Government Seizes Oil Facility-Not Good for Investor Confidence

It's starting to look as though the 'new," pro-business President Daniel Ortega is going the way of New Coke-just a marketing blip beside the tried-and-true classic…

This observation comes as complaints about "mixed messages" under the Sandinista government reach new heights this week. Developers expressed new-found optimism after meeting with the Attorney General, but many others have expressed alarm over the government seizure of an Exxon fuel facility near the Port of Corinto.

The Nicaraguan government says that it took over the terminal as part of a "preventative embargo" because the world's largest oil company failed to pay taxes. An Exxon spokesperson says that crude-oil imports are tax-free.

Press reports say that 10 armed police seized part of the terminal August 17. At first, the Nicaraguan government did not take responsibility for the seizure. And no legal claims have been lodged against the company that would justify such a move, Exxon said.

This is the first action against a U.S.-based company since the former revolutionary party returned to power, and U.S. officials were quick to condemn the move.

"The actions taken by Nicaraguan authorities have the potential to seriously damage economic relations between the U.S. and Nicaragua," the U.S. Embassy in Managua said in a statement, according to news reports. "This also has the potential to affect the foreign
investment climate in Nicaragua."

Over the weekend, the head of Nicaragua's Energy Commission said that it had reached an agreement with Exxon about the oil storage facility. But the damage will be hard to undo.

"Other possible investors watched with horror how the government seized a private installation," said U.S. Ambassador Paul Trivelli. "What will be the opinion of the small investor, who is perhaps thinking about constructing a tourist hotel in Corinto, in Matagalpa, Rivas or Managua?"

Your Latin America Insider,

Suzan Haskins
for International Living

P.S. For an in-depth look at Nicaragua under Ortega, take a look atDaniel Ortega: The First 180 Days. Our warts-and-all report is a must-read if you're looking to live or invest in Nicaragua.