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Cablegate: Nicaraguan Government Cancels U.S. Wind Energy Project

VZCZCXRO7366
RR RUEHLMC
DE RUEHMU #0947/01 2721907
ZNY CCCCC ZZH
R 291907Z SEP 09 ZDK
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 4602
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHME/AMEMBASSY MEXICO 5970
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RHEHNSC/NSC WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 MANAGUA 000947

SIPDIS

STATE PASS USTR AND OPIC

E.O. 12958: DECL: 09/29/2029
TAGS: ENRG EINV ECON NU
SUBJECT: NICARAGUAN GOVERNMENT CANCELS U.S. WIND ENERGY PROJECT

Classified By: DCM Richard M. Sanders for reasons 1.4 b & d.

Summary
------
1. (C) On August 27, the Ministry of Energy and Mining (MEM)
revoked the provisional license it issued to U.S. -
Guatemalan - Nicaragua consortium AMAYO for the installation
of wind turbines near the Costa Rican border. MEM announced
that it had revoked the license because the consortium had
begun construction before receiving its final generating
license. The U.S. partner in the AMAYO consortium, ARCTAS
Capital Group, contends that the provisional license allows
for construction and suggest that President Ortega ordered
the license revoked to make way for Mexican businessman
Carlos Perlata's interests in wind energy. GE Energy would
supply Peralta's 60 megawatt project with turbines. This
case may raise issues concerning the Nicaraguan Government's
obligation under CAFTA-DR to provide minimum standards of
treatment for AMAYO in its licensing process. AMAYO has not
sought our assistance thus far.

Government Revokes License
--------------------------
2. (C) On September 11, David Haug, managing director of
ARCTAS Capital Group, told econoffs that on August 27 MEM
revoked the provisional license it issued to the AMAYO
Consortium just a month earlier for the installation of 11
wind turbines, manufactured by Indian company SULZON, near
the Costa Rican border. The turbines were to have generated
23 megawatts of electricity for the Nicaraguan grid. Haug
said the Ministry of Environment and National Resources
(MARENA) followed suit soon thereafter and revoked AMAYO's
environmental permit.

3. (C) ARCTAS, a U.S. company, owns 47.5% of AMAYO.
Guatemalan company Centrans Energy Services owns 47.5% and a
local partner the final 5%. AMAYO already invested $100
million to install 19 SULZON wind turbines with a total
capacity of 40 megawatts on an adjacent property. This first
phase is fully licensed and already supplying electricity to
the national grid. According to Haug, the provisional
license issued on July 27 for phase II allowed AMAYO to begin
installing turbines and make all other necessary preparations
-- short of connecting to the grid. In August, AMAYO began
clearing land and building reinforced concrete pads as part
of its $60 million investment.

4. (C) In a press release, MEM announced that it had revoked
AMAYO's license because the consortium had begun construction
before receiving its final generating license. The Ministry
cited Article 23 of the 1998 Electricity Law, which,
according to the release, says "the construction,
installation, maintenance, and operation of electricity
generation plants is permitted only for generators that have
a license, authorized by the Ministry." Haug pointed out
that Article 23 in fact states, "the construction,
installation, maintenance, and operation of electricity
generation plants is allowed for all economic agents so long
as it does not pose a danger for persons, property, or the
environment." According to Haug, the provisional license
allows for construction but not generation.

Appeals Process Underway
------------------------

5. (C) AMAYO General Manager Sean Porter told econcouns on
September 25 that MEM had rejected the consortium's appeal of
the decision to revoke the provisional license. Meanwhile,
AMAYO is paying $11,000 a day in demurrage for equipment in
the port of Corinto ready to be off loaded and $9,000 a day
in construction costs. Despite these setbacks, Porter said
"hope is not lost," and AMAYO is pursuing all available
administrative and judicial channels, including a second
appeal that President Ortega is supposed to hear directly.
AMAYO also seeks to enlist the support of Investment
Promotion Delegate Alvaro Baltodano and Presidential Economic
Advisor Bayardo Arce. Porter said he would emphasize the
negative impact this issue is having on the investment
climate and remind these officials of Nicaragua's commitments
related to investment included in the U.S. - Central America
- Dominican Republic Free Trade Agreement (CAFTA-DR).

Mexican Businessman Promotes Competing Project
--------------------------------------------- -

6. (C) ARCTAS' Haug told econoffs that competing commercial
interests -- not any lack of compliance on the part of AMAYO
-- are behind the government's decision to cancel the license
for phase II. He explained that Mexican billionaire Carlos
Peralta had cultivated a relationship with Humberto and
Daniel Ortega over the past few years and was interested in
installing wind turbines to produce 60 MW of electricity at a
site a few miles away from where the AMAYO project is
located. Haug said the Mexican businessman views AMAYO's
expansion plan as a threat. If both projects move forward,
electricity produced by wind in Nicaragua would total 123 MW,
including 40 MW already produced by phase I of AMAYO, 23 MW
by phase II, and 60 MW by Peralta. Industry experts say
total wind energy production above 100 MW would be unsafe for
a grid the size of Nicaragua's (about 900 MW total), given
the inherent uncertainty in the availability of electricity
generated by wind. Haug posited that Peralta bribed Ortega
to cancel the AMAYO concession and make way for the Mexican
wind turbine project.

GE Energy to Provide Turbines
-----------------------------

7. (C) Charles Pearson of GE Energy confirmed in a
conversation with econcouns on September 24 that his company
was negotiating with Peralta to supply U.S.-made wind
turbines and equipment for the project. He made it clear
that GE Energy would take no equity stake in the Mexican
project and that his company had no role in the revocation of
AMAYO's permit. Pearson acknowledged the possibility that
bribery played a role in Ortega's decision to cancel the
AMAYO permit -- in which case GE Energy would withdraw from
the project -- but he offered other explanations as well.
Pearson said Ortega may feel he is indebted to Peralta,
because the Mexican is rumored to have provided financial
support to Ortega when he was exiled in the 1970s. He also
said AMAYO's decision to enlist Cesar Zamora, country manager
for AEI, to lobby on behalf of the project may have
backfired. Pearson said Ortega detests Zamora for his role
in denouncing electoral fraud in November 2008 when he was
AmCham president.

Comment
-------

8. (C) It is difficult to decipher Ortega's motive in
revoking AMAYO's license. Bribery, as suggested by ARCTAS,
is possible, but so are the other explanations offered by GE
Energy (though less likely in our view). We have been
careful not to opine on the topic in our conversations with
either U.S. company, to avoid the perception that we are
favoring the interests of one over the other. The revocation
of AMAYO's license does indeed raise the issue of the
Nicaraguan Government's obligation under CAFTA-DR to provide
minimum standards of treatment for AMAYO in its licensing
process. AMAYO has yet to seek assistance from us, but
should it do so, we will consult with Washington agencies.
CALLAHAN

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