San José, Costa Rica, since 1956

Ministry Ends Harken Talks

ENVIRONMENT and Energy Minister Carlos Manuel Rodríguez this week reiterated there would be no settlement with Harken Costa Rica Holdings LLC (HCRH) in connection with a failed oil exploration contract unless the matter is taken to court in Costa Rica.

His decision to end settlement negotiations with HCRH prompted warnings from the U.S. Embassy in San José that it would adversely affect Costa Rica’s business climate and make potential U.S. investors think twice about setting up shop here.

Rodríguez told the press in January that the government of Costa Rica was negotiating a settlement of between $3 million and $11 million with HCRH for losses related to the cancellation of its oil-exploration projects off the Caribbean coast in 2002 (TT, Jan. 16).

LAST week, Rodríguez announced he would not settle with HCRH without a local court hearing. He said the company had violated fundamental aspects of its contract to exploit oil off the coast of Limón.

“We will not approve any contract that has not passed its environmental impact study,” the minister told The Tico Times Monday.

The rejection of the company’s environmental impact study by the Environment Ministry’s Technical Secretariat (SETENA) stopped the oil company from continuing with its activities (TT, Oct. 10, 2003).

BRENT Abadie, president of Louisiana-based MKJ Xploration Inc., a majority shareholder in HCRH, told The Tico Times Monday that the company had not made a decision as to what to do.

Nevertheless, he contested the argument that the oil company had breached the contract because SETENA rejected the environmental study.

“In 2001 the (Constitutional Chamber of the Supreme Court, Sala IV) ruled that SETENA could not make a decision to approve or reject an environmental impact study. Notwithstanding the ruling, they went ahead and made a decision,” Abadie said. “I know for a fact that we are on good ground and the government is in breach,” he added.

ALEXANDRA González, lawyer for the Environment and Energy Ministry (MINAE), refuted that position, saying the Sala IV declared SETENA under-funded and in need of more personnel, but that had nothing to do with SETENA’s ability to reject the environmental impact study, which was done correctly.

“We respect the rights of the company,” she added. “We are only interested in continuing with the procedures in accordance with national legislation.”

In 2002, the government of Costa Rica, under former president Miguel Angel Rodríguez, forged a contract with HCRH that granted oil exploration and drilling rights. The company had conducted studies and prepared for its drilling contract since 1999.

President Abel Pacheco took office shortly after and declared Costa Rica off limits to offshore oil exploration (TT, Oct. 10, 2003).

PACHECO’S decision came amid an environmentally concerned chorus of opposition to oil drilling, especially from the Caribbean coastal communities whose economy is tied tightly to ecotourism.

Abadie contends the decision to annul the contract is politically motivated, stemming from Pacheco’s policy against oil exploration, and charged the negation of the company’s environmental impact study is a pretext.

HCRH filed a request for international arbitration before the WashingtonD.C.- based InternationalCenter for the Settlement of Investment Disputes, but withdrew the request soon after (TT, Oct. 10, 2003).

It had sought $57 billion in damages – about four times Costa Rica’s gross domestic product – an amount government officials considered ridiculous and completely out of proportion, the Agence France Press wire service reported March 10.

RODRÍGUEZ announced in January that the government was negotiating a settlement with HCRH to compensate for its losses.

Negotiations stumbled when HCRH claimed it had invested $11 million in preliminary work, but Costa Rican authorities estimated the company’s investment at around $3 million.

The government had begun an investigation into the exact amount of losses HCRH had incurred, but that process has been suspended pending a Sala IV ruling on an injunction the company filed against the government, González said.

According to Rodríguez, “It’s true that they have threatened to demand millions in damages, but we are not afraid because we know that we have acted lawfully in support of Costa Rica.”

IN response to that announcement, Robert Toricelli, former U.S. senator and negotiator for U.S.-based Harken Energy, a minority shareholder in HCRH, echoed an official statement from the U.S. Embassy in Costa Rica. Both said the decision could harm the business climate in the country and give foreign investors pause.

Toricelli said he would make a report to the U.S. Senate, which he believes will be an obstacle to the approval of the Central American Free-Trade Agreement (CAFTA) in that legislative body.

“It’s a shame I have to bring this before Congress,” Toricelli said. “With all the country’s potential for investment and trade, this is a self-inflicted wound. Costa Rica will severely damage its own reputation.

Not many investors will want to spend their money when there is the potential for loss of funds like this.”

Rodríguez said that if people understand the judicial system in Costa Rica they will not have any problems.

HCRH is calling for the opportunity to try the dispute in an international court. Abadie said he does not think a Costa Rican judge could make an unbiased decision.

“Any honest and reasonable man would agree that the only fair and unbiased venue would be an international tribunal or arbitration panel,” he said.

Rodríguez told The Tico Times, “According to the terms of the contract there are no grounds for accusing us before any international body. If they have any complaints, they should voice them in Costa Rican courts.”

Mauricio Álvarez, energy group director at the Costa Rican Federation for Conservation (FECON) called the government’s decision “valuable and dignified,” but said he fears HCRH will extend the court battles into the next government administration and eventually win its contract or a monetary settlement.


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