VZCZCXRO3206
PP RUEHLMC
DE RUEHMU #0242/01 0631311
ZNR UUUUU ZZH
P 031311Z MAR 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 2159
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS SECTION 01 OF 11 MANAGUA 000242 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
 
E.O. 12958: N/A 
TAGS: EINV ECON PREL OPIC KTDB USTR NU
 
SUBJECT: NICARAGUA: INVESTMENT CLIMATE STATEMENT 2008 
 
REF: 07 STATE 158802 
 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
Legal Framework 
--------------- 

¶1.  The Free Trade agreement between the United States, Central 
America, and the Dominican Republic (CAFTA-DR) entered into force on 
April 1, 2006, for the United States and Nicaragua.  The CAFTA-DR 
Investment Chapter establishes a secure, predictable legal framework 
for U.S. investors in Central America and the Dominican Republic. 
The agreement provides six basic protections: (1) nondiscriminatory 
treatment relative to domestic investors and investors from third 
countries; (2) limits on performance requirements; (3) the free 
transfer of funds related to an investment; (4) protection from 
expropriation other than in conformity with customary international 
law; (5) a minimum standard of treatment in conformity with 
customary international law; and (6) the ability to hire key 
managerial personnel without regard to nationality.  For additional 
information about CAFTA-DR and USAID support for the implementation 
of CAFTA-DR, see www.ustr.gov/Trade 
Agreements/Bilateral/CAFTA/Section Index.html and www.procafta.net. 
 
¶2.  In addition to CAFTA-DR, Nicaragua's Foreign Investment Law 
defines the legal framework for foreign investment.  The law allows 
for 100% foreign ownership in most sectors (see Right to Private 
Ownership and Establishment for exceptions).  It also establishes 
the principle of national treatment for investors, guarantees 
foreign exchange conversion and profit repatriation, clarifies 
foreigners' access to local financing, and reaffirms respect for 
private property. 
 
¶3.  Other major laws governing foreign investment include the 
Temporary Entry Law, which allows for the duty free import of 
machinery, equipment, raw materials, and supplies for companies 
exporting the majority of their production (see Performance 
Requirements and Incentives); the Export Processing Zone Law (see 
Foreign-Trade Zones/Free Ports); the Tax Equity Law (see Performance 
Requirements and Incentives); the Banking Law (see Conversion and 
Transfer Policies and Performance Requirements and Incentives); and 
a series of intellectual property laws (see Protection of Property 
Rights).  In 2006, the Nicaraguan National Assembly approved a 
Competition Law, but the law has not yet been implemented (see 
Transparency of the Regulatory System).  In 2005, the government 
amended the Tourism Incentive Law to strengthen incentives for 
investment in that sector (see Performance Requirements and 
Incentives).  See www.asamblea.gob.ni/ for the Spanish-language text 
of Nicaraguan law. 
 
Policy Environment 
------------------ 

¶4.  Since taking office again in January 2007, President Ortega has 
maintained the legal and regulatory underpinnings of the 
market-based economic model of his predecessors.  Nicaragua has 
stayed current with its CAFTA-DR obligations.  Under an IMF program 
signed in October 2007, the Government of Nicaragua agreed to 
implement free market policies linked to targets on fiscal 
discipline, spending on poverty, and energy regulation. 
 
¶5.  In practice, however, a number of factors contribute to an 
increasingly uncertain policy environment for foreign investors. 
Government often announces economic policies, programs, or decrees 
without formal consultation with the private sector.  On more than a 
dozen occasions, the government has used its tax, customs, and 
property administrations to pressure individuals and companies into 
accepting noncommercial terms in concessions or contracts (see 
Dispute Settlement, Transparency of the Regulatory System, and 
Expropriation and Compensation for examples).  High profile rulings 
by the courts and oversight agencies are unpredictable and widely 
believed to be politicized.  President Ortega has repeatedly 
suggested that it was a mistake to privatize the telecommunications 
and energy industries, where a number of foreign firms have 
invested; he has not ruled out re-nationalization, although no 
formal plans exist.  Local business associations have complained 
that President Ortega's harsh rhetoric against the United States, 
capitalism, and free trade has had a negative effect on foreign 
investor attitudes and perceptions of risk when they think of 
Nicaragua (for official copies of speeches in Spanish see 
www.presidencia.gob.ni). 
 
