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Cablegate: Opic-Supported Us Investor in Mozambique Backs Into

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 MAPUTO 001446

SIPDIS
STATE FOR AF/S, AF/EPS, EB/IFD/OIA
MCC FOR APPLEGARTH, HEWKO, BRIGGS, GAULL
STATE PASS OPIC FOR SHORE
SENSITIVE
E.O. 12958: N/A
TAGS: EINV MZ OPIC MCC
SUBJECT: OPIC-SUPPORTED US INVESTOR IN MOZAMBIQUE BACKS INTO
EXPENSIVE SETTLEMENT ON LAND DISPUTE


Business Confidential Information. Not for Internet Distribution

1. (SBU) Summary: On October 28, American investor David
Herbert and his Danish partner Jorgen Nielsen settled a
dispute with the Zimbabwean firm Cabo do Mar over rights to
the land on which their Nyati Beach Lodge is located. They
agreed to pay usd 650,000 to permanently block execution of
an October 17 provincial court order declaring that Cabo do
Mar held usage rights to the land and authorizing eviction
of current occupants. OPIC had financed Mr. Herbert's
purchase earlier this year of half of the lodge. Before the
negotiations that led to the settlement, Ambassador La Lime
had expressed to GRM officials USG concern over the threats
to a U.S. investment, and OPIC President Peter Watson had
written the Prime Minister. Mr. Herbert is exploring his
legal options. Several aspects of this matter are not
clear, and it provides another example of factors that
discourage investment in Mozambique. End Summary.

Potter Concession
-----------------
2. (U) In 1994, Zimbabwean lodge developer Rex Potter
purchased the rights for 50 years to a ten-hectare plot of
beach land on the Sao Sebastiao peninsula in Inhambane
province from the government (it is not clear whether
provincial or national) for 30 million meticais, worth about
usd 2,500 at the time. Mozambican law does not recognize
ownership of land; it does, however, concede to individuals
and corporations the right to build on land. The
improvements made upon that land may be registered as
private property. Disputes involving conflicting
concessions are common.

3. (U) In 2001, Mr. Potter and his Mozambican company, Cabo
do Mar, registered improvements with the Inhambane
provincial registry and board of deeds, stating that three
huts and a restaurant had been established. Mr. Potter
never established a functioning beach lodge on the property,
however, and Mr. Herbert and his staff state that the
claimed improvements are an exaggeration at best.

Formation of Sanctuary, Issuance of Nyati Concession
--------------------------------------------- -------
4. (U) In 1998, the Ministry of Tourism formed the
Vilanculos Coastal Wildlife Sanctuary, a land trust
including the peninsula in which no building could be
constructed without permission of the government. The
Sanctuary itself is a private corporation, owned by multiple
investors, with a certain degree of autonomy to manage the
area. However, since 1999, the Ministry of Agriculture and
Rural Development has been solely responsible for granting
land concessions within the Sanctuary lands.

5. (SBU) In November 2002, when Mr. Nielsen was in the
process of negotiating a deal to buy rights to the land on
which Nyati Lodge now stands, Cabo do Mar sued the Sanctuary
to block the deal. The Inhambane provincial judge dismissed
Cabo do Mar's claims after reviewing documents, ruling that
his court was not the appropriate venue for hearing such a
case. On November 23, 2002, Inhambane province governor
Aires Bonfiacio Baptista Aly issued a letter to all parties
stating that the Sanctuary was the sole owner of the
property in question and that the planned Nyati Lodge
project should be encouraged to continue.

6. (SBU) In June 2003, the Sanctuary issued a concession of
11 hectares to Nyati Beach Lodge Lda., a Mozambican firm
owned by Nyati Beach APS, a Danish firm owned by Mr.
Nielsen. It appears that this concession overlaps the
concession granted by the GRM in 1994 to Mr. Potter. Mr.
Nielsen started construction of an upscale lodge
immediately, registered his improvements with the provincial
registry, and started business in early 2004.

Ruling By New Judge For Potter
------------------------------
7. (SBU) In March 2004, new Inhambane provincial judge Jose
Sampaio decided to hear Mr. Potter's case anew. (Sampaio,
who had arrived in 2003, previously had served as a judge in
Cabo Delgado province, where he was best known for having
been the presiding judge in the 2000 Montepuez incident, in
which over 100 protestors were jailed after an opposition
rally protesting the results of the 1999 elections and
subsequently asphyxiated in a tiny jail cell.) After
reading the documents and without initiating a formal
hearing, in March Judge Sampaio ruled in favor of Mr. Potter
and Cabo do Mar, awarding Cabo do Mar $300,000 in damages
from the Sanctuary. The Sanctuary intended to appeal the
case, a process that would likely draw it out by two years
or more. However, it failed to turn in its $10 filing fee
with the court until late September, ten days past the
deadline. According to the Sanctuary, a notice of the fee
due was not served to the Sanctuary's legal representatives
in Maputo; rather, it was given to a lower-level employee in
Inhambane who did not act. By failing to appeal on time,
Sanctuary was out of options.

Herbert Purchase of Stake in Lodge
----------------------------------
8. (SBU) In August 2004, U.S. citizen David Herbert, who
owns part or all of three other concessions in the
Sanctuary, purchased 50 percent of Nyati from Mr. Nielsen
for $225,000 with OPIC financing and began making
improvements.

