VZCZCXYZ0001
PP RUEHWEB

DE RUEHRB #0334/01 1091333
ZNR UUUUU ZZH
P 191333Z APR 09
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 0003
INFO RUCNMGH/MAGHREB COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS RABAT 000334 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EEB/CBA, NEA, NEA/MAG AND EEB/IFD/OMA 
STATE PLS PASS OPIC 
 
E.O. 12958: N/A 
TAGS: EINV ECON EFIN MO
SUBJECT: TOURISM MINISTER LEAVES "DOOR AJAR" ON COLONY 
CAPITAL CANCELLATION 
 
¶1.  (U) This cable contains company proprietary information. 
Please protect accordingly. 
 
¶2.  (SBU) Summary:  Moroccan Minister of Tourism Mohammed 
Boussaid told Charge on April 17 that U.S. investor Colony 
Capital's "failure" to fulfill the terms of its amended 
convention to develop the Taghazout Station, a flagship 
project in the country's "Plan Azur" tourism strategy, led to 
his April 8 decision to terminate the agreement.  He 
indicated that the decision was not an easy one, but that he 
had no choice after Colony ceased construction at the 
beginning of February as a result of its inability to obtain 
440 million MAD (around USD 52 million) in local bank 
financing.  "The company let me down personally," he said, in 
taking that action after earlier assuring him of its 
commitment to the project.  While he confirmed that he will 
explain his decision to the press in an April 21 news 
conference, he left the door open for Colony to return to the 
project, if it can bring a "new solution" to the table.  End 
Summary. 
 
¶3.  (SBU) Following three recent conversations with Colony 
Capital executives, NEA A/S Feltman,s discussions with 
Foreign Minister Taieb Fassi Fihri in Washington, and the 
Charge,s conversations with Fassi Fihri and 
Minister-Delegate for Economic and General Affairs Nizar 
Baraka, Charge met with the Minister of Tourism and Crafts. 
The company had indicated that it had been taken by surprise 
by the minister's April 8 letter cancelling Colony,s 
contract.  In an April 9 response, Colony reviewed its 
efforts to secure local bank financing and requested a grace 
period from the Minister to permit that process to continue. 
Given Colony's standing as one of the largest American 
investors in Morocco, and the potential negative signal the 
dispute would send to other investors, Charge urged that more 
time be granted, to permit exploration of other options. 
(Note:  Colony owns Accor Hotels, including the many Sofitel, 
Novotel, Ibis and Mercure properties in Morocco.  End Note.) 
 
¶4.  (SBU) Boussaid responded that his hand had been forced by 
repeated delays in the project, and pointed to the fact that 
after two years of work, "not one square meter of cement has 
been laid."  (Note: Company officials note that actually some 
foundation work is in place.  End Note.)  That, he said, had 
resulted in pressure on the Ministry, given the project's 
high profile within the overall Plan Azur, and given the 
benefits the Government had extended to the company, 
including the land (which had been cleared of previous 
occupants), perimeter upgrades, and electricity lines.  He 
noted that he had sought to help the company for 18 months, 
and in the face of its difficulties had agreed to scale back 
the project in a revised convention in December 2008.  "I 
asked them what they could do," he said, and when they 
indicated they could only build the hotels, golf course, and 
residences (on roughly half of the project's original 1,200 
acres), he agreed to revise the convention. 
 
¶5.  (SBU) Boussaid indicated that he was confident after this 
agreement, and a subsequent visit by the CEO of Colony 
Capital, that the project would proceed.  However, within ten 
days of a late January groundbreaking, construction work 
stopped and has not resumed since.  Boussaid conceded that he 
understood that financing issues with local banks remained 
outstanding but stressed that Colony was selected for the 
project not just for its development expertise, but for its 
ability to access capital markets.  He faulted the company 
for failing to explain its actions, noting that he only 
learned about it from the press.  Subsequently, the Ministry 
was told by Colony's local representatives that it did not 
intend to invest an additional dollar of equity without a 
bank financing agreement.  The company's decision to pull the 
plug on construction and not come forward with a solution, 
such as bridge equity financing, Boussaid argued, "told me 
that it was no longer committed to the project."  Colony, he 
argued, could easily have invested additional equity to 
continue construction, while it sought the bank financing. 
We understand that Colony has invested USD 125 million to 
date. 
 
¶6.  (SBU) Boussaid contested our suggestion that cancellation 
of the contract would negatively impact foreign investors' 
perceptions of Morocco.  It was the investor who did not 
respect his agreement, he said.  "Morocco," he continued, 
"has nothing to apologize for," and has acted within its 
rights, while itself "respecting 100 percent of what it 
committed to do."  Boussaid described the December 
modification of the convention as Morocco's good faith effort 
 
to find a solution to move the project forward and the 
company's "last chance."  He noted that he felt "personally 
betrayed" by Colony's failure to proceed thereafter, and 
predicted that if the case went to arbitration, Morocco would 
be in a very strong position. 
 
¶7.  (SBU) In closing, Boussaid emphasized that while his 
decision to cancel the convention stands, "the door is ajar" 
for Colony Capital, if it can propose a solution to move the 
project forward.  (Note: The company has told us that in 
addition to seeking bank financing here, it is open to taking 
on a local Moroccan partner to share in development.  End 
Note.)  Boussaid does not anticipate that such a solution 
will emerge quickly, however, and was adamant that for now 
the convention cancellation will stand:  he and the 
government cannot countenance further delays in the troubled 
project without acting.  He said that there is no investor 
waiting in the wings to take over the project, and speculated 
that "perhaps we won't do this one," given the difficulties 
it has encountered over the years.  Morocco, he said, has 
been disappointed twice on this project, and it "must be 
sure" before it would allow a third try. 
 
¶8.  (SBU) For Colony,s part, the company has painted a 
picture of obstacles it has had to overcome since the 
inception of the project.  Colony executives highlighted that 
they had waited over a year for the Minister to study and 
amend the original agreement.  Now, Colony must face a Catch 
22 situation in which Moroccan banks do not want to talk 
about a USD 52 million loan due to all of the negative press 
about the project, while Colony cannot envision moving 
forward without a local partner or bank financing. 
 
¶9.  (SBU) Comment:  We had been warned to expect a litany of 
charges against Colony Capital, but the Minister took a very 
different tack, expressing high personal regard for both the 
company and its president, but a sense of profound 
disappointment that it had not met its commitments.  He 
skirted around the fact that the ministry's lengthy review of 
the revision of the convention left Colony seeking bank 
financing in a very different (and difficult) international 
climate, a source of frustration to the company, which has 
told us it views Morocco as a very difficult country to do 
business in.  His non-confrontational approach and 
willingness to entertain alternative solutions are hopeful 
signs, and we will continue to encourage an amicable 
settlement.  We conveyed the gist of the Minister's position 
to the company in an April 17 conference call, and it is 
mobilizing to determine what it can put together to address 
his demands. 
 
¶10.  (SBU) More generally, the difficulties at Taghazout are 
emblematic of difficulties that have beset all five of the 
"Plan Azur" resorts to varying degrees.  Only one is on the 
horizon for completion, Saidia in northern Morocco.  In the 
other three stations, most original foreign developers have 
bowed out and been replaced by Moroccan entities, except that 
a wholly owned Colony subsidiary is still developing Mazagan. 
 In the face of these difficulties, and particularly given 
the international economic climate, Morocco is likely to have 
to scale back and recalibrate its ambitions in the sector 
more generally.  End Comment. 
 
 
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Jackson