US embassy cable - 05LIMA1660

UNCLAS SECTION 01 OF 02 LIMA 001660 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/AND, WHA/EPSC, EB/IFD/OFD, EB/CBA, EB/IFD/OIA 
TREASURY FOR OASIA/INL, DO/GCHRISTOPOLUS 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
USTR FOR BHARMAN/DWEINER 
 
E.O. 12958: N/A 
TAGS: EINV, EFIN, ECON, EPET, KIDE, PE 
SUBJECT: MOVEMENT ON THE EXXON-MOBIL DISPUTE 
 
REF: A) Lima 534 
 
     B) Lima 171 
 
1.  (SBU) Summary.  The Economic Commission of Congress is 
expected to deliberate on the Ministry of Finance (MEF) 
amendment to the tax law in upcoming weeks.  The amendment 
would grant Exxon-Mobil a $15 million credit over the next 
three and half years.  The Mining and Petroleum Society 
(SNMPE) has agreed to spearhead the effort in the Peruvian 
Congress.  Exxon-Mobil has hired two lobbyists to garner 
support for the bill in the Economic Committee.  If there is 
unanimous consensus on the bill, the MEF is confident the 
Congressional Plenary will easily pass the bill.  If the 
ruling is not unanimous, Post, working with the MEF, will 
meet with key APRA officials to obtain support.  Exxon-Mobil 
predicts the Economic Commission will approve the bill in 
three weeks, by the end of April.  The bill should reach the 
full Plenary for a vote proximately 45 days later.  Post 
expects the dispute to be resolved by late June.  End 
Summary. 
 
Tax Law Hurts all International Companies 
----------------------------------------- 
 
2. (SBU) Exxon-Mobil General Manager Peter Hartmann met with 
officials from the Peruvian Mining Society (SNMPE) and 
Spanish-owned Repsol on March 31 to discuss the MEF's 
proposed amendment.  (Note:  Repsol, a provider of both 
airline and maritime fuel, faced the same problems as Exxon- 
Mobil. Instead of joining forces with Exxon-Mobil, Repsol 
supported the current law, which established an exemption 
for taxes on bunker fuel.  Repsol, which gained an $80 
million credit on bunker fuel, opted to forego the $13 
million in airline fuel reimbursement (ref B). The MEF's 
amendment would also grant Repsol its VAT credit.  End 
Note.)  Exxon-Mobil explained that the amendment would not 
just benefit one company, but all international companies 
that sold airline fuel.  The SNMPE agreed, and pledged to 
support Exxon-Mobil's efforts to garner support for the 
MEF's bill. 
 
New Plan of Action 
------------------ 
 
3.  (SBU) Exxon-Mobil, working with SNMPE, hired two 
lobbyists to help build consensus among the Economic 
Commission for the amendment.  (Note: One of the lobbyists 
is a former public ombudsman with many Congressional 
contacts. End Note.)  SNMPE's main public relations 
official, who happens to be the daughter of Congress 
President Flores-Araoz, is also working to gain 
Congressional support for the bill.  The lobbyists believe 
that if there is a unanimous consensus for the amendment 
within Economic Commission, the Congressional Plenary will 
pass the bill with little problem.  However, if Commission 
does not unanimously agree, Exxon-Mobil and SNMPE will look 
to the Embassy and the MEF to advocate on their behalf.  If 
this situation occurs, Post will meet with key Congressmen, 
including APRA's Juan Valdivia, to push for support of the 
bill. 
 
4.  (SBU) According to Peter Hartmann, the Economic 
Commission should approve the bill within the next three 
weeks, perhaps by the end of April.  Once the bill is 
approved, it will move to the Plenary for action.  Exxon- 
Mobil expects the Plenary to make a decision on the bill 
within a 45-day period. 
 
Comment 
------- 
 
5.  (SBU) By joining forces with the mining society, Exxon- 
Mobil is likely to garner more support for the MEF's 
amendment.  Congressmen should no longer view the bill as 
correcting problems for one large American company, but for 
all international companies that sell airline fuel.  We will 
continue to work closely with Exxon-Mobil, the SNMPE, and 
the MEF to press the Congress for quick resolution of this 
issue. 
STRUBLE