COSTA RICA 2009 SECTION 527 REPORT

UNCLAS SAN JOSE 000577 SIPDIS DEPT FOR EEB/IFA/OIA AND L/CID PLEASE PASS TO TREASURY FOR SSENICH E.O. 12958: N/A TAGS: EINV ECON CASC KIDE OPIC PGOV CS SUBJECT: COSTA RICA 2009 SECTION 527 REPORT REF: STATE 49477 ¶1. Embassy San Jose provides its information for the 2009 Section 527 Report on Investment Disputes and Expropriation Claims in paragraph 2. Information on each claimant appears in paragraph 3. Text in MS Word track changes format has been e-mailed to EEB/IFD/OIA and L/CID per reftel. ¶2. The United States Government is aware of five (5) outstanding claims of United States persons against the Government of Costa Rica (GOCR). Two (2) cases are longstanding, one (1) case was added last year while two (2) cases are new. -------------- CASE 1 -------------- a. Claimant A b. 1996 c. Claimant A alleges that, in 1983, the GOCR expropriated extensive ranchland owned by Claimant A. The GOCR held the land for nine years, after which it returned the property. Claimant sued the GOCR to obtain compensation for income lost during the nine-year period. The court ordered an appraisal, which detemined that Claimant A suffered a loss of USD 11 million. The GOCR balked at the amount and refused to proceed with the claim. Over the course of ten years, Claimant, with support from the Embassy, attempted to reach a negotiated settlement with the GOCR while also pursuing the matter in Costa Rican courts. The highest civil court in Costa Rica ("Sala Primera") recently affirmed a lower courts' decision in the case, awarding nothing to Claimant A. The court felt that the claimant failed to show that the governments' expropriation order caused specific damage, noting the lack of audited accounting records underlying the appraised estimate of loss and the claimant's successful sale of a portion of the property during the nine years the GOCR held an outstanding expropriation notice over the property. The claimant has now exhausted judicial due process in Costa Rica. Claimant A submitted the case for consideration by the InterAmerican Human Rights Commission in 2008. The Commission did not accept the case. -------------- CASE 2 -------------- a. Claimant B b. 2002 c. In 1998, Claimant B, an American oil company, was granted a concession for offshore exploration. When the previous administration of President Abel Pacheco entered office in 2002, it announced that it would not allow such offshore oil exploration. Claimant B sought damages for the cancellation of his concession contract. In various rulings over the past several years, Costa Rican courts ruled in favor of the claimant at times and the GOCR at other times. Following a decision for damages in favor of the Claimant, the GOCR responded in January 2005 by declaring the Claimant in breach of contract for non-performance. In April 2005, the Claimant responded to the breach of contract charge by countersuing the GOCR. In its countersuit, the Claimant asserted that its alleged non-performance was caused by delay caused by the original GOCR finding that the environmental impact studies were inadequate. In 2008 the Claimant believed himself to be in bona fide discussions to sell the concession to another firm with the aquiescence of the GOCR. The Embassy simultaneously witnessed both public and private manifestations by then Minister of Environment and Energy, Roberto Dobles, in favor of petroleum exploration in Costa Rica. Nevertheless, in late 2008 the Claimant received unequivocal word that the GOCR would not facilitate the Claimant's sale of the concession to another firm. In March 2009, following Roberto Dobles' resignation, President Arias apparently reversed his administration's previous position in favor of petroleum exploration in a public statement on March 23, 2009. However, Arias also denied that such a position or policy reversal had taken place. The Claimant continues to seek compensation in Costa Rican courts. -------------- CASE 3 -------------- a. Claimant C b. 2008 c. The Embassy has received a number of complaints from U.S. citizens who claim that the GOCR has expropriated a 75-meter strip of valuable beachfront property in "Las Baulas" National Park extending along approximately six kilometers of Playa Grande and the smaller beaches of Playa Ventanas and Playa de Jesus in Guanacaste Province. Valuation of the land is contentious since "Las Baulas" National Park is contiguous to the booming beach town of Tamarindo and the subject properties are among the few in Costa Rica with beachfront title. The dispute arose when, in 2004, the Procurator General (Prosecutor General) issued a novel interpretation of the 1995 law creating "Las Baulas" National Park. Claimants read the law to provide that the marine park land extended 125 meters seaward of the high-tide mark, but the Prosecutor General interpreted the law to apply 125 meters above the high-tide mark. Since the first 50 meters of all Costa Rican beaches are public dominion, the dispute is over the next 75 meters of privately owned land. In May 2008, the Constitutional Chamber of the Supreme Court decided that the Procurator General's interpretation was valid. This meant that the local municipality of Santa Cruz's previously issued building permits in the disputed zone were suspended. The beaches within "Las Baulas" National Park are recognized as important nesting beaches in the Pacific basin for the endangered Leatherback Turtle (or "Baula" in Spanish). The strip of land at issue is behind the area of the