The dispute, which was settled in late December, arose after the $20 million sale by former president Violeta Chamorro's administration of the Victoria de Julio Refinery in Tipitapa, about 22 km northeast of Managua.

But Chamorro's successor president Arnoldo Aleman challenged the sale after taking office in 1997, claiming improper procedures had been followed. Critics charged that Aleman's challenge was motivated by political affiliations.

"This has been one of our Prime commercial objectives since I arrived in July 1997. To start 1999 with that behind us is great news for the investor community, British Ambassador Roy Osborne said.

"As foreign investors we were a bit mystified," said Luis Martin, representative of giant London-based sugar trading house ED&F Man.

"At a time when the Nicaraguan government is reaching out to attract foreign investment, to alienate those who have already invested is not a wise step," Martin said, welcoming the new settlement.

ED&F Man holds 30 per cent of shares in the mill, while the remaining 70 per cent are owned by local shareholders.

The out-of-court settlement restructured the debt to allow the operation to maintain its current cash flow while increasing the nominal value of the contract with the government, Martin said, but declined to reveal more details.

Victoria de Julio is the country's second-largest refinery, which has seen steady growth in recent years from 1.05 million quintals (46-kg bags) in the 1997/98 crop, to 1.4 million quintals forecast for the current 98/99 crop cycle.

Nicaragua's ministry of agriculture has forecast the national sugar crop to jump slightly to 8.05 million quintals in the 1998/99 production cycle, compared to the 7.77 million quintals output in the previous 97/98 harvest.

Martin said the Victoria de Julio mill currently only was operating at about half of its full capacity, while it also has potential to produce hydroelectric power.

He said the resolution to the dispute will now allow shareholders to seek millions of dollars in new investment financing for the mill, financing which was paralysed for nearly two years during the dispute.

"We are speaking to fellow British investors interested in participating (in the financing) who were on hold pending this case," Martin said.