1. (SBU) Summary. On December 19, the Board of Directors
for the State-owned electricity company ENEE announced the
annulment of the bid for a 210 MW electricity contract. In
announcing the annulment, the Board said that the various
legal challenges presented by bidders to the decision to
award the contract to Honduran energy company Lufussa could
tie up the bid process in the courts for years and lead to a
potential national energy crisis. The annulment moves the
decision on what to do with the contract to the Council of
Ministers which met early on December 20 to discuss options.
AES' local representative (protect) reported to the Embassy
rumors that the ministers are leaning to signing a direct
contract with AES for the 210 MW. End summary.



2. (U) On December 19, the Board of Directors for the State-
owned electricity company ENEE unanimously agreed to annul
the public tender for a 210 MW electricity contract. In a
press conference, the President of the ENEE Board of
Directors, Minister of Natural Resources Patricia Panting,
remarked that the decision to annul the bid was taken to
avoid a prolonged case in the court over the challenges to
the decision to award the 210 MW contract to Honduran energy
company Lufussa. The Board feared that the legal challenges
to the bid decision would tie up the bid contract in the
courts for years and impede the creation of new energy
capacity to meet Honduras' energy needs beginning in 2004.



3. (U) On November 26, AES, Comercial Laeisz and the
National Engineers group all challenged the results of the
bid, arguing that Lufussa should have been disqualified for
failing to include sufficient transmission facilities in its
original bid offer (ref e).



4. (SBU) In annulling the bid process, the ENEE Board of
Directors has put the responsibility of taking a decision on
the 210 MW contract in the hands of the Council of Ministers
which met early on December 20 to discuss options. AES'
local representative reported to the Embassy that he has
heard rumors from various sources that the Council of
Ministers is leaning toward arranging a direct contract with
AES for the 210 MW. Another option is to redo the entire
bid process. Given the urgency in meeting Honduras' energy
needs beginning in 2004, it seems unlikely that the GOH
would embark on another public tender for the 210 MW.



5. (U) Minister Panting reiterated that the bid process was
clean and transparent and that the annulment was not related
to any irregularities in awarding the contract to Lufussa.
ENEE Director Angelo Botazzi echoed Minister Panting's
remarks on the transparency of the process and stated that
it is in the best interest of the country to avoid a
prolonged legal battle in the courts which could leave
Honduras without new energy capacity in 2004. Botazzi
warned of a potential energy crisis and alluded to the
energy crisis of 1994, when the government's program to
ration electricity led to prolonged blackouts across
Honduras.



6. (SBU) Embassy has continuously advocated for AES to
receive fair treatment during the bid process. Post is
pleased that the GOH annulled the contract with Lufussa and
would welcome a GOH decision to award the contract to AES,
but notes that if this were to happen there would likely be
negative public reaction by some interested parties.

Palmer