INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES ______________________________________________________________________________ ICSID CASE NO. ARB/16/42 OMEGA ENGINEERING LLC and OSCAR RIVERA Claimants v. REPUBLIC OF PANAMA Respondent ________________________________________________________ FIRST WITNESS STATEMENT OF NESSIM BARSALLO ABREGO ________________________________________________________ 7 January 2019 I, NESSIM BARSALLO ABREGO, state: I. INTRODUCTION 1. I make this statement in connection with the arbitration commenced by Omega Engineering, LLC and Oscar Rivera, (collectively, the “Claimants”) against the Republic of Panama (“Panama”). 2. Certain of the Claimants’ claims relate to their contracts to design, construct, furnish, and finance three health care facilities for the Ministry of Health of Panama, in Rio Sereno, Kuna Yala, and Puerto Caimito, Panama, (which I refer to collectively as “Omega’s MINSA CAPSI Projects” or the “Projects” and individually as the “Rio Sereno Project,” “Kuna Yala Project,” and “Puerto Caimito Project,” respectively), projects with which I am familiar.1 On September 22, 2011, the Rio Sereno, Kuna Yala, and Puerto Caimito Contracts were executed by Dr. Franklin Vergara, Minister of Health,2 on behalf of the Ministry of Health (the “Ministry”), and Mr. Rivera, on behalf of the Omega-Ciracet Consortium (“Omega”) composed of Omega Engineering, Inc., incorporated in Panama with its headquarters in Panama, Panama; Omega Engineering, LLC, incorporated in Puerto Rico and registered as a foreign company in Panama; and Ciracet Corp., incorporated in Puerto Rico and registered as a foreign company in Panama. On October 26, 2011, Gioconda Torres, the Comptroller General of Panama, endorsed the contracts on behalf of the Comptroller General’s office. 3. Except as otherwise stated, I make this statement on the basis of my personal knowledge or on the basis of documents that I have reviewed in the preparation of this statement. All of the matters set out in this witness statement are true to the best of my knowledge and belief. 1 Contract No. 077/2011 dated Sept. 22, 2011 (C-0028) (“Rio Sereno Contract”); Contract No. 083/2011 dated Sept. 22, 2011 (C-0030) (“Kuna Yala Contract”); Contract No. 085 (2011) dated Sept. 22, 2011 (C- 0031) (“Puerto Caimito Contract”). 2 These projects were initiated under the tenure of Minister Franklin Vergara and later, Minister Javier Diaz. 1 4. This statement has been prepared in Spanish and English. I anticipate giving testimony in Spanish. II. BACKGROUND 5. In this section, I briefly describe my educational and professional background, including my role on the MINSA CAPSI project. 6. I received my law degree from the Universidad de Panamá in 2002. Prior to working for the Ministry, I worked as a lawyer for eight years at the Judicial Authority. There I began work in the Sixth Municipal Civil Court between 2003 and 2005. Then, in November of 2005, I transferred to the Second Maritime Court of Panama where I worked until 2008. I then moved to work in the office of Judge Alberto Cigarruista of the Civil Section of the Supreme Court and in 2009, I transferred to the Eighth Circuit Court of Free Competition and Consumer Affairs. On May 3, 2010, I began working for the Ministry as a lawyer. In 2012, I became the Sub-Director of the Administration of Special Projects at the Ministry, the position I currently hold. 7. At the time of Omega’s MINSA CAPSI Projects, I was a lawyer for the Ministry and the Sub-Director of the Administration of Special Projects. I was involved with each of Omega’s MINSA CAPSI Projects from the beginning. In particular, I participated in the tender process and oversaw the administration of Omega’s MINSA CAPSI Projects including the contractual elements, such as the drafting of addenda for extensions of time and additional costs of the project. With regard to the general MINSA CAPSI program, I assisted in the administration of the first tranche of 10 MINSA CAPSI projects (as discussed below) and assisted in advising the administration of the second tranche of 10 MINSA CAPSI projects, which included Omega’s Projects. III. MINSA CAPSI PROJECTS 8. The MINSA CAPSI project is a public-works program within the Ministry of Health to construct 21 regional health facilities throughout Panama. This is a critical program, as it expanded available health care in numerous regions in Panama. The first of these facilities was built by the State, in order to assess the scope of work and the costs of 2 completion. The remaining 20 projects were put out for public bid, with notices placed on PanamaCompra. The projects were billed as engineering, procurement, and construction (EPC) projects, for which the contractor was required to provide all materials, labor, and plan development to complete the project. In addition, the Ministry required the winning bidders to finance their respective projects. 