¶6.  After successive years of improvement, Nicaragua fell in the 
World Economic Forum's Competitive Index Rankings from 95th place in 
2006 to 111th in 2007.  Significant slippage occurred in the quality 
of Nicaraguan institutions and market efficiency components of the 
index.  In 2008, the Heritage Foundation Index of Economic Freedom 
ranks Nicaragua 81st (at the 60.1 percentile) worldwide for economic 
freedom, down from 65th (at the 61.9 percentile) in 2007.  However, 
the Heritage Foundation has maintained Nicaragua's placement at the 
70th percentile on investment freedom, one of ten components 
comprising its Index of Economic Freedom (see 
www.heritage.org/research/features/index/). 
 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
¶7.  The Foreign Investment Law (2000/344) and the Banking, Nonbank 
Intermediary, and Financial Conglomerate Law (2005/561) allow 
investors to freely convert and transfer funds associated with an 
investment.  Article 10.8 of CAFTA-DR ensures the free transfer of 
funds related to a covered investment.  Local financial institutions 
freely exchange U.S. dollars and other foreign currencies. 
Foreigners may open bank accounts, but the process is cumbersome and 
time consuming.  The Superintendent of Banks and other Financial 
Institutions monitors financial transactions for illicit activity. 
 
 
¶8.  On several occasions, most recently in October 2007, President 
Ortega has suggested that foreign investors should reinvest their 
profits locally rather than repatriate them.  To date, the 
government has prepared no formal policy proposals on this topic. 
 
¶9.  The official exchange rate is adjusted daily according to a 
crawling peg that devaluates the cordoba against the U.S. dollar at 
an annual rate of 5%.  The official exchange rate as of February 15, 
2007, was 19.02 cordobas to one U.S. dollar.  As a result of local 
food and international energy prices, inflation rose to 16.2% in 
2007 (from 10.2% in 2006), placing stress on Nicaragua's crawling 
peg regime. 
 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
¶10.  During the 1980s, the Sandinista government confiscated 28,000 
real properties.  Since 1990, thousands of individuals have filed 
claims against the government to have their property returned or 
receive compensation.  Compensation is most often in the form of 
low-interest bonds issued by the government.  As of December 2007, 
the Nicaraguan Government had settled more than 4,500 U.S. citizen 
claims.  A total of 677 Embassy-registered U.S. claims remain.  In 
December 2007, the Ortega administration established unrealistic 
standards of proof to demonstrate ownership and expropriation, and 
announced plans to dismiss claims accepted by previous 
administrations.  The Ortega administration also sought to 
retroactively review already settled claims.  The U.S. Embassy in 
Nicaragua is contacting claimants and working to ensure that the 
property rights of U.S. citizens are respected.  A U.S. citizen with 
such a claim may contact managuapropoffice@state.gov. 
 
¶11.  CAFTA-DR prohibits expropriation unless for a public purpose. 
The government must pay prompt, adequate, and effective 
compensation.  See www.ustr.gov/Trade 
Agreements/Bilateral/CAFTA/Section Index.htm for additional 
information. 
 
¶12.  In August 2007, the Nicaraguan Government seized, via judicial 
order, several petroleum storage tanks owned by a U.S. company on 
the pretext that the company had not paid value-added taxes 
associated with the import of crude oil, despite the fact that 
petroleum and petroleum products are not subject to this tax and no 
mechanism exists to collect it.  The government then used the tanks 
to store petroleum products imported from Venezuela under the terms 
of a government-to-government financing agreement.  In January 2008, 
the U.S. company sold the tanks in question to state-owned company 
Petronic and negotiated a purchase agreement with Petronic for crude 
oil imported from Venezuela. 
 
¶13.  See Protection of Property Rights for a description of other 
forms of land security problems affecting investors. 
 
DISPUTE SETTLEMENT 
------------------ 
 
¶14.  Difficulty in resolving commercial disputes, particularly the 
enforcement of contracts, remains one of the most serious drawbacks 
to investment in Nicaragua.  The legal system is weak, cumbersome, 
and members of the judiciary, including those at senior levels, are 
widely believed to be corrupt or subject to political pressure.  A 
commercial code and bankruptcy law exist, but both are outdated. 
 
