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Cablegate: Nicaragua: Opic Mosbacher Announces Housing

VZCZCXRO4540
RR RUEHLMC
DE RUEHMU #2168/01 2641542
ZNY CCCCC ZZH
R 211542Z SEP 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 1319
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1185
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 MANAGUA 002168

SIPDIS

SIPDIS

STATE PASS OPIC

E.O. 12958: DECL: 09/21/2017
TAGS: EINV EPET EFIN NU
SUBJECT: NICARAGUA: OPIC MOSBACHER ANNOUNCES HOUSING
FINANCE FOR VICTIMS OF HURRICANE FELIX; ORTEGA OFFERS A WAY
FORWARD ON OIL EXPLORATION

REF: A. MANAGUA 2102

B. MANAGUA 1963
C. MANAGUA 1217
D. MANAGUA 645
E. 06 MANAGUA 764

Classified By: Ambassador Trivelli, reasons E.O. 12958 1.4 (b, d).

Summary
-------

1. (C) On September 12, OPIC President and CEO Robert
Mosbacher announced that his agency will expand an existing
mortgage facility with local bank Bancentro to fund the
reconstruction of houses destroyed by Hurricane Felix. In a
subsequent meeting, CEO Mosbacher explained to Free Trade
Zone (FTZ) Commission Secretary General Alvaro Baltodano that
OPIC financing for up to 30,000 houses for FTZ workers could
not move forward until OPIC,s liability for two oil
concessions to MKJ and Infinity (U.S. companies) had cleared.
President Ortega later told CEO Mosbacher and the Ambassador
that he never meant Venezuelan participation in the oil
concessions to be a condition for project initiation.
(Comment: This assertion is contrary to all other
indications, including actions and statements made by the
Minister of Energy. End Comment.) Ortega then promised to
arrange a meeting in early October to formally resolve all
issues surrounding the oil concessions. End Summary.

OPIC Announces $7 Million Housing Reconstruction Fund
--------------------------------------------- --------

2. (U) On September 12, OPIC President and CEO Mosbacher
signed a memorandum of intent whereby OPIC will expand its
existing mortgage facility with local bank Bancentro by $7
million to fund the reconstruction of houses destroyed by
Hurricane Felix. Loans will be geared toward low and
middle-income home owners in the Autonomous Northern Atlantic
Region (RAAN) of Nicaragua. At the signing ceremony, which
received extensive coverage from national media, the
Ambassador presented an overview of U.S. disaster assistance
to date (Ref A). Bancentro President Roberto Zamora
announced that within a few weeks Bancentro will open a
branch in Puerto Cabezas to facilitate the bank's lending
program and other operations. General Alvaro Baltodano,
Presidential Delegate to ProNicaragua (Nicaragua's investment
promotion agency) and Secretary General of the Free Trade
Zone Commission, delivered a few words on behalf of the
Nicaraguan Government. (Note: Baltodano is President
Ortega,s point person for OPIC housing programs. End Note)

3. (SBU) Prior to the ceremony, Bancentro President Zamora
and CEO Mosbacher discussed the challenges of lending in the
RAAN. Zamora explained that there is little formal
employment there, making it difficult to evaluate the
creditworthiness of borrowers. A lack of formal land titling
is another obstacle. CEO Mosbacher offered to share OPIC,s
experience in these areas. Bancentro officials presented the
elements of a proposed lending program that was still a work
in progress. Both Bancentro and OPIC officials would work
together to iron out the program.

Restoring U.S. Company Oil Concessions
--------------------------------------

4. (C) After the signing ceremony, CEO Mosbacher and the
Ambassador met privately with FTZ Executive Secretary
Baltodano to discuss problems with the OPIC-insured
investments of two U.S. oil exploration companies. In May,
the Supreme Court ruled the offshore oil exploration
concessions of MKJ and Infinity (U.S. companies) null because
the autonomous regions had not been properly consulted. The
Ambassador noted that he had recently met with leaders of
both autonomous regions, who voiced no objections to the
concessions moving forward (Ref B). CEO Mosbacher said that
he understood that President Ortega had conditioned the
restoration of the concessions on a partnership with
Petroleos de Venezuela (PDVSA). CEO Mosbacher suggested that
it was unlikely that PDVSA would want to participate in an
exploration project, where the risks are high, or that small
companies like MKJ and Infinity would want such a large
partner. CEO Mosbacher suggested that PDVSA might want a
role in the development phase, that is, if oil or gas were
discovered.

5. (C) CEO Mosbacher explained that OPIC financing for up to
30,000 houses for Free Trade Zone (FTZ) workers, a proposal
that he had discussed previously with Baltodano, could not
move forward until OPIC,s liability for these oil
concessions had cleared. MKJ and Infinity should be allowed
to move forward with oil exploration according to the terms
of their respective concession agreements or under revised
concession agreements where they are not materially
disadvantaged (Refs C and E).

