant C from its list of active cases. List of Claimants: Claimant A: Ashmore Energy International (former majority shareholder of Bahia Las Minas) Claimant B: Corporacion Panamena de Energia (70% interest held by U.S. controlled companies, Unisource Energy Corporation and Electric Machinery Enterprises Inc.) Claimant C: Sojourners Lodge of the Ancient and Free Masons Eaton