R 042017Z SEP 09
FM AMEMBASSY BELMOPAN
TO SECSTATE WASHDC 2002
WHA CENTRAL AMERICA COLLECTIVE

UNCLAS BELMOPAN 000332 
 
 
DEPT FOR WHA/CEN (JENNIFER VANTRUMP), EEB 
 
E.O. 12958:  N/A 
TAGS: ECON EIND EINV BH
SUBJECT: GOB ASSUMES CONTROL OF BELIZE TELEMEDIA LIMITED 
 
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Summary 
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¶1. On August 24, Prime Minister Dean Barrow first introduced the 
Belize Telecommunications Amendment Bill to the House of 
Representatives.  The Bill was passed and certified by the Governor 
General August 25th.  This Bill allows the Government of Belize to 
nationalize one of the largest private enterprises in the country. 
It specifically targets Lord Michael Ashcroft's 94% controlling 
interest in Belize Telemedia Limited.  While there has been wide 
public support for the measure, some concerns have arisen regarding 
the ramification for private ownership and free enterprise in other 
areas, the negative perception foreign investors will have towards 
the nationalization, the choice of new Board members, as well as 
likely future litigation.  End Summary. 
 
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Background 
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¶2.  Belize's telecommunications sector was first privatized by the 
United Democratic Party in 1987 through the incorporation of Belize 
Telecommunications Limited.  At that time, there was a 25% limit set 
on the shareholding that could be owned by any one individual or 
entity.  Since then, numerous decisions by previous Peoples United 
Party (PUP) administrations led to Belize Telecommunications Limited 
morphing into Belize Telemedia Limited (BTL).  The new entity was 
controlled by Lord Michael Ashcroft, who until August 25, 2009 
indirectly owned a 94% majority interest. 
 
¶3.  On August 24, Prime Minister Dean Barrow called for a Special 
Sitting of the House of Representatives, where he arranged for the 
speedy passage of the Belize Telecommunications Amendment Bill to 
"to provide for the assumption of control over telecommunications by 
the government in the public interest."  The Bill, which received 22 
of 31 votes in the House of Representatives, effectively provides 
legislation which enables the GOB to nationalize the 94% of BTL 
owned by Lord Ashcroft; the remaining 6% is owned by private 
Belizeans and will remain in their control.  On August 25, 2009 the 
bill successfully passed the Senate by a vote of 9 in favor, with 
two abstentions, and it was shortly thereafter signed into law by 
the Governor General.  The Bill does provide for the reimbursement 
of investors affected by the nationalization, though how to 
determine the value of that reimbursement is a subject of debate. 
The same day, a government-imposed Board of Directors took command 
and control of the telecommunications company. 
 
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Telecommunications Litigation 
----------------------------- 
 
¶4.  Lord Ashcroft has many tangled interests in Belize, which extend 
to investments in BCB Holdings Limited; the Belize Bank Limited, 
Belize's largest commercial bank; Great Belize Productions, parent 
company of Channel 5, one of the country's major television 
broadcasting stations; and SpeedNet, the only other 
telecommunications service provider in Belize. 
 
¶5.  In 2005, the previous administration entered into an 
Accommodation Agreement with Belize Telemedia Limited.  This 
Agreement effectively guaranteed the Ashcroft Group that BTL would 
profit from a minimum 15% rate of return (ROR) per year.  In the 
event that a 15% ROR did not materialize, the shortfall could be 
recovered through an exemption from the Belize Business and Income 
Tax.  The Accommodation Agreement also gave BTL the freedom to set 
telecommunications rates charged on consumers, thus bypassing the 
authority of the Public Utilities Commission (PUC) of Belize. 
Finally, the Accommodation Agreement guaranteed that no licenses 
would be given to other telecommunications companies except 
SpeedNet, another telecommunication company which is controlled by 
Ashcroft, and it banned Voice over Internet Protocol.  These 
arrangements, which essentially guaranteed Lord Ashcroft a monopoly 
interest, were set to remain in place until 2015.  Since taking 
office in February 2008, the UDP government has been working to 
unravel the web of special deals and Accommodation Agreements signed 
between the PUP and Lord Ashcroft's many companies, including this 
deal from 2005.  Despite these special deals, litigation involving 
BTL was prevalent even under the PUP.  During the previous 
administration, at least six cases involving BTL were adjudicated 
before both Belizean and foreign courts. 
 
