UNCLAS SECTION 01 OF 02 TEGUCIGALPA 002385

SIPDIS

SENSITIVE

GUATEMALA FOR COMATT
STATE FOR WHA/CEN AND EB

E.O. 12958: N/A
TAGS: ENRG EPET EINV ECON PGOV PINR HO
SUBJECT: Honduran Gasoline Pricing: Tempest in a Teapot



1. (SBU) Summary. In September, former Industry and Trade
Minister for President Maduro Juliet Handal began a public
campaign to criticize the Honduran government's method of
establishing maximum gasoline prices. Handal has argued in
press conferences and appearances in front of the Honduran
National Congress, that the GOH's pricing formula
incorrectly uses a wrong reference price for the cost of
gasoline, that other Central American countries have
switched to a different reference price and that the cost of
gasoline for consumers could be lowered significantly if the
policy were corrected. Industry contacts maintain that
Handal's arguments are wrong in almost all the particulars.
Chevron-Texaco (the largest oil products importer in
Honduras) has provided data to the GOH to use as appropriate
to clarify the situation and demonstrate that the costs of
oil products in Honduras are similar to those used in other
Central American countries. End Summary.

-------------- --------------
The Attack: GOH Missing the Boat on Gas Price Regulations
-------------- --------------


2. (U) Juliet Handal's argument to the press and the
Congress has been that a 1996 report, sponsored by
international organizations such as the UN's Economic
Commission for Latin America (ECLAC), demonstrated that
Central American countries could lower Honduras' cost of
gasoline by at least 500 million lempiras (USD 28.5 million)
by using the Gulf port reference price instead of the
Caribbean posting (which is usually higher). Handal has
claimed that all other Central American countries have
switched to this system, and Honduras' delay in doing so is
costing the public dearly. Handal has been working closely
with old-style Latin American economist Miguel Angel Funes,
a long-time critic of multinationals, especially oil
companies.

--------------
The Response: She Got All Her Facts Wrong
--------------


3. (SBU) Privately, executives of Chevron-Texaco (which has
a 70 percent market share in pe

troleum products sold in
Honduras) have told emboffs that the argument is incorrect
on all counts. First, the GOH, in regulating the market,
only sets a maximum pump price for gasoline - any gasoline
retailer is free to sell gasoline at a lower price. The
maximum price is calculated based on a complex formula that
includes many factors beyond this cost of imported product
measure.


4. (SBU) Chevron-Texaco explains that the Gulf Coast posting
is a measure of the cost in larger importers; it is based on
large shipments of a single fuel product, with lower risk
and insurance, and different fuel specifications. The
Caribbean posting, in contrast, best fits the average cost
of gasoline imported into a small market like Honduras
(30,000 barrels a day). The government is free to use any
reference price it would like in the formula; however,
according to Texaco, some kind of premium would have to be
added to fully reflect the real cost of imported product.
The actual source of supply appears to be unrelated to the
argument - Chevron-Texaco usually sources its oil purchases
for Honduras from Venezuela.


5. (SBU) According to Texaco Caribbean Assistant Manager
Mario del Cid, who provided econoffs with a copy of a
presentation created for Honduran President Maduro's
economic advisors, Handal's and Funes' claim that the other
Central American countries use the Gulf Port posting is
totally off base as well. Del Cid said that Guatemala (and
probably Nicaragua) are free markets and no reference price
is used at all. El Salvador did try, after release of the
ECLAC report in 1996 to change to using a Gulf posting with
a 4.5 cent premium; the oil companies challenged the low
level of the premium (arguing for one of 5.3 cents) and the
government eventually went to a free market. Costa Rica,
del Cid said, is a special case because the oil market is a
state-run monopoly.


6. (SBU) A chart in the Texaco presentation that compares
gasoline prices in Central America and eight other countries
shows that the net price of gas (pump price minus taxes) in
Honduras is similar to the net price in other Central
American countries, with Guatemala's and Costa Rica's
slightly lower and El Salvador's and Nicaragua's slightly
higher. The pump price in Honduras and Costa Rica are the
highest (almost $2.50 per gallon) because of the taxes
levied in those countries. The tax on gasoline in Honduras
is now usd 1.05 per gallon (changed in April from an ad
valorem to a flat tax).

-------------- --------------
The Motivation: Simply An Attempt to Get in the Limelight?
-------------- --------------


7. (SBU) It is not clear exactly what triggered Handal's
decision to attack the government on this particular issue
without talking directly with the major oil companies to
hear their side of the story. She served for approximately
eight months as Minister of Industry and Trade at the
beginning of the Maduro administration. There was friction
from the start between Handal and President Maduro's closest
advisors, particularly Minister of the Presidency Luis
Cosenza, and she had problems with Presidential access. The
trigger for her resignation was the GOH's announced
intention of taking the responsibility for trade
negotiations out of her Ministry. Prior to government
service, she served as President of the umbrella private
sector organization COHEP and frequently used her position
as a bully pulpit to call for policy changes from the Flores
government that preceded Maduro. It is possible that she
decided to use this issue simply to get back into the public
limelight during this early period of the Presidential
campaign, when pre-candidates are forming their circle of
advisors. The same is generally believed of Miguel Angel
Funes, a consultant who has been on a job hunt for some
time.


8. (SBU) Embassy Comment. We expect the debate to calm down
shortly as the true facts come to light. The U.S. companies
operating in Honduras - Chevron-Texaco and Exxon - have not
requested Embassy advocacy, but rather are working closely
with the GOH. End Comment.

PALMER