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Viewing cable 07MANAGUA2168, NICARAGUA: OPIC MOSBACHER ANNOUNCES HOUSING

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Reference ID Created Released Classification Origin
07MANAGUA2168 2007-09-21 15:42 2011-06-21 08:00 CONFIDENTIAL Embassy Managua
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