MCA HONDURAS MOVING FORWARD

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001648

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, WHA/EX, EB/OIA/IFD
TREASURY FOR DDOUGLASS
STATE PASS AID (LAC/CAM)
STATE PASS OPIC, EXIM

E.O. 12958: DECL: 08/04/2015
TAGS: ECON EAID EFIN PREL KMCA HO
SUBJECT: MCA HONDURAS MOVING FORWARD


Classified By: Classified by EconChief PDunn for reasons 1.4(b) and (d)


1. (C) Summary: MCC and the GOH continue to make progress
towards MCA-Honduras implementation. MCC has now filled the
position of Mission Director for Honduras. GOH domestic
legislation to bring the Compact agreement with Millennium
Challenge Corporation into force is quietly making the rounds
in the National Congress. Two issues within the MCA-Honduras
legislation could prove contentious: highway tolls and the
MCC salary structure. A number of legal/contractual matters
remain to be worked out as well, including drafting a
disbursement agreement, a term sheet, a procurement
agreement, a monitoring and evaluation plan, governance
regulations, a fiscal agent agreement, and a bank agreement.
The selection process for Director of the Program Management
Unit -- essentially the senior position within MCA-Honduras
-- is nearing completion. End Summary.


2. (C) GOH domestic legislation to bring the Compact
agreement with Millennium Challenge Corporation into force
and create the Honduran entity that would administer the
grant -- known as MCA-Honduras -- is quietly making the
rounds in the National Congress. President of Congress
Porfirio "Pepe" Lobo Sosa and Minister of the Presidency
Ramon Medina Luna are personally shepherding the bill through
its markup process. Because any changes to the bill could
imply very difficult changes to the underlying Compact, few
actual markups are expected. Medina told EconChief and
MCCDir recently that this is "a delicate process,"
considering the difficulty of submitting a law to Congress
with the instructions that they can change nothing in it.
The draft legislation was submitted to Congress on July 28.
No date for passage of the bill has been set, but Lobo has
pledged to move the legislation to a vote before Congress
recesses on September 15.


3. (C) A number of legal/contractual matters remain to be
worked out as well, including drafting a disbursement
agreement, a term sheet, a procurement agreement, a
monitoring and evaluation plan, governance regulations, a
fiscal agent agreement, and a bank agreement. While complex,
these documents are considered to be international business
standards and should pose few problems for drafting and
approval. An MCC team will visit Honduras beginning August 8
to continue work on these and other legal matters.


4. (C) Two issues within the MCA-Honduras legislation could
prove contentious: highway tolls and the MCC salary
structure. On the former, the MCC required the GOH to
indicate how it would make the operations and maintenance of
the highway portion of the project sustainable over the long
term. The GOH has adopted an Interamerican Development Bank
(IDB) proposal (also proposed for other, non-MCC portions of
the highway system) that would authorize levying a toll of
one centavo (about 1/20 of a U.S. cent) per axel per
kilometer. It is estimated (though not yet rigorously
calculated by the IDB) that this toll would on average add up
to 25% of the fuel bill to the total cost of a trip. MCA
believes the cost savings in time on the shorter, better
maintained route will more than offset this cost.
Nevertheless, there are concerns that the new toll idea could
cause political unrest in an election year, particularly in
the face of widespread anxiety over high gasoline prices.
For these reasons, this provision was removed from the
legislation, which might ease passage but will only delay
Congressional consideration of a separate bill on this topic
later in this session.


5. (C) The second issue, that of salaries, is also related to
an outside concern: a recent political tempest over
consultancy fees for the modernization of the parastatal
electric company, ENEE. In that instance, opponents of
organizational reform of ENEE turned the consultancy fees of
the review commission (up to $1,000 per day per consultant)
into a cause celebre, ultimately pressuring the Congress to
cancel the contract. There is therefore great sensitivity in
Congress about salaries paid to so-called "consultants," and
that has lead to scrutiny of the pay scale proposed by
MCA-Honduras for its almost-entirely-Honduran staff.


6. (C) The selection process for Director of the Program
Management Unit -- essentially the senior position within
MCA-Honduras -- is nearing completion. Of over 28
applicants, 5 were short-listed by a Honduran selection
committee and three identified as finalists. MCC is
currently considering, with other USG agencies' input, the
suitability of the three candidates. The selectee is to be
chosen from the three by a Honduran board. Other
MCA-Honduras positions (roughly equivalent to Vice
Presidents) are to be selected via the same process, but
those lists continue to lag behind schedule, with no
short-lists yet completed.


7. (C) The GOH, with MCC oversight and assistance, has begun
the procurements that are necessary to avoid delaying
implementation. Bidding documents for the Transportation
Program Manager, the farmer training and development
coordinator, and the procurement supervisor are in final
stages of preparation and are expected to be published soon.


8. (U) Finally, it should be noted that MCC has now filled
the position of Mission Director for Honduras. John Wingle,
who also helped design and negotiate the Honduran Compact,
arrived at Post on July 18. He can be reached at
WingleJX(at)state.gov.


9. (C) Comment: Much remains to be done, as an organization
that began as a mere legal framework must learn to first
crawl and then walk towards implementation. The GOH
continues to demonstrate strong political will to keep the
project moving forward, though there is general consensus
that actual first disbursement could be delayed until the
first quarter of CY 2006. Post and MCC remain vigilant to
any weaknesses in the new structure that could permit
corruption to creep in. End Comment.

Tuebner