6. (C) Baltodano took these points on board and suggested
that all parties seek clarity in a September 25 meeting among
the Government of Nicaragua, representatives from the RAAN
and the RAAS, PDVSA, and the U.S. oil companies. CEO
Mosbacher stated that if PDVSA does not show interest in the
exploration concessions by then, or does not attend the
meeting, then the government should move forward with the
existing concession contracts, so that these projects and the
FTZ housing project can proceed.

Ortega Says PDVSA Participation Not a Condition
--------------------------------------------- --

7. (C) CEO Mosbacher concluded his visit to Managua with a
meeting with President Ortega. First Lady Rosario Murillo,
Foreign Affairs Minister Samuel Santos, and the Ambassador
also participated. (Comment: This is the first time that
President Ortega has met with a U.S. public official behind
closed doors. Normally, he lectures his guests for ninety
minutes or more in meetings that are open to the press. In
this meeting, which lasted a little more than 30 minutes,
Ortega was relaxed, pragmatic, lucid, and focused. End
Comment.)

8. (C) CEO Mosbacher described OPIC,s fund for the Atlantic
Coast that he had announced with Bancentro. Ortega asked
pointed questions about the fund. Mosbacher explained that
the loan amounts would be as low as possible, and that OPIC
and Bancentro would look for creative ways to deal with
property registration and loan qualification issues, for
example, the new homes could be used as guarantees. OPIC is
also looking at ways to incorporate hurricane-proof
technologies. Ortega suggested that the loans would have the
greatest acceptance in Puerto Cabezas, where a significant
number of residents are regularly employed. Working with
Miskito communities, he said, will be more of a challenge.
The Ambassador and Murillo noted that those groups would be
better served by international donors, NGOs, and the
Nicaraguan government, itself.

9. (C) CEO Mosbacher also described the housing project for
FTZ workers that he had discussed with Baltodano. Ortega
wanted to know when it could start; he wanted to move fast on
the project. CEO Mosbacher replied that he could move
forward on the project as soon as the oil concession issues
clear -- as early as the end of the year if the concession
issues are resolved in October. CEO Mosbacher explained why
it did not make sense to include a large company like PDVSA,
with little expertise in managing exploration risk, in the
exploration stage. He speculated that PDVSA might be
interested later, in the developmental stage, if oil is
discovered.

10. (C) Ortega explained that when he met with MKJ, he
realized how small the company was and figured that it lacked
funding; he thought he was doing MKJ a favor by suggesting
that it talk with PDVSA. Ortega then claimed that he never
made PDVSA participation in the project a condition for MKJ
and Infinity. (Comment: This is not our understanding. On
January 11, a day after Ortega,s inauguration, Foreign
Minister Santos signed a bilateral agreement with Venezuelan
Foreign Minister Nicholas Maduro to "integrate" the energy
sectors of the two countries (Ref D). In his meeting with
Ortega, MKJ Vice President Brent Abadie clearly understood
that, in addition to RAAN and RAAS concurrence with the
concessions, negotiations with PDVSA were the sine qua non to
restore its exploration concession. Moreover, Minister of
Energy Emilio Rappaccioli has constantly pushed MKJ (and
other foreign energy companies) toward the Venezuelans. End
Comment.)

11. (C) CEO Mosbacher informed Ortega that MKJ's larger
partner, Noble Energy (U.S.), brought with it significant
financial resources. Ortega then promised to organize a
meeting for MKJ and Infinity with RAAN and RAAS officials in
early October -- delayed from Baltodano's suggested September
25 because of the demands of the Hurricane Felix recovery
effort -- and offered to call these officials to first win
their concurrence so that the meeting would be no more than a
formality. Since CEO Mosbacher's visit, Foreign Minister
Santos has informed the Ambassador that the meeting will
still take place September 25 and that PDVSA has been
invited. Santos said that if PDVSA does not attend, they
will be dropped from negotiations on this issue.

Comment
-------

12. (C) We are reluctant to conclude that the changing
posture of Ortega in this instance is due to a true change of
heart. There is great likelihood that PDVSA is simply not
interested in taking on the risk associated with a deep water
oil exploration concession. We understand that PDVSA does
not have the expertise or the technology. Overburdened by
Chavez' promises to the world, PDVSA may not even have the
necessary capital to spare. Having failed to entice PDVSA,
Ortega simply may be returning to the table to wrangle a
promise from OPIC for something that he wants: FTZ housing.
We note that the FSLN wants to wrest control from
non-Sandinista unions in the FTZ, and this project may be a
way to make inroads.

13. (C) With the caveat that any FTZ housing program be open
to all FTZ workers, we are hopeful that the opportunity to
work with OPIC will demonstrate to Ortega that he can work
with the United States to achieve mutual objectives. Should
MKJ or Infinity strike oil, however, we would expect another
round of legal challenges to dislodge this resource from U.S.
company control.

14. (C) We also remind ourselves that Nicaragua's politically
controlled Supreme Court nullified MKJ and Infinity's
offshore oil concessions for questionable reasons in the
first place. The answer to why further concurrence from the
RAAN and the RAAS is needed for concessions that lie beyond
waters accorded to them by the Nicaraguan constitution can
likely only be found in the murky waters of partisan gain and
ALBA commitments. End Comment.
TRIVELLI

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