GOB ASSUMES CONTROL OF BELIZE TELEMEDIA LIMITED

UNCLAS BELMOPAN 000332 DEPT FOR WHA/CEN (JENNIFER VANTRUMP),EEB E.O. 12958: N/A TAGS: ECON EIND EINV BH SUBJECT: GOB ASSUMES CONTROL OF BELIZE TELEMEDIA LIMITED -------------- Summary -------------- ¶1. On August 24, Prime Minister Dean Barrow first introduced the Belize Telecommunications Amendment Bill to the House of Representatives. The Bill was passed and certified by the Governor General August 25th. This Bill allows the Government of Belize to nationalize one of the largest private enterprises in the country. It specifically targets Lord Michael Ashcroft's 94% controlling interest in Belize Telemedia Limited. While there has been wide public support for the measure, some concerns have arisen regarding the ramification for private ownership and free enterprise in other areas, the negative perception foreign investors will have towards the nationalization, the choice of new Board members, as well as likely future litigation. End Summary. -------------- Background -------------- ¶2. Belize's telecommunications sector was first privatized by the United Democratic Party in 1987 through the incorporation of Belize Telecommunications Limited. At that time, there was a 25% limit set on the shareholding that could be owned by any one individual or entity. Since then, numerous decisions by previous Peoples United Party (PUP) administrations led to Belize Telecommunications Limited morphing into Belize Telemedia Limited (BTL). The new entity was controlled by Lord Michael Ashcroft, who until August 25, 2009 indirectly owned a 94% majority interest. ¶3. On August 24, Prime Minister Dean Barrow called for a Special Sitting of the House of Representatives, where he arranged for the speedy passage of the Belize Telecommunications Amendment Bill to "to provide for the assumption of control over telecommunications by the government in the public interest." The Bill, which received 22 of 31 votes in the House of Representatives, effectively provides legislation which enables the GOB to nationalize the 94% of BTL owned by Lord Ashcroft; the remaining 6% is owned by private Belizeans and will remain in their control. On August 25, 2009 the bill successfully passed the Senate by a vote of 9 in favor, with two abstentions, and it was shortly thereafter signed into law by the Governor General. The Bill does provide for the reimbursement of investors affected by the nationalization, though how to determine the value of that reimbursement is a subject of debate. The same day, a government-imposed Board of Directors took command and control of the telecommunications company. -------------- Telecommunications Litigation -------------- ¶4. Lord Ashcroft has many tangled interests in Belize, which extend to investments in BCB Holdings Limited; the Belize Bank Limited, Belize's largest commercial bank; Great Belize Productions, parent company of Channel 5, one of the country's major television broadcasting stations; and SpeedNet, the only other telecommunications service provider in Belize. ¶5. In 2005, the previous administration entered into an Accommodation Agreement with Belize Telemedia Limited. This Agreement effectively guaranteed the Ashcroft Group that BTL would profit from a minimum 15% rate of return (ROR) per year. In the event that a 15% ROR did not materialize, the shortfall could be recovered through an exemption from the Belize Business and Income Tax. The Accommodation Agreement also gave BTL the freedom to set telecommunications rates charged on consumers, thus bypassing the authority of the Public Utilities Commission (PUC) of Belize. Finally, the Accommodation Agreement guaranteed that no licenses would be given to other telecommunications companies except SpeedNet, another telecommunication company which is controlled by Ashcroft, and it banned Voice over Internet Protocol. These arrangements, which essentially guaranteed Lord Ashcroft a monopoly interest, were set to remain in place until 2015. Since taking office in February 2008, the UDP government has been working to unravel the web of special deals and Accommodation Agreements signed between the PUP and Lord Ashcroft's many companies, including this deal from 2005. Despite these special deals, litigation involving BTL was prevalent even under the PUP. During the previous administration, at least six cases involving BTL were adjudicated before both Belizean and foreign courts. ¶6. In March 2009, the London Court of International Arbitration (LCIA) awarded damages of USD 19.3 million plus interest in favor of BTL, against the current UDP administration. This award was compensation for GOB's breach of terms of the Accommodation Agreement. In a more recent judgment, less than one week before the announcement and passage of the Belize Telecommunications Amendment Bill, the LCIA awarded US $22 million to BCB Holdings Limited and the Belize Bank Limited against GOB. It is speculated that this recent judgment spurred GOB's decision to enact the present Bill. In a speech to the House, the PM implied that the takeover is an effort to put an end to an intractable series of legal battles with various Ashcroft-affiliated interests. In an attempt to counter the GOB's introduction of the Bill, on August 24 the Ashcroft Group agreed to renounce the Accommodation Agreement, but the move came too late. BTL also moved to hastily separate itself from Channel 5, so that the television station would not also be taken over. The station was transferred from BTL to individual shareholders, and the Morning Show moved out of BTL headquarters on August 24. -------------- Public Reaction -------------- ¶7. The Prime Minister has maintained since first introducing the Bill that the current move is completely unrelated to any ideological posturing by the Government, and has reiterated that it is a one-time action that will not affect other ventures of Lord Ashcroft, or any other foreign investors presently operating, or looking to invest, in Belize. The PM has said, "It is not part of any pattern, part of no new philosophy, it is plain and simple, a special measure for a special case." In light of this, the vast majority of public opinion has been overwhelmingly supportive of the Government's action and this reaction has been broadcast in the media. Additionally, the Act has gained support by third-party minority groups, the People's National Party (PNP) and the Vision Inspired by the People (VIP). ¶8. However, not all reaction has been positive. The opposition PUP has condemned its passage as undemocratic and contrary to the right to hold private property. They have