¶15.  Enforcement of court orders is frequently subject to 
nonjudicial considerations.  Courts routinely grant injunctions 
("amparos") to protect citizen rights by enjoining official 
investigatory and enforcement actions indefinitely.  Foreign 
investors are not specifically targeted, but they are often at a 
disadvantage in disputes against nationals with political or 
personal connections.  Misuse of the criminal justice system 
sometimes results in individuals being charged with crimes arising 
out of civil disputes, often to pressure the accused into accepting 
a civil settlement.  The World Bank estimates that on average local 
courts issue a preliminary ruling on contract disputes in 540 days. 
Monetary judgments normally are rendered in Nicaraguan currency, but 
may be denominated in U.S. dollars. 
 
¶16.  Dispute resolution is even more difficult in the Northern and 
Southern Atlantic Autonomous Regions (RAAN and RAAS, respectively), 
where most of the country's fishery, timber, and mineral resources 
are located.  These large regions, which share a Caribbean history 
and culture, comprise more than one-third of Nicaragua's land mass. 
The division of authority between the central government and 
regional authorities is complex and flexible.  Local officials may 
act without effective central government oversight. 
 
¶17.  The Mediation and Arbitration Law (2005/540) establishes the 
legal framework for alternative dispute resolution.  Nicaragua is a 
signatory of the New York Convention and the Inter-American 
Convention on International Commercial Arbitration.  Arbitration 
clauses should be included in business contracts if one has doubts 
about the Nicaraguan judicial system.  In January 2008, the 
Nicaraguan Chamber of Commerce and the American Chamber of Commerce 
of Nicaragua announced plans to merge their mediation and 
arbitration centers. 
 
¶18.  CAFTA-DR establishes an investor-state dispute settlement 
mechanism.  An investor who believes the government has breached a 
substantive obligation under CAFTA-DR or that the government has 
breached an investment agreement may request binding international 
arbitration.  Proceedings under this mechanism are generally open to 
the public and documents are made publicly available. 
 
¶19.  Several U.S. companies and the U.S. Chamber of Commerce in 
Washington have voiced their concern that Nicaraguan Law 364, 
enacted in 2000 and implemented in 2001, presumes guilt without due 
process and retroactively imposes arbitrary liabilities on foreign 
companies that manufactured or allegedly used or distributed the 
chemical pesticide DBCP in Nicaragua.  DBCP was banned in the United 
States after the Environmental Protection Agency cancelled its 
certificate for use (with exceptions) in 1979. 
 
¶20.  In January 2007, employees who own 40% of a local 
pharmaceutical company forcefully took possession of the company's 
manufacturing facilities as the result of a dispute with management. 
 Several U.S. citizens own shares in the company.  The majority 
owners of the company have been unsuccessful in their attempts to 
regain control of the facilities through action in the courts and 
are participating in negotiations with employees brokered by the 
Nicaraguan Government. 
 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
 
Performance Requirements 
------------------------ 

¶21.  Nicaragua's labor code states that 75% of employees, not 
including management posts, must be Nicaraguan.  The Law on 
Promotion of National Artistic Expression and Protection of 
Nicaraguan Artists (1996/215) requires that foreign production 
companies contribute 5% of total production costs to a national 
cultural fund.  In addition, the law requires that 10% of the 
technical, creative, and/or artistic staff be locally hired.  Under 
CAFTA-DR, Nicaragua does not require U.S. film productions to 
contribute to the cultural fund or hire locally. 
 
Investment Incentives 
--------------------- 

¶22.  The Tax Equity Law (amended 2005/528) allows firms to claim an 
income tax credit of 1.5% of the FOB value of the exports.  The Law 
of Temporary Admission for Export Promotion (2001/382) allows for 
businesses to purchase machinery, equipment, raw materials, and 
supplies duty and VAT free if used in export processing.  Businesses 
must export 25% of their production to take advantage of these tax 
benefits.  See Foreign Trade Zones/Free Ports for a description of 
incentives for investments in free trade zones. 
 
¶23.  The Fishing and Fish Farming Law (2004/489) exempts gasoline 
used in fishing and fish farming from taxes.  Investors in the 
sector must register with the Directorate General for Natural 
Resources in the Ministry of Trade, Industry, and Development and 
with the Nicaraguan Fishing and Aquaculture Institute (INPESCA). 
Environmental regulations also apply (see Transparency of the 
Regulatory System). 
 
¶24.  The Forestry Conservation and Sustainable Development Law 
(2003/462) establishes preferential property tax rates and income 
tax exemptions in addition to duty and tax exemptions for inputs and 
capital goods used in forestry projects.  In September 2007, the 
Nicaraguan Government implemented a temporary ban on commercial 
logging and compelled operators to supply all timber felled by 
Hurricane Felix to the government for reconstruction of the RAAN 
after the hurricane.  Enforcement of this law appears spotty. 
 