¶6.  In March 2009, the London Court of International Arbitration 
(LCIA) awarded damages of USD 19.3 million plus interest in favor of 
BTL, against the current UDP administration.  This award was 
compensation for GOB's breach of terms of the Accommodation 
Agreement.  In a more recent judgment, less than one week before the 
announcement and passage of the Belize Telecommunications Amendment 
Bill, the LCIA awarded US $22 million to BCB Holdings Limited and 
the Belize Bank Limited against GOB.  It is speculated that this 
recent judgment spurred GOB's decision to enact the present Bill. 
In a speech to the House, the PM implied that the takeover is an 
effort to put an end to an intractable series of legal battles with 
various Ashcroft-affiliated interests.  In an attempt to counter the 
GOB's introduction of the Bill, on August 24 the Ashcroft Group 
agreed to renounce the Accommodation Agreement, but the move came 
too late.  BTL also moved to hastily separate itself from Channel 5, 
so that the television station would not also be taken over.  The 
station was transferred from BTL to individual shareholders, and the 
Morning Show moved out of BTL headquarters on August 24. 
 
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Public Reaction 
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¶7.  The Prime Minister has maintained since first introducing the 
Bill that the current move is completely unrelated to any 
ideological posturing by the Government, and has reiterated that it 
is a one-time action that will not affect other ventures of Lord 
Ashcroft, or any other foreign investors presently operating, or 
looking to invest, in Belize.  The PM has said, "It is not part of 
any pattern, part of no new philosophy, it is plain and simple, a 
special measure for a special case."  In light of this, the vast 
majority of public opinion has been overwhelmingly supportive of the 
Government's action and this reaction has been broadcast in the 
media.  Additionally, the Act has gained support by third-party 
minority groups, the People's National Party (PNP) and the Vision 
Inspired by the People (VIP). 
 
¶8.  However, not all reaction has been positive.  The opposition PUP 
has condemned its passage as undemocratic and contrary to the right 
to hold private property.  They have also denounced the way in which 
the Bill was sped through, not allowing time for a thorough review. 
The Belize Chamber of Commerce and Industry and the Belize Business 
Bureau, both of which represent private sector interests, have 
issued statements expressing concerns about the possible long-term 
negative effects on foreign investments in Belize.  Similarly, the 
Chief Executive Officer of the Belize Electricity Limited (BEL) has 
publicly expressed concerns over the nationalization of BTL, and has 
supported for private ownership of the telecommunication utility. 
 
¶9.  In a meeting with the Poloff, the American Chamber of Commerce 
also aired its concerns for what the move could mean for foreign 
investment.  Even though some members are personally in support of 
the measure and believe it is truly a one-time event, they are all 
concerned about how the move will be perceived by the outside world. 
 Even those in favor have criticized the Government's handling of 
the public relations.  Many members worry that this move may set a 
precedent, as the UDP administration has previously threatened doing 
the same to BEL.  The AmCham Board member and local manager for ADM 
Milling-Belize Mills Limited, the local incarnation of one of the 
world's leading agricultural processors, informed Poloff that he had 
received a call the morning of August 25th from ADM headquarters, 
inquiring about the situation.  In light of recent moves in 
Venezuela to nationalize rice mills without compensation, ADM is 
very concerned over the prospect of the GOB now moving to 
nationalize other sectors.  AmCham has sent a letter to the PM, 
requesting that he meet with Board members to explain the reasoning 
behind the nationalization and how it is being handled. 
 