Enforcement Order Threatens Eviction
------------------------------------
9. (SBU) On October 17, Judge Sampaio issued a court order
giving Cabo do Mar the right to occupy the Nyati property.
On October 20, Rex Potter and Inhambane police showed up at
Nyati lodge to enforce an immediate eviction. Mr. Herbert
says this was the first the Sanctuary lawyers or Nyati Lodge
had heard of the court order. After preliminary talks with
lodge staff, Mr. Potter agreed to postpone eviction until
October 28.

Judicial Efforts
----------------
10. (SBU) Mr. Herbert and Nyati Lodge then became directly
involved for the first time. Mr. Herbert flew to the
provincial capital, Inhambane city, on October 27 in order
to seek a dispatch blocking any eviction proceedings on
lands within the Sanctuary. An Embassy Econ-Pol officer
accompanied him as an observer. Sanctuary lawyers were not
present. At the same time, Mr. Herbert and his partner
sought other support, including from the U.S. and Danish
governments, in their effort to delay enforcement of the
eviction order. We understand that the environment
minister, who is a Sanctuary board member, asked the
Attorney General to intervene but was told that only a court
could do so. OPIC President Watson wrote Prime Minister
Luisa Diogo, and Ambassador La Lime spoke with several
senior GRM officials, to express concern about this threat
to a U.S. investment.

11. (SBU) It appeared that Mr. Herbert and Nyati's lawyers
had received no solid information from the Sanctuary about
the validity of Mr. Potter's claims. They did not have a
copy of Mr. Potter's 1994 land concession, a map of the
concession, or even Judge Sampaio's October court order.
The lack of information was especially puzzling since Mr.
Herbert had assumed the role of Chairman of the Sanctuary's
board in August 2004.

12. (SBU) Judge Sampaio was not inclined to meet with the
Nyati lawyers and forced them to wait for several hours.
Despite what appears to have been pressure by senior
judicial and government officials, he did not grant the
delay Mr. Herbert sought. On October 28, he granted a
dispatch stating that a hearing would be held on the subject
on November 9. While it could be argued that the dispatch
prevented any eviction proceedings by virtue of setting a
hearing date on the matter, it did not explicitly make a
statement to that effect.

Negotiation and Settlement
--------------------------
13. (SBU) In the afternoon of October 28, the Nyati group
(plus observing Embassy officer) flew to the town of
Vilanculos to meet that day with representatives from Cabo
do Mar. By this time, the Nyati team recognized it was in a
weak position and was willing to negotiate a settlement with
Cabo do Mar. Mr. Herbert was particularly concerned by
reports from Mr. Nielsen that Cabo do Mar had contacted
Danish media outlets about the possibility of an eviction of
the mostly Danish guests from Nyati that weekend, a
potential public relations disaster.

14. (SBU) At the negotiations, Mr. Herbert and his group
agreed that Cabo do Mar had a valid court order recognizing
its rights to a piece of land on Sao Sebastiao peninsula
overlapping with the property subsequently developed by
Nyati. Cabo do Mar, for its part, acknowledged that it did
not have legal right to use the buildings of the Nyati
Lodge, but asserted a right to shut them down, and
threatened to do so. Mr. Herbert offered to find Cabo do
Mar an equivalent parcel of property within the Sanctuary,
but Cabo do Mar was not interested. No deal was reached at
the table, but a few hours later the parties agreed to
terms: Mr. Herbert and Mr. Nielsen would pay Cabo do Mar usd
450,000 up front, plus usd 20,000 per month for the next ten
months, in return for which Cabo do Mar would not enforce
the court order in perpetuity. After the deal was struck,
no eviction took place on October 29. The final agreement
is being drafted the week of November 1.

Much Remains Unclear
--------------------
15. (SBU) There are a number of murky aspects to this
matter. The Cabo do Mar partners at the negotiating table
included a member of the National Assembly from the ruling
Frelimo party, Eleuterio Marta Felisberto. Mr. Felisberto
had been working at the Inhambane province land registration
office in 1994 when Mr. Potter's concession was granted.
Mr. Herbert suspects that the judge's decision to reopen a
case decided by a predecessor and rule in favor of Cabo do
Mar without a hearing after only examining documents may
have been influenced by Mr. Felisberto, but he has no proof.
The Sanctuary's failure to pay its appeal fee on time also
appears to have resulted from the court's action in
informing Sanctuary employees, rather than its lawyers; Mr.
Herbert at one point alleged that this was the result of
corruption, but the Sanctuary may have dropped the ball. It
also is not clear what Mr. Nielsen or Mr. Herbert knew, or
should have known, about Mr. Potter's claim and the judge's
decision against the Sanctuary before Mr. Nielsen sold half
of the lodge to Mr. Herbert.

Next Steps
----------
16. (SBU) Mr. Herbert and Nyati Lodge have not decided what
legal actions to take next. The most likely is that the
lodge may sue the Mozambican government for damages, a
hearing that would be held in an administrative court in
Maputo. This would be a drawn-out process, but may be a
viable option since there are precedents of the GRM paying
damages to aggrieved parties in the wake of disputes caused
by conflicting government concessions of business or land
rights. Another would be for Nyati to sue the Sanctuary
directly. Nyati would like to take legal action of some
sort against Cabo do Mar as well, but it may not have a
viable case. Regardless of what steps are taken, the
developments in this case provide another example of how
Mozambique's legal and judicial systems discourage
investment.
LA LIME

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