VZCZCXRO1337
PP RUEHGR
DE RUEHSP #0374/01 0831916
ZNR UUUUU ZZH
P 241916Z MAR 06
FM AMEMBASSY PORT OF SPAIN
TO RUEHC/SECSTATE WASHDC PRIORITY 6600
INFO RUEHKO/AMEMBASSY TOKYO 0070
RUCNCOM/EC CARICOM COLLECTIVE

UNCLAS SECTION 01 OF 02 PORT OF SPAIN 000374 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV PGOV KCOR TD
SUBJECT: TRINIDAD GOVERNMENT ALLEGES CORRUPTION IN 
AWARD OF DESALINATION PLANT CONTRACT TO U.S. INVESTOR 
 
REF: POS 239 
 
¶1. SUMMARY: The Attorney General of Trinidad & Tobago 
has declared that a water supply contract with 
desalination company Desalcott, in which GE has a 40% 
stake, should be terminated due to fraudulent and 
corrupt dealings in its negotiation during the late 
1990s.  The announcement came as the GOTT water utility 
lost its arbitration case to Desalcott, and follows 
similar actions involving major contracts that were 
concluded when the opposition party was in power.  It 
is unclear whether charges/indictments will follow the 
statement or if it is only pre-election posturing.  End 
summary. 
 
¶2. In a statement that could have ramifications for a 
major U.S. direct investment in Trinidad & Tobago, 
Attorney General John Jeremie announced in Parliament 
on March 14 that the contract for supply of water by 
Desalcott to state utility WASA should be voided 
because of alleged corruption and bribery in its late 
1990s negotiation.  The announcement, which provoked 
headlines like "Government Dumps Desalcott Deal" and 
"Top Officials to be Charged," caused a flurry of 
reactions from Desalcott and opposition political 
figures like Ganga Singh, United National Congress 
(UNC) whip in the lower house of parliament, who was 
minister for public utilities when the contract was 
negotiated.  Singh denounced Jeremie's speech as a 
witch-hunt, and stood by the decision for the 
desalination plant. 
 
-------------------------------- 
The case so far 
------------------------------- 
 
¶3. Desalination Company of T&T (Desalcott) is a private 
company, 60% owned by T&T firm Hafeez Karamath 
Engineering Services, Ltd., and 40% owned by U.S. 
company Ionics (since February 2005 part of GE). 
Desalcott began producing desalinated fresh water in 
April 2002 under a 20-year contract to sell water to 
the Water and Sewerage Authority (WASA) for resale to 
petrochemical and other industrial companies in the 
Point Lisas industrial estate.  In April 2003 Desalcott 
sought a price hike in accordance with terms of the 
water services agreement.  WASA had a differing 
interpretation of the agreement terms, and when 
yearlong mediated discussions between Desalcott and 
WASA failed to find a solution, the matter moved to 
dispute resolution in the International Chamber of 
Commerce (ICC) in London.  That process began around 
June 2004 and ended with an arbitration decision this 
month that largely favored Desalcott. 
 
¶4. It was about one day after the ICC panel revealed 
its decision that Jeremie made his statement in 
Parliament.  The GOTT claims that a recently completed 
report, which it commissioned from forensic 
investigator Bob Lindquist of Citigate Global 
Intelligence, concluded that the contract that the 
previous United National Congress (UNC) government 
awarded to Desalcott in 1999, involved fraud and 
bribery.  That report is not a public document, and 
GOTT has not revealed many details other than to 
suggest that a foreign national could be among those 
subject to extradition requests.  No local officials, 
apart from Singh, have been implicated thus far either. 
 