9. The difference between a traditional hospital and a MINSA CAPSI facility is the size and scope of services offered. MINSA CAPSI facilities are smaller, and provide primary care facilities, for example: laboratory capabilities, basic imaging (e.g., x-rays) and, in some cases, minor surgery capabilities and maternity wards. These are distinct from larger hospital facilities with full surgical facilities and extended stay rooms, which Panama was also building around this time. 10. For organizational purposes, the MINSA CAPSI projects (excluding the state-built project) were broken into two tranches of 10 facilities. Requests for bids on the first 10 facilities were published on PanamaCompra on June 11, 2010. Bidders were required to submit their proposals by August 23, 2010. Requests for proposals on the second 10 facilities were published on PanamaCompra on December 7, 2010.3 Bids were due by January 17, 2011.4 11. Omega bid for nine facilities in the first tranche, but was not awarded any contracts. Omega also bid for nine facilities in the second tranche and was awarded contracts for the facilities in Rio Sereno, Kuna Yala, and Puerto Caimito.5 12. Seven companies (including Omega) bid on projects in the second tranche. An evaluation commission selected by the Ministry determined that only six of them met the 3 Request for Proposals No. 2010-0-12-0-99-AV-003042 “Estudio, Desarollo de Planos, Construcción, Equipamiento and Financiamiento de Diez Centros de Atención Primaria de Salud Innovadores (MINSA CAPSI)” dated 2010 (C-0025-resubmitted). 4 Minutes to the Opening of Proposal Envelopes dated Jan. 17, 2011 (C-0026-resubmitted). 5 Report from the Evaluation Commission Public Act Nº 2010-0-12-0-99-AV-003042, undated (C-0349), pp. 3-4 (Omega bid on all except for the Tortí project). 3 minimum requirements necessary to be awarded a contract.6 Of these companies, Omega, Consorcio HPC Contratas-P&V, S.A., and Sociedad Espanola de Montajes Industrailes bid on the Rio Sereno Project; Omega, Panama Salud, and Sociedad Espanola de Montajes Industrailes bid on the Kuna Yala Project, and Omega and Consorcio Galdiano Bertoz-Heymocol Procomon bid on the Puerto Caimito Project.7 13. All 20 of the MINSA CAPSI contracts put out for public bid were awarded to a foreign contractor or a group with at least one foreign contractor in the consortium.8 While Panamanian contractors are capable, they generally do not have the ability to finance projects of this type on their own. The Ministry requires that contractors finance a minimum of 90% of the project. This means that the contractor must have enough capital to ensure positive cash flows throughout the project and to sustain them in situations where financing may be delayed. 14. Of the 20 MINSA CAPSI projects put out for public bid, 14 have been completed. Seven of those were finished, or at least were operational, at the time President Varela was elected in May 2014. 9 Seven were completed after the election.10 Of the remaining six projects, two are still in progress and likely to be completed in 2019, one is in the process of negotiations to reinitiate work, and three – just the Omega Projects – have not been worked on since 2015.11 The Ministry works closely with its contractors to assist where possible and to help get the projects completed. Omega was the only contractor working 6 See Minutes to the Opening of Proposal Envelopes dated Jan. 17, 2011 (C-0026-resubmitted); See Report from the Evaluation Commission Public Act Nº 2010-0-12-0-99-AV-003042, undated (C-0349), p. 2 (concluding that Consorcio Becsa Eduinter did not comply with the mandatory requirements and was disqualified). 7 Report from the Evaluation Commission Public Act Nº 2010-0-12-0-99-AV-003042, undated (C-0349), pp. 3-4 (setting out the final conclusions of the evaluation commission). 8 See Resolution of Adjudication No. 345 dated Mar. 28, 2011 (C-0027) (awarding three contracts to TEYCO, SL, a team lead by a Spanish construction company, and four contracts to Contratas Iglesias, S.A., a team lead again by a Spanish construction company). 9 MINSA CAPSIs: Volcán, Pesé, Ocú, Las Tablas, Changuinola, Marcaras, and La Mata. 10 MINSA CAPSIs: La Villa, El Coco, Dolega, Pedasí, Burunga, Tigre de los Amarillos, and Tortí. 11 The two MINSA CAPSIs to be completed in 2019 are Santa Fe and Nueva Italia. The MINSA CAPSI in the reactivation process is Ciricio. 4 with my Ministry that abandoned the country and has not worked on its projects since 2015.12 15. Initially, the Ministry required that the winning bidder on each project obtain bank financing for 90% of the contract value. The remaining 10% was to be paid directly to the contractor by the Ministry as an advance payment.13 This advance payment was to cover the up-front costs incurred to mobilize, purchase materials, and start a project.