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Cablegate: Nicaragua: Exxon at Impasse with Government Over

VZCZCXYZ0000
OO RUEHWEB

DE RUEHMU #2055/01 2502200
ZNY CCCCC ZZH
O 072200Z SEP 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1213
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1166
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L MANAGUA 002055

SIPDIS

SIPDIS

DEPT FOR EEB/ESC, EEB/BTA, WHA/EPSC, WHA/CEN
SAN JOSE FOR CS/JMCCARTHY
DEPT PLEASE PASS TO USTR AND OPIC

E.O. 12958: DECL: 09/06/2017
TAGS: EINV EPET ETRD NU
SUBJECT: NICARAGUA: EXXON AT IMPASSE WITH GOVERNMENT OVER
RETURN OF FUEL DEPOT

REF: A. MANAGUA 2016

B. MANAGUA 1952

Classified By: Ambassador Paul Trivelli, Reason: E.O. 12958 1.4 (b) and
(d)

1. (C) Summary: Since our last report, Exxon and the
government converted their earlier exchange of letters into a
memorandum of understanding, with the Government of Nicaragua
adding some potentially troubling language. On September 3,
the negotiators for the two sides submitted the memorandum to
their respective authorities for final approval. Exxon
authorities returned with additional language related to
safety standards and procedures. Energy Minister Emilio
Rappaccioli and Petronic Chief Executive Francisco Lopez
rejected this language. On September 6, Exxon representative
Milton Chaves briefed the Ambassador on the impasse and
discussed next steps. Post recommends that A/S Sullivan, in
consultation with WHA, consider contacting Nicaraguan
Ambassador Cruz. Post suggests talking points for this
purpose. Paragraph 7 contains this action request. End
Summary.

2. (C) On September 6, Exxon representative Milton Chaves
briefed the Ambassador on the impasse that had developed
between Exxon and the Government of Nicaragua regarding the
return of Corinto I to Esso/Nicaragua. Chaves departed
Nicaragua on September 7, with plans to meet Nicaraguan
Ambassador Arturo Cruz in Washington, D.C. that same day.
Cruz has weighed in with Managua on the issue more than once,
and requested to see Chaves when in Washington.

3. (C) Since our last report (Ref A), Exxon and the
government have converted their earlier exchange of letters
into a memorandum of understanding, with the Government of
Nicaragua adding some potentially troubling language. The
basis of the understanding is that the government would
return control of the fuel tanks situated at Corinto I to
Esso Nicaragua. In return, Esso would negotiate in good
faith the use of the facility to import Venezuelan gasoline
and diesel purchased by state-owned Petronic, as well as the
purchase of crude oil for refining at Exxon's Managua
refinery.

4. (C) On September 3, the negotiators for the two sides
agreed on language which they submitted to their respective
authorities for final approval. Exxon authorities returned
with three additions to the effect that 1) Exxon operational
safety procedures should be reinstated, 2) Exxon safety
standards should apply when it came to modifications that
Petronic had made to Esso/Nicaragua's fuel tanks, and 3) a
time limit on negotiations to sell or rent Corinto I to
Petronic (on this Exxon is flexible). Exxon language also
demanded assurances that the importation of oil through
Petronic would not put Exxon in the position of violating
United States law (e.g., importing product from a country
subject to U.S. economic sanctions). Energy Minister Emilio
Rappaccioli and Petronic Chief Executive Francisco Lopez
rejected these requests.

5. (C) On September 4, Hurricane Felix hit the Atlantic coast
of Nicaragua, diverting the attention of Nicaraguan
Government officials and the rest of the country toward
disaster relief. Meanwhile, Petronic is preparing Corinto I
to receive a third vessel filled with refined petroleum
products from Venezuela arriving on September 14.

6. (C) Because Esso's fire fighting equipment is located in
Corinto I, Esso is unable to operate Corinto II where most of
its fuel is stored. Esso has not received a vessel with
refined product since the government took control of Corinto
I on August 17. This suspension of activity at Corinto II
could soon affect the availability of premium gasoline in
Nicaragua.

7. (C) Action Request: We think Chaves' meeting with
Ambassador Cruz would be augmented by a call from Assistant
Secretary for Economics, Energy, and Business Daniel

SIPDIS
Sullivan. We recommend that Secretary Sullivan, in
consultation with WHA, consider personally delivering the
following talking points to Cruz:

(SBU) Suggested Talking Points
----------------------------

-- By nature, fuel is highly flammable and
explosive, making it one of the most
dangerous products to handle. Safety
is paramount.

-- Exxon takes very seriously the safety of
its employees and surrounding communities.
For this reason, the company ascribes to
the highest standards of safety, applying
company policies and safety protocols to
its operations throughout the world.

-- Exxon cannot accept safety standards that
fall below its own high standards. The
return of Corinto I should not require
Exxon to do so.

-- The seizure of Corinto I has raised a
number of serious questions.

-- The basis for the lien on Corinto I is
a tax that is not applied to petroleum
products.

-- Under Nicaraguan law, Exxon should have
retained control of the property; it
should not have been given to Customs.

-- Immediately upon seizing the property,
Nicaraguan Customs contracted state-owned
Petronic to modify Esso tanks and offload
product.

-- Nicaraguan Customs and Tax authorities
followed the takeover of Corinto I with
various tax claims totaling tens of
millions of dollars.

-- These actions by state agencies and companies
in a time sensitive manner demonstrate
coordination at the highest levels of
government.

-- I urge you to return Corinto I to its rightful
owner, Esso, at the earliest opportunity.

-- Once Corinto I is returned, I am sure Exxon
would be willing to discuss fuel storage and
petroleum processing issues with Petronic, as
it has indicated.

8. (C) We note the OPIC President and CEO Mosbacher is
planning to stop in Managua on September 12 to announce the
expansion of a housing mortgage facility linked to Hurricane
Felix recovery. CEO Mosbacher will also have an opportunity
to raise the Exxon issue. We hope that these dual approaches
will successfully pressure the Government of Nicaragua to
resolve the impasse.
TRIVELLI

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