¶25.  The Hydroelectric Promotion Law (amended 2005/531) and the Law 
to Promote Renewable Resource Electricity Generation (2005/532) 
provide incentives to invest in electricity generation, including 
duty free imports of capital goods and income and property tax 
exemptions.  Regulatory concerns limit investment despite these 
incentives (see Transparency of the Regulatory System).  Private 
investment in hydroelectric dams is banned from the Asturias, 
Apanas, and Rio Viejo Rivers and is limited to 30 megawatts on all 
other rivers. 
 
¶26.  The Special Law on Mining Prospecting and Exploitation 
(2001/387) exempts mining concessionaires from import duties on 
capital inputs (see Transparency of the Regulatory System for 
additional information on the mining sector). 
 
¶27.  The Tourism Incentive Law (amended 2005/575) includes the 
following basic incentives for investments of $30,000 or more 
outside Managua and $100,000 or more within Managua: income tax 
exemption of 80% to 100%; property tax exemption; exoneration from 
import duties on vehicles; and value added tax exemption on the 
purchase of equipment and construction materials. 
 
Immigration Issues 
------------------ 

¶28.  Those wishing to permanently reside in Nicaragua must request a 
resident visa from the Office of Immigration in Managua.  Investors 
who live in Nicaragua but fail to obtain a residency permit have 
encountered immigration problems, including deportation.  The 
Nicaraguan private sector has encouraged the government to establish 
a short-term business visa category to mitigate the problem. 
Investors should consult with Nicaraguan immigration authorities to 
ensure that they have an appropriate visa or resident status while 
engaging in business. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
¶29.  In 1992, the Nicaraguan Government began to privatize small 
state-owned companies that the first Ortega government had 
nationalized or established in the 1980s.  Subsequent privatization 
programs managed by the World Bank and Inter-American Development 
Bank sold state-owned telecommunications and electricity generation 
and distribution companies.  Over the past 15 years, Nicaragua has 
privatized more than 350 state enterprises. 
 
¶30.  The government owns and operates the water and sewage company 
(ENACAL), the port authority (EPN), and the power transmission 
company (ENTRESA).  Private sector investment is not permitted in 
these sectors.  In addition, the government owns operates the 
country's largest insurance company (INISER), the largest 
electricity generating company (ENEL), one free trade zone (Parque 
Industrial Las Mercedes) and a basic food commodity storage and 
distribution company (ENABAS).  The government enjoys exclusive 
rights to manage public social security pension funds (see Efficient 
Capital Markets and Portfolio Investment).  In 2000, Spanish company 
Union Fenosa bought both the north and the south electricity 
distribution companies from ENEL (see Transparency of the Regulatory 
System).  However, operation of the concession has suffered greatly 
from weak regulatory oversight and the lack of a supportive legal 
regime. 
 
¶31.  The military and its officers' pension fund have investments in 
many sectors, especially retail.  These companies compete on equal 
terms with privately owned businesses and do not constitute an 
impediment to foreign investment. 

PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
Real Property 
------------- 

¶32.  Many foreign investors experience difficulties defending their 
property rights in Nicaragua.  Property registries suffer from years 
of poor recordkeeping.  Establishing a title history is often 
difficult.  The wrongful expropriation of 28,000 properties in the 
1980s has greatly complicated the process.  Attracted by escalating 
property values, unscrupulous individuals have engaged in protracted 
confrontations with U.S. investors to wrest control of tourist 
properties along the Pacific coast in the Departments of Rivas and 
Chinandega.  Judges and municipal authorities have been known to 
collude with such individuals, and a cottage industry supplies false 
titles and other documents to those who scheme to steal land. 
Property invasions usually go unchallenged by local law enforcement 
officials and in some cases turn violent.  Although the Ortega 
administration claims to be committed to protecting individual 
property rights, the situation substantially worsened during 2007. 
As of March 1, 2008, the Embassy is working with 294 U.S. citizens 
to recover 667 properties confiscated by the Ortega administration 
in the 1980s. 
 
¶33.  The Capital Markets Law (2006/587) provides a legal framework 
for securitization of movable and real property.  The banking system 
is widening its loan programs for property purchases, but there is 
no secondary market for mortgages.  See Efficient Capital Markets 
and Portfolio Investment for more information on the financial 
sector. 
 
