US embassy cable - 04MAPUTO1446

UNCLAS SECTION 01 OF 03 MAPUTO 001446 
 
SIPDIS 
STATE FOR AF/S, AF/EPS, EB/IFD/OIA 
MCC FOR APPLEGARTH, HEWKO, BRIGGS, GAULL 
STATE PASS OPIC FOR SHORE 
SENSITIVE 
E.O. 12958: N/A 
TAGS: EINV, MZ, OPIC, Nyati, Tourism, MCC 
SUBJECT: OPIC-SUPPORTED US INVESTOR IN MOZAMBIQUE BACKS INTO 
EXPENSIVE SETTLEMENT ON LAND DISPUTE 
 
 
Business Confidential Information. Not for Internet Distribution 
 
1. (SBU) Summary: On October 28, American investor David 
Herbert and his Danish partner Jorgen Nielsen settled a 
dispute with the Zimbabwean firm Cabo do Mar over rights to 
the land on which their Nyati Beach Lodge is located. They 
agreed to pay usd 650,000 to permanently block execution of 
an October 17 provincial court order declaring that Cabo do 
Mar held usage rights to the land and authorizing eviction 
of current occupants. OPIC had financed Mr. Herbert's 
purchase earlier this year of half of the lodge. Before the 
negotiations that led to the settlement, Ambassador La Lime 
had expressed to GRM officials USG concern over the threats 
to a U.S. investment, and OPIC President Peter Watson had 
written the Prime Minister. Mr. Herbert is exploring his 
legal options. Several aspects of this matter are not 
clear, and it provides another example of factors that 
discourage investment in Mozambique. End Summary. 
 
Potter Concession 
----------------- 
2. (U) In 1994, Zimbabwean lodge developer Rex Potter 
purchased the rights for 50 years to a ten-hectare plot of 
beach land on the Sao Sebastiao peninsula in Inhambane 
province from the government (it is not clear whether 
provincial or national) for 30 million meticais, worth about 
usd 2,500 at the time. Mozambican law does not recognize 
ownership of land; it does, however, concede to individuals 
and corporations the right to build on land. The 
improvements made upon that land may be registered as 
private property. Disputes involving conflicting 
concessions are common. 
 
3. (U) In 2001, Mr. Potter and his Mozambican company, Cabo 
do Mar, registered improvements with the Inhambane 
provincial registry and board of deeds, stating that three 
huts and a restaurant had been established. Mr. Potter 
never established a functioning beach lodge on the property, 
however, and Mr. Herbert and his staff state that the 
claimed improvements are an exaggeration at best. 
 
Formation of Sanctuary, Issuance of Nyati Concession 
--------------------------------------------- ------- 
4. (U) In 1998, the Ministry of Tourism formed the 
Vilanculos Coastal Wildlife Sanctuary, a land trust 
including the peninsula in which no building could be 
constructed without permission of the government. The 
Sanctuary itself is a private corporation, owned by multiple 
investors, with a certain degree of autonomy to manage the 
area. However, since 1999, the Ministry of Agriculture and 
Rural Development has been solely responsible for granting 
land concessions within the Sanctuary lands. 
 
5. (SBU) In November 2002, when Mr. Nielsen was in the 
process of negotiating a deal to buy rights to the land on 
which Nyati Lodge now stands, Cabo do Mar sued the Sanctuary 
to block the deal. The Inhambane provincial judge dismissed 
Cabo do Mar's claims after reviewing documents, ruling that 
his court was not the appropriate venue for hearing such a 
case. On November 23, 2002, Inhambane province governor 
Aires Bonfiacio Baptista Aly issued a letter to all parties 
stating that the Sanctuary was the sole owner of the 
property in question and that the planned Nyati Lodge 
project should be encouraged to continue. 
 
6. (SBU) In June 2003, the Sanctuary issued a concession of 
11 hectares to Nyati Beach Lodge Lda., a Mozambican firm 
owned by Nyati Beach APS, a Danish firm owned by Mr. 
Nielsen. It appears that this concession overlaps the 
concession granted by the GRM in 1994 to Mr. Potter. Mr. 
Nielsen started construction of an upscale lodge 
immediately, registered his improvements with the provincial 
registry, and started business in early 2004. 
 
Ruling By New Judge For Potter 
------------------------------ 
7. (SBU) In March 2004, new Inhambane provincial judge Jose 
Sampaio decided to hear Mr. Potter's case anew. (Sampaio, 
who had arrived in 2003, previously had served as a judge in 
Cabo Delgado province, where he was best known for having 
been the presiding judge in the 2000 Montepuez incident, in 
which over 100 protestors were jailed after an opposition 
rally protesting the results of the 1999 elections and 
subsequently asphyxiated in a tiny jail cell.) After 
reading the documents and without initiating a formal 
hearing, in March Judge Sampaio ruled in favor of Mr. Potter 
and Cabo do Mar, awarding Cabo do Mar $300,000 in damages 
from the Sanctuary. The Sanctuary intended to appeal the 
case, a process that would likely draw it out by two years 
or more. However, it failed to turn in its $10 filing fee 
with the court until late September, ten days past the 
deadline. According to the Sanctuary, a notice of the fee 
due was not served to the Sanctuary's legal representatives 
in Maputo; rather, it was given to a lower-level employee in 
Inhambane who did not act. By failing to appeal on time, 
Sanctuary was out of options. 
 
Herbert Purchase of Stake in Lodge 
---------------------------------- 
8. (SBU) In August 2004, U.S. citizen David Herbert, who 
owns part or all of three other concessions in the 
Sanctuary, purchased 50 percent of Nyati from Mr. Nielsen 
for $225,000 with OPIC financing and began making 
improvements. 
 
