(C) BELIZE: GOVERNMENT APPEARS TO BACK AWAY FROM

C O N F I D E N T I A L BELMOPAN 000180 SIPDIS SIPDIS FOR WHA/CEN - R. BEAL; EEB - M. MCMANUS E.O. 12958: DECL: 03/26/2018 TAGS: EPET EINV PREL BH SUBJECT: (C) BELIZE: GOVERNMENT APPEARS TO BACK AWAY FROM THREAT TO CLOSE BELIZE NATURAL ENERGY REF: BELMOPAN 165 Classified By: Ambassador Robert Dieter for reason 1.4(b) and (d) ¶1. (C) Following Embassy intervention, it appears that the GOB is going to step back from a threat to terminate the production sharing agreement (PSA) of the sole oil producing company in the country. A March 17 letter to Belize Natural Energy (BNE),a firm with substantial U.S. investment, cited seven areas where the company had been either late or otherwise deficient in payments or regulatory compliance (reftel). U.S. investors, required by the terms of their loan agreements to disclose the letter to their bankers, expressed concern that the language about termination would cripple BNE's ability to raise capital, particularly in current markets, and could amount to expropriation. ¶2. (C) The Ambassador and other Embassy officers have stressed to GOB officials the need for a good investment climate as a minimum requirement for continued development of productive sectors of Belize's economy such as energy, which requires substantial investment of risk capital. In advance of a March 26 meeting between BNE and GOB officials to review GOB's March 17 letter and BNE's March 18 response, BNE spoke to the Ambassador and DCM to voice concerns about GOB's inttent. DCM spoke with Natural Resources Minister Gaspar Vega to seek clarification of the GOB's position and to re-emphasize the importance of a welcoming attitude to investment. Vega repeated the verbal assurances that he and others had given to BNE that the government did not intend to terminate the agreement and said that the GOB would put that in writing following the meeting. ¶3. (C) Vega said that the new government intends to be "serious and firm but just" with all players in the energy sector. The previous government, he said, had been lax in its oversight of both exploration and production and the new government intended to put things on a more businesslike path. "We're not anti-capitalism," Vega said, but until recently BNE "used to do whatever they wanted," missing deadlines for payments and filings with impunity. He said that, in retrospect, the March 17 letter may have been stronger than intended, but that it had achieved a desired result: according to Vega, BNE is now current on all payments owed to the GOB, having paid some B$2 million in recent days. He told us that he would direct the Ministry CEO (Deputy Minister) to state in writing that BNE had complied with the GOB's requests and that the government looked forward to working with the company in the future. DCM conveyed to the U.S. investor Vega's request that BNE bring to the meeting a draft text of a letter acceptable to the banks. ¶4. (C) COMMENT: Assuming everyone follows through as they say they will, the immediate crisis of BNE's loans being called appears resolved. The next issue of concern will likely be new taxation imposed on oil producers when prices remain at or are above a level that the government feels produces "windfall profits." At this time there is only one firm in the country, BNE, that such a new tax would touch. Longer term, we will continue to reinforce our message about the importance of maintaining investor confidence. END COMMENT. DIETER