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