Enforcement Order Threatens Eviction 
------------------------------------ 
9. (SBU) On October 17, Judge Sampaio issued a court order 
giving Cabo do Mar the right to occupy the Nyati property. 
On October 20, Rex Potter and Inhambane police showed up at 
Nyati lodge to enforce an immediate eviction. Mr. Herbert 
says this was the first the Sanctuary lawyers or Nyati Lodge 
had heard of the court order. After preliminary talks with 
lodge staff, Mr. Potter agreed to postpone eviction until 
October 28. 
 
Judicial Efforts 
---------------- 
10. (SBU) Mr. Herbert and Nyati Lodge then became directly 
involved for the first time. Mr. Herbert flew to the 
provincial capital, Inhambane city, on October 27 in order 
to seek a dispatch blocking any eviction proceedings on 
lands within the Sanctuary. An Embassy Econ-Pol officer 
accompanied him as an observer. Sanctuary lawyers were not 
present. At the same time, Mr. Herbert and his partner 
sought other support, including from the U.S. and Danish 
governments, in their effort to delay enforcement of the 
eviction order. We understand that the environment 
minister, who is a Sanctuary board member, asked the 
Attorney General to intervene but was told that only a court 
could do so. OPIC President Watson wrote Prime Minister 
Luisa Diogo, and Ambassador La Lime spoke with several 
senior GRM officials, to express concern about this threat 
to a U.S. investment. 
 
11. (SBU) It appeared that Mr. Herbert and Nyati's lawyers 
had received no solid information from the Sanctuary about 
the validity of Mr. Potter's claims. They did not have a 
copy of Mr. Potter's 1994 land concession, a map of the 
concession, or even Judge Sampaio's October court order. 
The lack of information was especially puzzling since Mr. 
Herbert had assumed the role of Chairman of the Sanctuary's 
board in August 2004. 
 
12. (SBU) Judge Sampaio was not inclined to meet with the 
Nyati lawyers and forced them to wait for several hours. 
Despite what appears to have been pressure by senior 
judicial and government officials, he did not grant the 
delay Mr. Herbert sought. On October 28, he granted a 
dispatch stating that a hearing would be held on the subject 
on November 9. While it could be argued that the dispatch 
prevented any eviction proceedings by virtue of setting a 
hearing date on the matter, it did not explicitly make a 
statement to that effect. 
 
Negotiation and Settlement 
-------------------------- 
13. (SBU) In the afternoon of October 28, the Nyati group 
(plus observing Embassy officer) flew to the town of 
Vilanculos to meet that day with representatives from Cabo 
do Mar. By this time, the Nyati team recognized it was in a 
weak position and was willing to negotiate a settlement with 
Cabo do Mar. Mr. Herbert was particularly concerned by 
reports from Mr. Nielsen that Cabo do Mar had contacted 
Danish media outlets about the possibility of an eviction of 
the mostly Danish guests from Nyati that weekend, a 
potential public relations disaster. 
 
14. (SBU) At the negotiations, Mr. Herbert and his group 
agreed that Cabo do Mar had a valid court order recognizing 
its rights to a piece of land on Sao Sebastiao peninsula 
overlapping with the property subsequently developed by 
Nyati. Cabo do Mar, for its part, acknowledged that it did 
not have legal right to use the buildings of the Nyati 
Lodge, but asserted a right to shut them down, and 
threatened to do so. Mr. Herbert offered to find Cabo do 
Mar an equivalent parcel of property within the Sanctuary, 
but Cabo do Mar was not interested. No deal was reached at 
the table, but a few hours later the parties agreed to 
terms: Mr. Herbert and Mr. Nielsen would pay Cabo do Mar usd 
450,000 up front, plus usd 20,000 per month for the next ten 
months, in return for which Cabo do Mar would not enforce 
the court order in perpetuity. After the deal was struck, 
no eviction took place on October 29. The final agreement 
is being drafted the week of November 1. 
 
Much Remains Unclear 
-------------------- 
15. (SBU) There are a number of murky aspects to this 
matter. The Cabo do Mar partners at the negotiating table 
included a member of the National Assembly from the ruling 
Frelimo party, Eleuterio Marta Felisberto. Mr. Felisberto 
had been working at the Inhambane province land registration 
office in 1994 when Mr. Potter's concession was granted. 
Mr. Herbert suspects that the judge's decision to reopen a 
case decided by a predecessor and rule in favor of Cabo do 
Mar without a hearing after only examining documents may 
have been influenced by Mr. Felisberto, but he has no proof. 
The Sanctuary's failure to pay its appeal fee on time also 
appears to have resulted from the court's action in 
informing Sanctuary employees, rather than its lawyers; Mr. 
Herbert at one point alleged that this was the result of 
corruption, but the Sanctuary may have dropped the ball. It 
also is not clear what Mr. Nielsen or Mr. Herbert knew, or 
should have known, about Mr. Potter's claim and the judge's 
decision against the Sanctuary before Mr. Nielsen sold half 
of the lodge to Mr. Herbert. 
 
Next Steps 
---------- 
16. (SBU) Mr. Herbert and Nyati Lodge have not decided what 
legal actions to take next. The most likely is that the 
lodge may sue the Mozambican government for damages, a 
hearing that would be held in an administrative court in 
Maputo. This would be a drawn-out process, but may be a 
viable option since there are precedents of the GRM paying 
damages to aggrieved parties in the wake of disputes caused 
by conflicting government concessions of business or land 
rights. Another would be for Nyati to sue the Sanctuary 
directly. Nyati would like to take legal action of some 
sort against Cabo do Mar as well, but it may not have a 
viable case. Regardless of what steps are taken, the 
developments in this case provide another example of how 
Mozambique's legal and judicial systems discourage 
investment. 
LA LIME