------------------------------------ 
Concerns with possible ramifications 
------------------------------------ 
 
¶10.  Questions have arisen as to whether the motives of the PM are 
genuinely in the public interest, particularly in light of the 
nomination of the Prime Minister's ex-wife and son to the interim 
Board of Directors of BTL.  While the former is a well-respected 
lawyer in Belize who previously worked as legal counsel for BTL, and 
sat on the previous Board, the inclusion of the son has raised 
eyebrows.  He has no previous experience with BTL or any other 
telecommunications bodies, and the PM had publicly said that his son 
will be his personal eyes and ears on the Board, in order to give 
the PM an 'extra edge.'  Another appointment that has received some 
scrutiny is that of Nestor Vasquez as the Executive Chairman of the 
Board.  While he was the architect of the first privatization of BTL 
in the 1980's, he is also the owner of Channel 7, a rival station to 
Channel 5, the former subsidiary of BTL. 
 
¶11.  Other concerns have arisen regarding Prime Minister Barrow's 
statement that the 94% shareholding would be sold principally to 
Belizeans, in accordance with public interest.  The question of how 
Belizeans would be defined for this public purpose remains unclear. 
Lord Ashcroft may arguably be Belizean, as he holds a Belizean 
passport, though he also holds British citizenship.  Furthermore, 
the Prime Minister has not ruled out the sale of shares to foreign 
interests, though he has not yet specified which foreign interests 
may qualify.  In theory, under either of these stipulations, Lord 
Ashcroft could be allowed to re-purchase shares in the company. 
 
¶12.  Another concern is that while the PM has sought to justify 
these actions as an effort to stem numerous litigations against the 
GOB, the passage of the Bill is likely to spur a new round of 
retaliatory litigation from the Ashcroft Group.  Under the proposed 
amendment, the Financial Secretary will attempt to determine the 
correct amount of compensation to former shareholders.  A failure to 
reach a negotiated agreement would result in the matter being 
subject to judicial resolution.  While Prime Minister Barrow has 
stated that any dispute would be submitted to the Supreme Court to 
determine compensation, it is likely that the Ashcroft Group will 
seek to have any dispute determined by international courts.  The 
Hayward Charitable Belize Trust, another of Ashcroft's interests 
that holds approximately seventy percent of Telemedia, has already 
indicated that they will invoke the Investment Treaty between the UK 
and Belize, and that this could spark many more years of litigation, 
both in Belize and before an International Arbitration Tribunal. 
(Note:  Whether the GOB would honor any future awards granted to 
Ashcroft in a foreign court is questionable.) 
 
¶13.  Determining the value of interests and assets which have been 
nationalized is also at issue.  The Ashcroft Group is claiming that 
earlier in the year a foreign company was offering US $300 million 
for BTL shares.  However, the Prime Minister has noted that any 
valuation would be subject to independent audit and would exclude 
any value being placed on the Accommodation Agreement.  Given this, 
the PM has tentatively placed the value of the company at closer to 
US $150 million.  Another issue that could affect valuation is that 
in June 2008, BTL acquired Great Belize Productions, the parent 
company of Channel 5 television broadcasting.  Prior to the passing 
of the current legislation, the BTL Board of Directors hastily 
transferred the television broadcaster's shareholdings from BTL to 
individual shareholders, in order to avoid having Channel 5 
nationalized along with the telecommunications company.  It remains 
to be determined whether this and related assets will be subject to 
valuation and dispute. 
 
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Comment 
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¶14.  The people of Belize have long been dissatisfied with the 
service provided by BTL.  A quintessential monopoly, the service was 
expensive and unreliable.  They are also suspicious of Lord 
Ashcroft, who owns a stake in many of the largest enterprises in 
Belize.  As a result, the public is largely in support of this 
measure.  However, this action could have a detrimental effect on 
foreign investment in Belize, which is key to its development.  The 
country was already notorious for not honoring contracts or 
decisions by international tribunals.  This latest measure has led 
to some comparisons to the Chavez regime and has made local 
investors wary of what ramification this action will have on future 
investments.  While we do expect the GOB to hold true to its 
statement that this was a unique situation, it is not a positive 
step for private enterprise.  Even though compensation to 
shareholders has been promised, how long this process will take has 
not been determined, as the GOB does not currently have funds 
available for compensation of shareholders.  End Comment. 
 
FEATHERSTONE