beach where the turtles nest and is meant to provide a small buffer between any development and the nest sites. The landowners contend that a strict zoning ordinance would protect the area just as well as confiscation without depriving landowners of their properties. While initial expropriation orders seemed to focus inordinately on lands belonging to foreign owners, it now appears that Costa Rican landowners are being affected as well. The Embassy received a signed petition from five US citizens who are currently appealing confiscation orders affecting their property. A sixth US citizen, the longtime owner of a hotel on the beach, contacted the Embassy separately. We are told that additional US citizens have been, or will be, affected by this issue. One of the petitioners informed the Embassy that neighbors within 300 meters of each other have received wildly disparate court appraisals of USD 13 per square meter (/m2),USD 200/m2, USD 500/m2, USD 800/m2 and USD 850/m2. As a reference, six kilometers of beach with 75 meters of expropriated land at USD 800/m2 would carry a value of USD 360 million dollars. It is not clear if the GOCR has the reserves or budget for such a purchase, which is a major reason that the claimants have repeatedly proposed a strict zoning ordinance applied to development on their lands as an alternative to confiscation. In December 2008 the Constitional Chamber of the Supreme Court issued a significant new ruling formalizing the previous suspension of building permits in the 75-meter zone and establishing a 500-meter buffer zone around the entire park (not just the 75-meter strip) in which construction is temporarily suspended. The buffer zone will remain in place until the GOCR, (primarily SETENA, the agency in charge of environmental impact studies),conducts a thorough study of the park and its surroundings to determine the necessary level of protection. The court order specified a six-month study period (which elapsed June 16, 2009) for completion of the study. The court will then have to review the study and mandate its interpretation. The Embassy will continue to actively monitor this issue. -------------- CASE 4 -------------- a. Claimant D b. 2009 c. Claimant "D" asserts that he is currently under judicial order which could result in imprisonment as a consequence of development of a widely-praised and ecologically sensitive privately operated tourist park. The claimant states that his company constructed the extensive riverside trails -- which are a park attraction -- in 1998 and 1999, declared the park a "Private Nature Reserve," and implemented a management plan in accordance with Ministry of Environment and Energy (MINAE) guidelines. MINAE officials were involved in the process from the beginning. The claimant asserts that differences in interpretation of the relevant law led to examination of the built trails by the Tribunal Ambiental, the senior administrative body charged with resolving environmental issues. The claimant states that the tribunal declared the trails to be legal. The claimant asserts that the Attorney General's office chose to pursue a criminal case against the Claimant. The court ordered the removal of the trails in an October 2007 ruling; the claimant refused to do so, thus risking jail time. The claimant states that the presiding judge made biased comments against foreign developers during the trial. The claimant also states that SETENA, (the department of MINAE in charge of environmental impact studies) recently wrote a letter stating that the sentence should be reversed and the trails should remain in place. The claimant remains in disobedience of the judge's order to demolish the trails. The claimant argues that this case reveals a disconnect between Costa Rica's judicial system and its system of administrative laws and controls. By the claimant's account, the judiciary pursues the developer, not the officials, when a law is allegedly broken based on advice or guidance from the officials. This leaves the developer at a loss as to how to proceed. -------------- CASE 5 -------------- a. Claimant E b. 2009 c. Claimant E asserts that the Attorney General accused the claimant of failing to request a mining permit for earth removal at a riverside tourist development. The claimant asserts that he obtained the proper permitting. The claimant states that he went through "extensive permitting with three different agencies who all visit(ed) the property and none of them even mention(ed) that I would need a mining permit, most probably because excavating the lakes has nothing to do with mining." The claimant states that MINAE officials came up with the "mining" argument after MINAE issued all permits and the work was completed. The claimant notes that the first court to try the case found the claimant innocent and ordered the state to pay all expenses in the case. He states that the Attorney General's office appealed that innocent verdict and had it overturned. The claimant states that the appeals court sentenced him to one year in prison and that he is also currently exposed to a one million dollar fine. -------------- CLAIMANT IDENTITIES -------------- ¶3. Identities of the five claimants follow below: -- Claimant A: Rancho Gesling, S.A. -- Claimant B: Harken Energy Corporation/MKJ -- Claimants C: Brett Berkowitz, Glenn Gremillion, John Gill, Greg Rogers and Wayne Cates (petitioners). Louis Wilson,(hotel owner). -- Claimant D: Lee Banks, Peace Gardens -- Claimant E: Lee Banks, Savegre River HENIFIN