(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