US OIL COMPANY SUES PARAGUAY

C O N F I D E N T I A L ASUNCION 000497

SIPDIS

STATE FOR WHA/BSC MDRUCKER, BFRIEDMAN AND MDASCHBACH,
COMMERCE FOR DOC/ITA LMARKOWITZ

E.O. 12958: DECL: 07/26/2027
TAGS: ENRG PREL KGHG KSUM SENV PA
SUBJECT: US OIL COMPANY SUES PARAGUAY

REF: ASUNCION 0380

Classified By: A/DCM Joan P. Shaker; reasons 1.4 (b) and (d).


1. (SBU) Texas-based Crescent Global Oil (Crescent) will
likely file a lawsuit against the government of Paraguay
August 6 after efforts failed to find a solution to the
dispute about the start date of Crescent's exploration
contract (reftel). The Ministry of Public Works and
Communications (MOPC) officially denied July 29 Crescent's
motion to reconsider the resolution which shortened
Crescent's exploration contract to expire in December 2009.
In its response, the MOPC also made the new argument that
Crescent's concession had expired in 2005. (NOTE: The
expiration argument is a new element outside the scope of the
initial exploration period dispute, an argument the MOPC
never made to Crescent prior to July 29. It is also
contradictory -- both the May 2008 congressionally-approved
exploration contract and the resolution shortening the
exploration contract explicitly recognized the validity of
the concession. END NOTE.)


2. (C) In a last ditch attempt to avoid litigation, Crescent
CEO Richard Gonzalez met with MOPC officials and twice with
President Fernando Lugo. Gonzalez first met July 30 with
Vice Minister of Energy German Fatecha; Fatecha said that it
is unfortunate the case is taking a turn for the worse, and
reemphasized MOPC's interest in finding a solution. (NOTE:
There was no follow-up from the MOPC after the meeting. END
NOTE). Gonzalez then met August 3 with President Lugo and
detailed step-by-step the chronology of the case; Acting DCM
accompanied Gonzalez. Gonzalez told Lugo about the extortion
attempt from the MOPC Hydrocarbons Director, explained the
lack of due process and arbitrariness of the MOPC's decision,
observed that he is not seeking favors but an objective
assessment of the case, and emphasized that legal action was
Crescent's only remaining recourse. Lugo listened attentively
and expressed support, saying "forget about going to court."
Lugo asked Gonzalez to return for a 6 a.m. meeting on August

3.


3. (C) Accompanied by MOPC Minister Efrain Alegre, MOPC Legal
Director Baez Infante, and MOPC Director of Hydrocarbons
Emilio Boungermini, Lugo met for one hour with Gonzalez on
August 3 to discuss the case. Lugo told Crescent's Gonzalez
that Minister Alegre was responsible for the case, and
Alegre, in front of Lugo, told Crescent to "take it to
court." (NOTE: Embassy did not send a representative to the
meeting because Lugo asked Gonzalez to come alone. END NOTE).


4. (C) COMMENT: If Crescent files a lawsuit, it will pursue a
very aggressive legal and public relations campaign. The MOPC
repeatedly expressed willingness to work as a partner in
finding a solution but never took any conciliatory action.
Crescent is in this to win, and will try to protect its USD 8
million investment (to date) and tie up the concession in
prolonged litigation. Crescent's perception is that personal,
economic, and ideological interests are attempting to divert
its concession to other players. In the worst case scenario,
corruption is at work here. In the best case, the rules of
the game are changing mid-way through in spite of significant
Embassy advocacy. In either case, the interests of this U.S.
company are at risk. END COMMENT.
Holloway