also denounced the way in which the Bill was sped through, not allowing time for a thorough review. The Belize Chamber of Commerce and Industry and the Belize Business Bureau, both of which represent private sector interests, have issued statements expressing concerns about the possible long-term negative effects on foreign investments in Belize. Similarly, the Chief Executive Officer of the Belize Electricity Limited (BEL) has publicly expressed concerns over the nationalization of BTL, and has supported for private ownership of the telecommunication utility. ¶9. In a meeting with the Poloff, the American Chamber of Commerce also aired its concerns for what the move could mean for foreign investment. Even though some members are personally in support of the measure and believe it is truly a one-time event, they are all concerned about how the move will be perceived by the outside world. Even those in favor have criticized the Government's handling of the public relations. Many members worry that this move may set a precedent, as the UDP administration has previously threatened doing the same to BEL. The AmCham Board member and local manager for ADM Milling-Belize Mills Limited, the local incarnation of one of the world's leading agricultural processors, informed Poloff that he had received a call the morning of August 25th from ADM headquarters, inquiring about the situation. In light of recent moves in Venezuela to nationalize rice mills without compensation, ADM is very concerned over the prospect of the GOB now moving to nationalize other sectors. AmCham has sent a letter to the PM, requesting that he meet with Board members to explain the reasoning behind the nationalization and how it is being handled. -------------- Concerns with possible ramifications -------------- ¶10. Questions have arisen as to whether the motives of the PM are genuinely in the public interest, particularly in light of the nomination of the Prime Minister's ex-wife and son to the interim Board of Directors of BTL. While the former is a well-respected lawyer in Belize who previously worked as legal counsel for BTL, and sat on the previous Board, the inclusion of the son has raised eyebrows. He has no previous experience with BTL or any other telecommunications bodies, and the PM had publicly said that his son will be his personal eyes and ears on the Board, in order to give the PM an 'extra edge.' Another appointment that has received some scrutiny is that of Nestor Vasquez as the Executive Chairman of the Board. While he was the architect of the first privatization of BTL in the 1980's, he is also the owner of Channel 7, a rival station to Channel 5, the former subsidiary of BTL. ¶11. Other concerns have arisen regarding Prime Minister Barrow's statement that the 94% shareholding would be sold principally to Belizeans, in accordance with public interest. The question of how Belizeans would be defined for this public purpose remains unclear. Lord Ashcroft may arguably be Belizean, as he holds a Belizean passport, though he also holds British citizenship. Furthermore, the Prime Minister has not ruled out the sale of shares to foreign interests, though he has not yet specified which foreign interests may qualify. In theory, under either of these stipulations, Lord Ashcroft could be allowed to re-purchase shares in the company. ¶12. Another concern is that while the PM has sought to justify these actions as an effort to stem numerous litigations against the GOB, the passage of the Bill is likely to spur a new round of retaliatory litigation from the Ashcroft Group. Under the proposed amendment, the Financial Secretary will attempt to determine the correct amount of compensation to former shareholders. A failure to reach a negotiated agreement would result in the matter being subject to judicial resolution. While Prime Minister Barrow has stated that any dispute would be submitted to the Supreme Court to determine compensation, it is likely that the Ashcroft Group will seek to have any dispute determined by international courts. The Hayward Charitable Belize Trust, another of Ashcroft's interests that holds approximately seventy percent of Telemedia, has already indicated that they will invoke the Investment Treaty between the UK and Belize, and that this could spark many more years of litigation, both in Belize and before an International Arbitration Tribunal. (Note: Whether the GOB would honor any future awards granted to Ashcroft in a foreign court is questionable.) ¶13. Determining the value of interests and assets which have been nationalized is also at issue. The Ashcroft Group is claiming that earlier in the year a foreign company was offering US $300 million for BTL shares. However, the Prime Minister has noted that any valuation would be subject to independent audit and would exclude any value being placed on the Accommodation Agreement. Given this, the PM has tentatively placed the value of the company at closer to US $150 million. Another issue that could affect valuation is that in June 2008, BTL acquired Great Belize Productions, the parent company of Channel 5 television broadcasting. Prior to the passing of the current legislation, the BTL Board of Directors hastily transferred the television broadcaster's shareholdings from BTL to individual shareholders, in order to avoid having Channel 5 nationalized along with the telecommunications company. It remains to be determined whether this and related assets will be subject to valuation and dispute. -------------- Comment -------------- ¶14. The people of Belize have long been dissatisfied with the service provided by BTL. A quintessential monopoly, the service was expensive and unreliable. They are also suspicious of Lord Ashcroft, who owns a stake in many of the largest enterprises in Belize. As a result, the public is largely in support of this measure. However, this action could have a detrimental effect on foreign investment in Belize, which is key to its development. The country was already notorious for not honoring contracts or decisions by international tribunals. This latest measure has led to some comparisons to the Chavez regime and has made local investors wary of what ramification this action will have on future investments. While we do expect the GOB to hold true to its statement that this was a unique situation, it is not a positive step for private enterprise. Even though compensation to shareholders has been promised, how long this process will take has not been determined, as the GOB does not currently have funds available for compensation of shareholders. End Comment. FEATHERSTONE