SETTLEMENT OFFER ON GTL DISPUTE IN TRINIDAD

UNCLAS SECTION 01 OF 02 PORT OF SPAIN 000430 SENSITIVE SIPDIS SANTO DOMINGO PASS TO REGIONAL COMMERCIAL OFFICE E.O. 12958: N/A TAGS: EPET ENRG EINV ECON KIDE TRGY BTIO PGOV TD SUBJECT: SETTLEMENT OFFER ON GTL DISPUTE IN TRINIDAD REF: PORT OF SPAIN 401 BUSINESS SENSITIVE INFORMATION; PLEASE PROTECT ACCORDINGLY ¶1. (SBU) SUMMARY: The commercial dispute continues between U.S.-based fuel processing company World GTL (WGTL) and Trinidad and Tobago's national oil company Petrotrin (ref). In recent weeks, the CDA has urged the GOTT to be flexible and consider a commercial settlement during separate conversations with the Foreign Minister, Trade minister and other officials. Pol/Econ Chief delivered the same message on October 27 to Petrotrin's president, who insisted he was in no position to settle because WGTL had not communicated with his firm since the project went into receivership in mid-September. We immediately relayed that information to WGTL's president, who told us on November 2 that the company would forward a settlement proposal to Petrotrin and the GOTT Attorney General on or about November 3, and would wait 30 days before filing a lawsuit in New York or seeking international arbitration against Petrotrin alleging expropriation, breach of contract and fraud. We received a copy of a letter from WGTL's attorney to the GOTT on November 3 that seeks $50 million to settle the dispute. END SUMMARY. A FAILURE TO COMMUNICATE -------------- ¶2. (SBU) Pol/Econ Chief met with Petrotrin president Kenneth Allum on Oct 27 to advocate for a reasonable settlement to the ongoing dispute between the parastatal and U.S.-based World GTL (WGTL). Allum said WGTL had yet to communicate any demand to Petrotrin since their joint venture gas-to-liquids (GTL) project went into receivership in mid-September. In July, Petrotrin assumed an outstanding loan against the project on which WGTL subsequently defaulted (ref). Allum and several company executives defended Petrotrin's actions, asserting WGTL had repeatedly failed to deliver on its contractual obligations and proved to be an unreliable partner. They insisted that calls to WGTL and its president and CEO David Loring have gone unanswered, and that they were aware that WGTL attorneys were prepared to file a lawsuit or seek international (ICSID) arbitration against Petrotrin only through conversations with the Embassy. ¶3. (SBU) We immediately relayed Allum's comments to Loring, who told us on November 2 that WGTL lawyers would forward a proposed settlement to Petrotrin and the GOTT Attorney General on/about November 3, giving them 30 days to respond before filing suit. The draft complaint alleges Petrotrin expropriated WGTL property when it assumed the project's loan and took control of the joint venture, and that its actions amounted to a breach of contract and fraud. We received a copy of the cover letter, which demands $50 million. Loring indicated the settlement proposal is roughly equivalent to a developer's fee previously agreed to between the parties, and that WGTL would cede all ownership and operational interests in the project. WRONG PARTNER -------------- ¶4. (SBU) For his part, Petrotrin's Allum opined he had come to believe that Petrotrin "found the wrong partner" for the GTL project, and listed numerous examples of how, according to him, WGTL failed to fulfill its contractual obligations, forcing Petrotrin to expend extra money on the joint venture when WGTL ran short. He discounted WGTL's claim that sulfur emissions from Petrotrin's adjoining refinery caused lengthy delays in construction that led to the loan default, and insisted that, regardless of the number of days construction was delayed due to emissions, WGTL had chosen the site against Petrotrin's original recommendation and had had full control over technical aspects of the project, as well as a majority management stake. An PORT OF SP 00000430 002 OF 002 engineering consultant similarly told Charge on October 31 that no feasibility study had been done in advance of the project, in part because at the time oil and gas profits were rising and Petrotrin could simply "throw money at the project." ¶5. (SBU) Loring has told us repeatedly that Allum and others in Petrotrin were originally opposed to the project and never fully committed to it even after the Prime Minister voiced his support. Allum reiterated on October 27 that Petrotrin had gone out of its way to make the joint venture successful with a large inflow of cash and several project delivery deadline extensions. He said that, in retrospect, Petrotrin had "waited too long" to sever ties with WGTL, given the large amount of money it was owed by Loring's firm. Allum and his team told us that, with construction overruns and the need to replace what they said was WGTL's faulty technology, the cost of the GTL plant has risen from $125 million as estimated in 2001 to almost a half-billion dollars today. Allum also asserted that WGTL officials had told him during negotiations in July that they wanted to cash out of the venture in order to raise capital for other projects. ¶6. (SBU) When asked why Petrotrin chose to pay a premium to assume the outstanding loan on the project rather than simply pay it off, executives said they had had to consider the company's cash flow, balance sheets and credit ratings for other investments. They also insisted that Petrotrin had already sunk significantly more money than originally anticipated into the venture, and that it would be irresponsible for Petrotrin to pay yet another large sum to bail out WGTL. Allum also said that Petrotrin balked at Barclays' refinancing proposal (ref) because its terms would have placed Petrotrin in a position of guaranteeing a favorable price for the diesel product, and would have forced Petrotrin to give gas to Barclays whenever market fuel prices fell or production lagged. THE FUTURE OF GTL IN TRINIDAD -------------- ¶7. (SBU) Loring told us October 28 that someone close to the Petrotrin Board suggested that the T&T firm would simply close the plant after a settlement with WGTL is reached or a lawsuit is filed, but Allum told us that the project must continue because his company has already sunk too much money into it. Allum said construction on the plant continues, and we saw what appeared to be ongoing work on the plant as we passed it October 27. ADVOCACY CONTINUES -------------- ¶8. (SBU) In addition to discussions with Petrotrin described above, the Charge has urged the GOTT to be flexible and work toward a commercial settlement with WGTL in separate conversations with Foreign Minister Paula Gopee-Scoon, Minister of Trade Mariano Browne (who is also the Minister of State for Finance),and MFA Director of Bilateral Relations Gerard Greene. Similarly, the Pol/Econ section has been working its contacts. In light of WGTL's specific settlement offer, we will continue to deliver this message to the GOTT and Petrotrin officials as we likewise continue to discuss the matter with WGTL. KUSNITZ