Court dismisses lawsuit by Harken Energy against Costa Rica

December 17^th, 2014 (InsideCostaRica.com) After more than nine years, the Administrative Disputes Tribunal has dismissed a lawsuit against Costa Rica brought by Texas oil firm, Harken Energy.

The company, which at the time was closely linked to former U.S. president, George W. Bush, had obtained a 1998 concession to search for crude off Costa Rica’s coast by purchasing the assets of a little known Louisiana-based company named MKJ Xploration.

Before failing an environmental impact review in February 2002, Harken had planned to drill offshore through its new subsidiary, which became Harken Costa Rica Holdings LLC.

Later that year, the company’s concession was put on hold over environmental concerns.  Regulators said at the time that the company’s plans were not “environmentally viable.”

Harken had sought $13 million in compensation from Costa Rica for alleged investment losses as a result.

However, the dispute between the company and Costa Rica began before it reached the tribunal.  In fact, at one point Harken was seeking $57 billion – that is not a misprint – from Costa Rica, at a time when the country’s entire annual GDP was $17 billion and the government’s annual budget was $5 billion.

In 1994, Costa Rica’s Legislative Assembly passed a hydrocarbons law as part of a series of measures designed to comply with a “Structural Adjustment Program” sponsored by the World Bank and the International Monetary Fund (IMF).  The law paved the way for foreign corporations to win concessions to explore for oil.  Subsequently, the little-known Louisiana firm MKJ Xploration successfully bid to prospect offshore of Costa Rica’s Caribbean coast.

The company later sold its Costa Rican interests to Harken Energy.

After learning about the company’s plans to begin drilling off their coast, area residents, fisherman, indigenous groups and environmentalists began a prolonged battle against the deal.

Offshore drilling would damage coral reefs and mangrove swamps and endangered sea life, they argued.  A national board was assembled, which came to agree with those opposed to the drilling, ruling that Harken’s plans were not permissible under Costa Rica’s environmental impact laws.  Shortly thereafter, in denying an appeal by Harken, the board cited more than 50 reasons why the company’s impact studies were in not accordance with the country’s environmental laws.

Later, in May 2002, then-President Abel Pacheco announced a moratorium on oil exploration and open-pit mining in the country in response to strong public opposition.

Furious over the decision, Harken argued that it had already invested some $13 million, and turned to the World Bank’s International Center for Investment Disputes, where the company demanded a staggering $57 billion from the country – an amount that could have easily bankrupted the country.  Harken cited “opportunity cost” – ostensibly, the “loss” of the oil that it could have extracted, in justifying the multi-billion-dollar demand.

In late September 2003, soon after Costa Rica was notified of the $57 billion demand by the World Bank, Pacheco announced that Costa Rica would not submit to international arbitration. Pachecho said that he and the country would refuse to acknowledge any decision made by the bank’s body, insisting instead that Costa Rica’s national court system was the legitimate venue for the dispute.  Harken withdrew the claim a few days later, deciding instead to pursue compensation in Costa Rica.

Ultimately, in January 2005, then-president Abel Pacheco and then-Minister of Environment, Carlos Manuel Rodriguez, signed a formal decree rescinding Harken’s contract, alleging that the company was noncompliant in filing mandatory quarterly reports and required environmental impact studies.

Harken, for its part, then demanded $13 million in compensation and the immediate re-instatement of its concession in front of a Costa Rican administrative disputes tribunal.  The company also demanded that the State indemnify the company against environmental damage it allegedly caused while its concession was still active.

That tribunal, after nine years, rejected “in its entirety” the company’s claim this week.

Environmentalists are applauding the decision, calling it a possible precedent in environmentalists’ and other groups’ efforts in opposing other controversial concessions, such as a planned large-scale container terminal in Moin, Limon, which would be built and operated by concessionaire, APM Terminals.