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Pacheco Stands Firm Against Oil Drilling

October 10, 2003

By David Boddiger
Tico Times Staff

Pacheco Stands Firm Against Oil Drilling
By David Boddiger
Tico Times Staff

The subject of oil exploration resurfaced in Costa Rica this week, after a U.S. company filed for international arbitration to settle a contract dispute for oil drilling off the country's Caribbean coast.

The drilling project was deemed nonviable by environmental officials last year.

Harken Costa Rica Holdings LLC (HCRH) President Brent Abadie, in a press release issued earlier this week, said his company asked the government of Costa Rica on Sept. 16 to enter arbitration before the International Center for Settlement of Investment Disputes (ICSID), a Washington D.C.-based center associated with the World Bank.

Costa Rica became a party to the center after ratifying the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States in 1993.

The press release said HCRH would seek to recover $57 billion in claimed investment and damages, a figure that represents about four times the country's annual Gross Domestic Product.

"Although (HCRH) had been operating on its 1.2-million-acre oil-and-gas concession area since 1999 without incident and in full compliance with all laws and regulations, President (Abel) Pacheco declared that he would not allow further petroleum exploration or mining in Costa Rica," the release stated.

According to Abadie, the President's anti-oil stance - made clear in May of last year when Pacheco issued a decree that banned open-pit mining and oil exploration - has made it impossible for the company to implement a contract for the exploitation of four oil blocks granted by the administration of ex-President Miguel Angel Rodríguez (1998-2002).

Environment Minister Carlos Manuel Rodríguez insists that because the Environment Ministry's Technical Secretariat (SETENA) rejected the company's Environmental Impact Study - necessary for the project to move forward - the contract is no longer valid.

Abadie claims that, "Since May 2002, HCRH officials have attempted to negotiate an amicable settlement of the damages suffered by the company. Minister Rodríguez has refused to even respond to any of the proposals by the company, has refused to negotiate in good faith, and has engaged in a campaign of delays and manipulation of public opinion."

Both Pacheco and Rodríguez on Tuesday flatly refused arbitration, saying the company had not exhausted local administrative and judicial settlement methods called for by the company's contract.

"The (company) did not comply with measures that would guarantee (the project's) environmental viability, which is grounds to terminate the contract," Rodríguez said on Tuesday.

The company claims to have lost the potential to exploit 2.3 billion barrels of oil and 6 trillion cubic feet of natural gas, mainly off Costa Rica's Caribbean coastal port of Moín. News of the company's plans helped rally a massive international campaign against oil drilling in Costa Rica, whose economy depends greatly on tourism.

Claiming the doors to his office have "always been open," Rodríguez said the company could either conduct studies on its three remaining blocks, or appeal the administration's position through local channels.

In a speech before Costa Rican deputies earlier in the week, Pacheco reaffirmed his administration's stance against oil exploration.

"The Constitution and the law form the basis of reasons why we have prevented environmentally non-sustainable activities from being developed in Costa Rica," he said.

Pacheco called for "the most valiant and enthusiastic national unity" against the company's arbitration request, a call echoed even by some opposition party legislators.

"We should all stand firmly with the President, who has shown statesmanship and a firm attitude - which we must not only applaud, but adopt," said Citizen Action Party deputy Rodrigo Alberto Carazo.
In an e-mail to The Tico Times, Abadie said that he felt a fair hearing in Costa Rica would be impossible, given the Pacheco Administration's open anti-oil policy.

Likening himself to the biblical figure of David taking on the Costa Rican Goliath, Abadie said he "would prefer to reserve the decision to the panel of unbiased and fair international arbitrators," rather than "engage in a propaganda campaign in the press."

Critics questioned the company's announcement this week.
"It's a bluff intended to give the company a stronger negotiating position," said Mauricio Alvarez, representative of Oil Watch Costa Rica.
The relationship between HCRH and Houston-based Harken Energy also has begun to raise doubts among oil critics here. While Abadie called HCRH a "joint venture" between MKJ Xploration Inc. (60% shareholder and also based in Metairie, Louisiana), and Harken Energy (40%), Carazo claims that Houston-based Harken essentially backed out of the Costa Rican endeavor in 2001 after non-compliance with its agreement with MKJ, leaving "only the name of the corporation."

According to Carazo, Harken Energy initially controlled 80% of HCRH and MKJ owned 20%. Harken was to pay $8 million for the shares and complied with the first payment. However, sensing problems with completing the project in Costa Rica, Harken failed to pay the second installment and pulled out, Carazo said. In Dec. 2001, Harken Energy wrote off its Costa Rican investment at approximately $9 million, which included a $4-million lease payment to MKJ in 1999.

"Harken Energy is out of the picture altogether," Carazo told The Tico Times. "They remain as minority shareholders in the corporations, but all the performance is done by MKJ, which is a one-man show run by Abadie."
Pacheco's anti-oil stance caused HCRH shares to drop from $12 to $4, causing significant capital problems for the company, said Alvarez, from Oil Watch. A source close to the process also said high-profile former U.S. Senator Robert Toricelli, who has been hired by Harken Energy to lobby the Costa Rican government on the company's behalf (TT, Aug. 22), met with Rodríguez this week and said the company would be willing to back down for a $10-million settlement.

Alvarez said he believed Harken might exert pressure on U.S. lawmakers to take up the issue, particularly during ongoing talks over a U.S.-Central American Free Trade Agreement (CAFTA).

Since taking office, the administration of U.S. President George W. Bush has done little to mask its affinity with powerful energy sectors, including oil companies looking to boost revenues abroad.

According to Alvarez, 55% of U.S. petroleum imports are generated in the Americas - 40% of which are exported from Latin America. Harken - a company based in Bush's home state of Texas - currently has a presence in countries from Belize to Colombia, Alvarez noted.

After the Pacheco Administration closed the door to petroleum exploitation here, MKJ headed north of the border, where Nicaraguan President Enrique Bolaños opened for bidding in July of last year some 147,000 square kilometers of offshore blocks in the Pacific and Atlantic oceans (TT, July 19, Aug. 30, 2002).

In June, Nicaragua awarded two of the Caribbean blocks to MKJ (TT, June 6). Abadie, who also serves as MKJ's senior vice-president, said he is currently in Nicaragua working on that project.

Although so far successful at preventing companies from drilling in Costa Rica, anti-oil activists say they are equally concerned about other projects in the region.

"These oil companies are strongly positioning themselves in the Atlantic, as part of a global effort to exploit as much petroleum as possible before the world shifts toward more renewable energy sources, which is already happening," Alvarez said.

Still, despite Pacheco's anti-oil stance, Costa Rica's Hydrocarbons Law - which allows for drilling concessions - has yet to be modified in Congress.

A reform package - currently stalled in a legislative committee - would eliminate that opportunity, but lawmakers so far have been cold toward the initiative, hoping to leave the possibility open for future administrations.
Carazo said he hopes the move by HCRH and the response generated by the Pacheco Administration will help breathe new life into the measure.