Identifier
Created
Classification
Origin
09BELMOPAN332
2009-09-04 20:17:00
UNCLASSIFIED
Embassy Belmopan
Cable title:  

GOB ASSUMES CONTROL OF BELIZE TELEMEDIA LIMITED

Tags:  ECON EIND EINV BH 
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R 042017Z SEP 09
FM AMEMBASSY BELMOPAN
TO SECSTATE WASHDC 2002
WHA CENTRAL AMERICA COLLECTIVE
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

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Summary
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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

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Summary
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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.

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Background
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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.

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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.

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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.

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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.

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Comment
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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