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Harken Oil Company Requests Arbitration

April 7, 2006

Harken Oil Company last week requested formal arbitration proceedings for the losses it suffered when the Costa Rican government prohibited oil exploration in the Caribbean province of Limón and rescinded its contract in 2002, the daily La República reported.

The company filed a case March 28 against the government of Costa Rica before the ArbitrationCenter of the Costa Rican Chamber of Commerce, demanding payment for damages from 1999-2005.

In July 1998, the government of Costa Rica, under former President Miguel Angel Rodríguez (1998-2002), signed a contract granting oil exploration and drilling rights off the coast of the Caribbean province of Limón to MKJ Xplorations, which a year later handed over its rights to Harken.

In 2002, as one of his first acts in office, President Abel Pacheco decreed a moratorium on future oil exploration and open-pit mining contracts, though the Harken contract was exempt (TT, June 7, 2002).

Nevertheless, the contract generated a ripple of protests, and eventually the Technical Secretariat of the Environment Ministry (SETENA) rejected the oil company’s environmental-impact study (TT, Oct. 10, 2003).

Costa Rican officials considered Harken’s non-compliance with the study requirements a violation of the contract. However, Harken disputed this and filed a request for international arbitration seeking $57 billion in damages – about four times Costa Rica’s gross domestic product.

The request was later withdrawn and Harken entered settlement negotiations with the government in January 2004 (TT, Jan. 16, 2004). However, negotiations broke off several months later when the parties were unable to agree whether Harken’s initial investment was $3 million or $11 million (TT,March 19, 2004).

Harken is now demanding that the state pay for its expenses from 1999-2005, the arbitration expenses, and interest from the beginning of the arbitration until the end, which is foreseen for the end of the year, La República reported.

 

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