UPDATE: US OIL COMPANY LEGAL BATTLE WITH PARAGUAY

C O N F I D E N T I A L ASUNCION 000537 SIPDIS STATE FOR WHA/BSC MDRUCKER, BFRIEDMAN AND MDASCHBACH, COMMERCE FOR DOC/ITA LMARKOWITZ E.O. 12958: DECL: 07/26/2027 TAGS: ECON ENRG PREL KGHG KSUM SENV PA SUBJECT: UPDATE: US OIL COMPANY LEGAL BATTLE WITH PARAGUAY REF: A. ASUNCION 380 ¶B. ASUNCION 0497 Classified By: DCM Perry Holloway; reasons 1.4 (b) and (d). ¶1. (SBU) SUMMARY: Texas based company PetroVictory/Crescent Global Oil (Crescent) is engaged in an escalating legal and public relations battle with the government of Paraguay after efforts to find a solution outside the courts failed, in spite of Embassy advocacy for the U.S. company. Crescent's CEO Richard Gonzalez updated Ambassador Ayalde August 19 about the company's strategy and next steps in its investment dispute. Crescent is pursuing an aggressive multi-pronged strategy with legal, public relations, and lobbying fronts to press its case against the Paraguayan government in Paraguay and the United States. Crescent's case has the potential to negatively impact future U.S. investment and our commercial bilateral relations. END SUMMARY. ¶2. (SBU) Crescent's CEO Richard Gonzalez updated Ambassador Ayalde August 19 about the company's strategy and next steps in its investment dispute. Crescent hired the Washington-based law firm Patton, Boggs and Blow, and the case's attorneys, Michael Driver and Dan Addison, are both seasoned lobbyists in the U.S. Congress. Locally, Crescent hired Gustavo Degasperi, one of Paraguay's most influential attorneys, to lead its legal team. Crescent is pursuing an aggressive multi-pronged strategy with legal, public relations, and lobbying fronts to press its case in Paraguay and the U.S. -------------- HITTING THE BILATERAL AGENDA -------------- ¶3. (C) According to Gonzalez, one of Crecent's U.S. attorneys, Michael Driver, went to school with the Secretary and/or her husband and served as a senior advisor during both their presidential campaigns. Taking advantage of this connection, Driver supposedly contacted Secretary Clinton's Chief of Staff and provided information on Crescent's investment dispute. Gonzalez said the company is now preparing an information dossier about the case to share with Secretary Clinton. ¶4. (C) Gonzalez explained that one of Crescent's shareholders, James Andrews, contacted members of the U.S. Congress to ask them to block any attempt to give Paraguay trade preferences via the Andean Trade Preference Act (ATPA) proposed by Representative Elliot Engel. According to Gonzalez, Andrews contacted Representative Engel and asked for Paraguay's removal from the ATPA bill. Andrews also contacted congressional members from Texas serving on the Western Hemisphere SubCommitte, including Representatives Gene Greene, Mitchell McCall, and Ron Paul. Gonzalez warned the Ambassador that she would be receiving a call from the Representatives about the case. ¶5. (C) Knowing that Paraguay's President Fernando Lugo has used University of Columbia Professor Joseph Stiglitz as an advisor, Gonzalez said Crescent contacted Stiglitz to brief him on the investment dispute so he can write negatively about Paraguay or help them in any way. (NOTE: Professor Stiglitz has twice been to Paraguay as a part of a group of selected high profile experts that met with Lugo in the months after he assumed office August 2008. END NOTE.) ¶6. (C) Gonzalez said Crescent's attorneys recommend filing a case against President Lugo in the International Human Rights Court based on human rights violations related to property rights. Crescent is also considering filing a suit in the U.S. to freeze the Paraguayan government's assets in U.S. banks. -------------- PUBLIC RELATIONS CAMPAIGN IN PARAGUAY -------------- ¶7. (SBU) Crescent launched mid-August an aggressive press campaign in Paraguay with a series of six consecutive articles in Paraguay's most influential newspapers. The articles profiled Crescent as a serious U.S. oil company, described the company's truncated plans to explore its Chaco and Alto Parana concessions, detailed the Ministry of Public Works (MOPC) irregular and arbitrary handling of the case, and discussed the negative consequences the dispute has for Paraguay's investment climate. The articles also discussed the role of the now confirmed involvement of the Ecuadorian Equipetrol Group through Lan Oil, the firm which Crescent argued from the start was behind the MOPC sudden change of the "rules of the game" (reftel a). (NOTE: MOPC awarded to Lan Oil in early August Crecent's disputed Alto Parana concession. END NOTE.) Gonzalez also appeared August 26 on two local popular talk-show television programs in Asuncion. In the most dramatic of the two appearances, Gonzalez and his legal team engaged in a heated discussion with MOPC Vice Minister of Energy Fatecha and Director of Hydrocarbons Emilio Boungermini. By most accounts, the televised exchange exposed the bias of the MOPC towards Lan Oil, negatively impacting the MOPC's credibility. ¶8. (C) COMMENT: Despite Post's vigorous commercial advocacy efforts (reftels),the Government of Paraguay and Crescent are engaged in an escalating and public legal battle. Crescent's case has the potential to negatively impact future U.S. investment and our commercial bilateral relations. END COMMENT. Ayalde