Intellectual Property 
--------------------- 

¶34.  CAFTA-DR made Nicaraguan standards for the protection and 
enforcement of IPR consistent with U.S. and emerging international 
intellectual property standards.  To implement the agreement, 
Nicaragua has strengthened its legal framework to 1) provide 
state-of-the-art protections for digital products such as software, 
music, text and videos; 2) afford stronger protection for patents, 
trademarks, and test data, including an electronic system for the 
registration and maintenance of trademarks; and 3) deter piracy and 
counterfeiting.  The Nicaraguan Government has not yet implemented 
an effective system for test data protection and patent linkage for 
pharmaceutical products, as required by CAFTA-DR. 
 
¶35.  The legal regime for protection of intellectual property rights 
(IPR) in Nicaragua is adequate but to date enforcement of 
intellectual property law has been limited.  Pirated optical media, 
including music, videos, and software are sold openly, although in 
relatively small numbers compared to other countries.  In 2006, the 
government successfully prosecuted a case against a vendor selling 
pirated DVDs, only to have the conviction overturned months later. 
In July 2007, the Nicaraguan Government again successfully 
prosecuted a case in a local court against a Nicaraguan citizen 
selling pirated music CDs.  The offender was sentenced to two years 
in prison-later reduced to parole-and fined 5,000 cordobas ($267). 
The Prosecutor General and National Police are currently 
investigating 28 intellectual property cases.  With Department of 
Justice assistance in November 2007, Nicaraguan law enforcement and 
judicial officials collaborated to create a Nicaraguan manual for 
best practices in investigating and prosecuting intellectual 
property crimes. 
 
¶36.  Major IPR laws include: 
--Patent, Utility Model, and Industrial Design Law (amended 
2007/634) 
--Copyright and Related Rights Law (amended 2006/577) 
--Satellite Signal Programming Protection Law (amended 2006/578) 
--Trademark and Other Distinctive Signs Law (amended 2006/580) 
--Plant Variety Protection Law (1999/318) 
 
¶37.  Nicaragua is a signatory to the following international 
conventions and agreements on intellectual property: 
--Mexico Convention on Literary and Artistic Copyrights (1902) 
--Buenos Aires Convention on Literary and Artistic Copyrights (1910) 
 
--Inter-American Copyright Convention (1946) 
--Universal Copyright Convention (Geneva 1952 and Paris 1971) 
--Bern Convention for the Protection of Literary and Artistic Works 
(1971) 
--Geneva Convention for the Protection of Producers of Phonograms 
(1971) 
--Brussels Satellite Convention (1974) 
--International Convention for the Protection of New Plant Varieties 
(1978) 
--Agreement on Trade-Related Aspects of Intellectual Property Rights 
(1994) 
--Paris Convention for the Protection of Industrial Property (1996) 
--The World Intellectual Property Organization (WIPO) Copyright 
--Treaty and Performances and Phonograms Treaty (2002) 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
¶38.  A 2006 World Bank Survey placed Nicaragua in the 32nd 
percentile (100, best) worldwide for Regulatory Effectiveness (see 
http://info.worldbank.org/governance/).  Investors regularly 
complain that regulatory authorities are arbitrary, negligent, or 
slow to apply existing laws, at times in an apparent effort to favor 
one competitor over another.  Lack of a reliable means to quickly 
resolve disputes with government administrative authorities or 
business associates has resulted in some disputes becoming 
intractable (see Dispute Resolution). 
 
¶39.  Registering a business is a relatively straightforward process. 
 The Nicaraguan Government operates a One-Stop Shop for Investment 
(Ventanilla Unica de Inversiones, or VUI) within the Ministry of 
Trade, Industry, and Development (MIFIC) to streamline investment 
and business licensing (see www.mific.gob.ni).  The VUI claims that 
the average time for registering a business is fifteen days. 
However, investors report considerably longer times, and a 2006 
World Bank study estimated that the process takes 39 days (see 
http://info.worldbank.org/governance/).  The services of the VUI are 
equally available to domestic and foreign-owned businesses.  The 
Embassy strongly recommends the retention of an experienced attorney 
for any investor interested in establishing a presence in Nicaragua. 
 See nicaragua.investway.info for additional information on 
registering a business. 
 
