ADVOCACY CASE: GOVERNMENT TURNAROUND LEADS TO AES

UNCLAS TEGUCIGALPA 003479

SIPDIS

SENSITIVE

STATE FOR WHA, WHA/CEN, AND EB/CBA
GUATEMALA FOR COMATT: DTHOMPSON

E.O. 12958: N/A
TAGS: ENRG EINV ECON EAID BEXP PREL KJUS HO
SUBJECT: ADVOCACY CASE: GOVERNMENT TURNAROUND LEADS TO AES
CONTRACT FOR 200 MW STARTING IN THREE YEARS

REF: a) 01 TEGUCIGALPA 2872

b) TEGUCIGALPA 02207
c) TEGUCIGALPA 02857
d) TEGUCIGALPA 03184
e) TEGUCIGALPA 3273
f) TEGUCIGALPA 3416


1. (SBU) Summary. AES Honduras signed a contract on
December 27 with the state-owned electricity company ENEE to
provide 200 MW of electricity starting within three years.
The deal came after the ENEE Board of Directors annulled the
tender award to Lufussa on December 19. In an emergency
meeting on December 20, the Council of Ministers authorized
the ENEE to sign direct purchase agreements for a total of
410 MW with the companies who made the best offers based on
price and quality. Lufussa also reportedly signed a 210 MW
contract earlier in the week. Embassy wished to thank
Washington agencies for their strong support during this
hard-fought advocacy effort. End summary.


2. (SBU) AES' local representative reported that on December
27 AES Honduras signed a deal with the state-owned
electricity company ENEE for 200 MW. AES chose to begin
providing electricity within 36 months, allowing it to
operate the plant with natural gas from the beginning. The
ENEE refused to consider standard clauses used in
international financing with multilaterals like the
International Finance Corporation or the Interamerican
Development Bank. The local AES representative reported
that despite the omission of the standard clauses, the
contract provides enough flexibility to complete the USD 600
million investment. Honduran energy company Lufussa also
signed a contract for 210 MW with 24 months COD earlier in
the week. We understand that the contracts would go to the
National Congress for approval on January 27.


3. (SBU) The deals came after the Council of Ministers held
an emergency meeting on December 20, a day after the ENEE
Board of Directors unanimously agreed to annul the public
tender for the 210 MW electricity contract, to discuss what
to do about the bid. The ENEE Board annulled the bid over
concerns that the legal challenges to the decision to award
the 210 MW contract to Lufussa would tie up the bid contract
in the courts for years, impede the creation of new capacity
and ultimately lead to a potential national energy crisis in
2004 (ref's e & f). The government has not acknowledged any
flaws in the tender process.


4. (U) Following the meeting, the Council of Ministers sent
instructions to the ENEE to arrange direct contracts for the
original 210 MW contemplated in the bid and an additional
200 MW for demand growth. Minister of the Presidency Luis
Cosenza announced to the press that the contracts would be
signed with the bidders who made the best offers, based on
quality and price, in the original public tender.


5. (SBU) Embassy would like to thank Washington agencies for
their support throughout. Advocacy by then Assistant
Secretary of WHA Otto Reich, Commerce Secretary Donald Evans

SIPDIS
and Under Secretary for Economic Affairs Alan Larson, all
expressing their interest in a fair and transparent bid
process, were especially helpful.

Palmer