------------------------------------ 
Witch-hunt or Anti-Corruption zeal? 
------------------------------------ 
 
¶5. The GOTT assertions come in the midst of a highly 
charged political atmosphere in which the ruling 
Peoples National Movement (PNM) has accused the 
opposition UNC of having made poor (if not outright 
corrupt) decisions during its term in office, which 
ended in 2001.  There are several pending or ongoing 
legal cases involving UNC officials.  Among them are 
the following: 
 
-- Piarco Airport - More than a dozen businessmen 
(including at least two Floridians) and UNC officials 
have been served with charges of bid rigging and other 
corrupt dealings with construction of the airport 
terminal, which then prime minister Basdeo Panday 
opened in 2000.  No cases have come to trial 
 
-- Panday bank case - the former prime minister went on 
trial this month for having misrepresented his assets 
 
PORT OF SP 00000374  002 OF 002 
 
 
while prime minister.  The chief charge is failing to 
declare details of an account with Natwest bank in 
London. 
 
-- Calmaquip - the Florida-based company, whose CEO 
Raoul Guiterez is one of those accused in the Piarco 
case, saw its service contract with the Airports 
Authority canceled this week. 
 
¶6. For its part, the opposition UNC has attempted 
without much success to deflect corruption allegations 
by laying corruption charges on the ruling PNM.  The 
Desalcott announcement, in fact, came during a 
parliamentary debate in which a UNC MP sought to raise 
the issue of the long-stalled Scarborough Hospital 
construction project and a Tobago real estate 
development called Landate that involves Minister of 
Housing Keith Rowley. 
 
------------------------------------ 
GE and Desalcott reactions 
------------------------------------ 
 
¶7. Officials of Ionics/GE have briefed Ambassador on 
several occasions since 2003, most recently in January 
when it was seeking to settle with WASA and avoid an 
arbitration decision that GE believed would sour 
relations and set the stage for a future dispute. 
Ambassador raised the issue with Energy Minister Lenny 
Saith (reftel), who recently had become involved and 
whom GE believed was interested in reaching a 
settlement (the line ministry for WASA is Public 
Utilities). 
 
¶8. GE executives we have spoken to believe that the 
timing of Jeremie's declaration suggests that GOTT is 
seeking to save money on the decision of the 
arbitrator, which will impose a decision in 30 days if 
the parties are unable to do so.  He was not sanguine 
that such an agreement was likely if a year of 
mediation, followed by more than two years of 
arbitration failed to do so. 
 
¶9. Econ Chief asked GE about media reports that 
suggested that GOTT was looking to extradite a foreign 
national in connection with the case.  GE says it is 
sure the suspect is not one of the company's employees. 
Our contact thought that the individual could be an 
Israeli.  We spoke with Desalcott officials who said a 
former UN employee, now working for the Israeli 
government, was an adviser to GOTT on the project in 
the late 1990s. 
 
¶10. Desalcott has not received anything official from 
GOTT on this matter other than an indication from WASA 
that it will continue to purchase water from the 
company.  A company official told Econ Chief that the 
contract was reviewed by OPIC before it was 
implemented, and that GOTT has the right to purchase 
the company if fraud is proven.  A coordinating 
committee representing all sides is supposed to reach 
agreement; failing that, dispute settlement proceedings 
would occur.  An ultimate settlement would be several 
years off in view of the pace of Trinidadian 
jurisprudence. 
 
¶11. Karamath, the majority local partner of GE in 
Desalcott, has stayed largely out of public view.  His 
company is one of the four or so major contracting 
firms in T&T, and he reputedly is well connected on 
both sides of the political aisle.  WASA previously 
sought to buy him out, according to Desalcott 
officials, but terms could not be reached. 
 
¶12. COMMENT:  It is unlikely that GOTT would seek to 
seize Desalcott; even Jeremie stated merely that GOTT 
had the right under the contract to purchase Desalcott. 
It is less clear what amount of compensation would be 
paid if litigation proved necessary to establish that 
amount.  The issue may even fade or remain as a cloud 
over the UNC as the date nears for general elections, 
which must be held within the next 18 months.  Post 
remains in active contact with GE, and will be vigilant 
to any GOTT action that might deprive GE of its 
investment without proper compensation. 
 
AUSTIN