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

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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

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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

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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

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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

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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