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High Court Rejects Oil Company Case

October 15, 2004

A recent ruling by the Constitutional Chamber of theSupreme Court (Sala IV) means the government canbegin rescinding a contract for offshore oil explorationheld by the company Harken Costa Rica Holdings,according to Environment and Energy Minister CarlosManuel Rodríguez.Residents of Costa Rica’s southern Caribbean coast,near the areas Harken was granted exploratory drillingrights under the contract, expressed relief.“That’s good news. That’s what’s been hanging inthe balance,” said Eddie Ryan, vice-president of thePuerto Viejo Chamber of Tourism, in response to the ruling.Ryan said offshore drilling stationswould have a devastating effect on tourismin Puerto Viejo and other coastal townswith tourism-based economies.“Anything near it is completely contaminated,so that would be the end oftourism here,” he said. Though happyabout the news, Ryan, who owns a hotel inPuerto Viejo, said only after the contract iscompletely annulled could people in thearea be at ease.ACCORDING to the Sala IV Web site,justices declared “without cause” an injunctionHarken Costa Rica had filed against theEnvironment and Energy Ministry(MINAE) in late 2003 for failing to notifythe company the government had begun theprocess of nullifying the contract.Environment Minister Rodríguez toldThe Tico Times he is “very content. Veryhappy. The Sala IV sided with us, so wecan initiate the administrative process.”Sala IV president Luis Fernando Solanohad ordered MINAE to stop the contractcancellation until the court ruled on the case.The court’s decision is the latest developmentin a long political and legal battleover the contract, signed in early 2002during the final days of the administrationof former President Miguel ÁngelRodríguez, who is now wanted by authoritiesin connection with accusations of corruption(see separate story).SHORTLY after the contract withHarken was signed, President Abel Pachecotook office and signed a moratorium on offshoreoil exploration. However, the company’scontract remained valid because it wassigned before the moratorium took effect.Later in 2002, however, the NationalTechnical Secretariat of the EnvironmentMinistry (SETENA) rejected an environmental-impact study that Harken submittedfor oil exploration and drilling operations,something Environment MinisterRodríguez called a “breach of contract.”(TT, Oct. 10, 2003).Brent Abadie, general manager of MKJXplorations, Harken Costa Rica’s parentcompany in the United States, insisted thenthat the company had followed all contractualguidelines and that SETENA’s decisionwas politically motivated.Rodríguez told The Tico Times thisweek the company had failed to completenumerous “guarantees and obligations”outlined in its contract, “the biggest beingthe lack of an approved environmental impactstudy from SETENA.”THE company in 2003 submitted andwithdrew a request for international arbitration,seeking a $57 billion settlementfrom Costa Rica through the WashingtonD.C.-based International Center for theSettlement of Investment Disputes. Therequest was four times Costa Rica’s GrossDomestic Product (TT, Oct. 10, 2003).Rodríguez began negotiations withHarken, but claims he almost neverspoke with the same representative of thecompany twice. The government at onepoint offered a settlement for between$3-11 million to the firm, but later withdrewthe offer amid public outcry (TT,March 19).“There was not a political solution,through negotiations, so we began anadministrative process,” Rodríguez toldThe Tico Times.WITHDRAWING the settlementoffer brought a warning from both the U.S.Embassy in San José and Robert Toricelli,former U.S. senator and negotiator forU.S.-based Harken Energy, a minorityshareholder in Harken Costa Rica. Bothsaid the decision could harm the businessclimate in the country and give foreigninvestors pause (TT, March 19).Mauricio Álvarez, an energy specialistwith the Costa Rican Federation for theConservation of the Environment(FECON), a group that has vehementlyopposed oil exploration in Costa Rica, hassaid the government must act quickly torescind the contract so Harken does nothave the opportunity to push forwardunder the administration of the nextPresident, who will be elected in 2006.

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