¶40.  The Competition Promotion Law (2006/601) creates a 
Superintendency for Competition to investigate and discipline 
businesses engaged in anticompetitive business practices, including 
price fixing, dividing territories, exclusive dealing, and product 
tying.  To date, the National Assembly has not funded the 
superintendency and the competition law remains unenforced. 
 
¶41.  The Consumer Defense Law (1994/182) includes a consumer bill of 
rights that establishes minimum standards for product safety and 
quality as well as for truth in marketing.  Under this law, MIFIC's 
Consumer Defense Directorate may investigate business and levy 
fines.  The Ministry of Public Health, Directorate General of 
Sanitary Regulation, regulates the sale of food and drugs (including 
cosmetics), while the Ministry of Agriculture and Forestry is 
responsible for plant and animal health issues (see Chapter 5: Trade 
Regulations, Customs, and Standards of the Country Commercial Guide 
for further information on food, drug, and consumer product 
regulation).  Government resources to enforce these public health 
and safety regulations are limited, especially in informal markets. 
 
¶42.  The Directorate General of Taxation in the Ministry of Finance 
and Public Credit collects income and value-added taxes, as set 
forth in the most recent version of the Tax Code (2006/598).  The 
Directorate General of Customs in the Ministry of Finance and Public 
Credit collects customs duties (see Chapter 5: Trade Regulations, 
Customs, and Standards of the Country Commercial Guide for further 
information on customs procedures).  Investors cite arbitrariness in 
taxation and customs procedures, as well as a lack of delegation of 
decision-making authority.  Tax audits of foreign investors have 
increased in frequency and duration, to the point where they may 
hinder normal business operations.  Investors also complain that 
customs authorities wrongly classify goods to boost tariff revenue. 
 
 
¶43.  The Environment and Natural Resources Law (1996/217) authorizes 
the Directorate General for Environmental Compliance, Ministry of 
Natural Resources and the Environment (MARENA), to evaluate 
investment plans and monitor ongoing operations to verify compliance 
with environmental standards (see www.marena.gob.ni).  The Law on 
Crimes against the Environment and Natural Resources (2005/559) 
includes additional environmental standards.  Some investors 
complain that MARENA takes political considerations into account in 
determining whether to issue an environmental permit.  Budgetary 
constraints limit MARENA's ability to enforce environmental 
standards. 
 
¶44.  In addition to environmental regulation, mining investments are 
regulated under the Special Law on Mining Prospecting and 
Exploitation (2001/387), which is now administered by the newly 
created Ministry of Energy and Mining.  The Ministry of Energy and 
Mining also retains the authority to grant oil and gas exploration 
concessions.  In 2007, the Supreme Court ruled that several oil 
exploration concessions had been granted without proper consultation 
with the governments of the autonomous regions on the Atlantic 
coast, though the concessions were situated outside recognized 
regional waters.  The central government used the ruling as leverage 
to re-negotiate more favorable terms. 
 
¶45.  The telecommunications sector is fully privatized and open to 
competition.  Under CAFTA-DR, Nicaragua opened its 
telecommunications sector to U.S. investors, service providers, and 
suppliers.  U.S. exports of telecommunications equipment receive 
duty-free treatment.  CAFTA-DR establishes rules promoting 
competition in telecommunications services and addresses key 
regulatory concerns that may create barriers to trade and investment 
in telecommunications services.  Enitel, the former state telephone 
company, is now 99% owned by a Mexican company.  The mobile 
telephone industry in Nicaragua is served by two nationwide 
operators.  Enitel controls switching for all cellular service.  The 
Nicaraguan Institute for Telecommunications and Postal Service 
(TELCOR) regulates the sector and has generally encouraged 
competition (see www.telcor.gob.ni).  CAFTA-DR requires the 
establishment of a fair and transparent pricing regime. 
 
¶46.  The Electricity Sector Law (amended 2004/465) and the Energy 
Stability Law (amended 2007/627) establish the legal framework for 
the electric power sector.  The Ministry of Energy and Mines Law 
sets policy for the sector and grants licenses and concessions to 
investors, while the Nicaraguan Energy Institute sets prices and 
regulates the industry (see www.ine.gob.ne).  Investment in 
transmission and distribution is limited by law (see Right to 
Private Ownership and Establishment).  Investment in this sector has 
been constrained by regulatory and political uncertainty and by a 
complex tariff system that does not provide clear incentives to 
generators.  Growing demand and the lack of maintenance has resulted 
in extensive, rolling blackouts throughout the country during much 
of 2007