HONDURAS: SOME GOH AND IMF WORRIES OVER COST OF

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001991

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, DRL/IL, AND EB/ESC
STATE FOR DS/IP/WHA - MFLYNN, DS/ITA - KHALL, DS/DSS/OSAC
COMMERCE FOR MSEIGELMAN
TREASURY FOR DDOUGLAS
ENERGY FOR IA
DOL FOR ILAB

E.O. 12958: DECL: 09/25/2015
TAGS: EPET ECON ELAB PGOV KSAC HO
SUBJECT: HONDURAS: SOME GOH AND IMF WORRIES OVER COST OF
FUEL SUBSIDIES; REJECTION OF ENERGY-SAVING RESTRICTIONS

REF: A. A) TEGUCIGALPA 1851


B. B) TEGUCIGALPA 1873

C. C) TEGUCIGALPA 1910

D. D) TEGUCIGALPA 1970

E. E) TEGUCIGALPA 1971

Classified By: ECONCHIEF PDUNN FOR REASONS 1.5(B AND D)


1. (C) Summary: In an emergency session on September 22,
the GOH Council of Ministers declared an energy state of
emergency in Honduras and imposed a number of energy
conservation measures, but did not directly address fuel
prices, which apparently remain frozen without a formal
Congressional decree. Taxi drivers and gas station owners
have rejected the new plan, and intend to defy it or go on
strike. Price rises in gasoline, widely expected for
September 27, are unlikely to happen, according to senior GOH
officials. Oil companies remain deeply concerned that they
will have to absorb the losses from selling gasoline at
below-market prices, while the GOH is concerned that, if it
were to cover those costs, it would break faith with the IMF.
The Fund, meanwhile, is intent on saving the GOH from
itself, but does not yet see a reason to panic over fuel
prices, and will be sending an advisory team later this week.
End Summary.


2. (U) Taxi and Bus Drivers: Transport workers have rejected
the September 22 decision of the GOH Council of Ministers to
redesign bus routes and limit taxi access to downtown areas
in the name of reducing fuel consumption. Taxi drivers have
loudly complained that they offer a door-to-door service, and
restricting their access to downtown would significantly hurt
their ability to earn a living. Capitalizing on their
newfound status as popular heroes (for blockading the city
until gasoline prices were reduced - refs A and B),taxi
drivers have also refused to accept announced plans for
subsidies only to registered taxi drivers (refs D and E).
Representatives of the taxi drivers have announced that if
gasoline prices are increased on September 27 they will again
strike and again block city traffic throughout Tegucigalpa.
(Security implications of this threat will be reported
septel).


3. (U) Gasoline Station Operators: The Honduran Association
of Gas Station Owners (ADHIPPE) has rejected the Council of
Ministers prohibition on gasoline sales on Sundays and has
vowed to defy the ban. According to group spokespersons, the
ban is illogical and will fail in its stated goal of reducing
consumption, since drivers will merely fill up on Saturday or
Monday instead. Further, the group claims it is dangerous,
since it will promote the operation of "backyard pumps"
(bombas de patio) selling gasoline on Sundays.


4. (C) Minister of the Presidency Ramon Medina Luna told
Charge on September 26 that the Commission of Notables (a
group established by the GOH to examine reforming the
GOH-managed fuel pricing regime) would likely issue a
statement but not recommend an increase in fuel prices on
September 27. While this might avert another taxi strike, it
leaves U.S. oil companies in a dangerously undefined
situation, as no source of funds has been formally identified
to reimburse them for selling imported fuel at below-market
rates. (Despite the lack of a decree to this effect,
gasoline prices remain frozen at August 26 levels, with
importers currently absorbing the loss.) Minister Medina
Luna reported that the price freeze has cost the GOH 73
million lempiras (approximately USD 3.9 million) in the first
20 days, and he fears if this spending continues the GOH
could break its spending limits agreed to with the
International Monetary Fund (IMF).


5. (C) EconChief spoke September 26 with IMF Resident
Representative Hunter Monroe, who said the GOH spent 35
million lempiras in the first 10-day period of the price
freeze (the period that was to be reimbursed by the GOH,
according to the Congressional decree.) Since 0.1 percent of
GDP is approximately 172 million lempiras, it would take six
10-day periods "for it to even cause a blip on the radar
screen." The Fund is not overly worried at present with GOH
spending in this regard, though they are somewhat concerned
by the open-ended nature of the current price-freeze and its
potential longer-term fiscal implications. At GOH request,
an IMF team will be visiting Honduras September 28-30 to
examine the options on the table for closing the IMF review
"in light of any recommendations from the Commission of
Notables." One way the GOH could limit their upside risk,
Monroe noted, is to invest in futures or options on the
petroleum markets. "They are just not that expensive," he
said. The key thing to remember, he told Post, is that the
Fund is "looking for a way to keep this (PRGF) program
going." The GOH has a history of losing fiscal discipline in
the run-up to national elections. This year, the GOH has
managed to maintain that discipline thus far, and elections
are only two months away. If the GOH can keep their program
on the straight and narrow, they will pass on to the new
government a solid fiscal situation that no previous
administration has had.


6. (C) EconChief also contacted Vice Minster of Commerce Iris
de Coello, who is responsible for the Commerce Ministry while
Minister Irving Guerrero is out of the country. (The
Petroleum Technical Unit -- UTP, the GOH office responsible
for setting fuel prices -- is housed within the Ministry of
Commerce.) Coello said she has no information on when or if
gasoline prices will change. The Commission of Notables will
make a recommendation, she said, and only then will her
Ministry take any action to adjust prices. (Note: The
former head of the UTP, Perfecto Aguilera, is also out of the
country, reportedly on leave but in actuality having been
dismissed from the UTP after a falling out with the Minister.
Aguilera was a well-respected technician responsible for
implementing the gasoline-pricing formula, but, in the view
of the Minister, with too narrow a focus. According to
Minister Guerrero, with whom EconChief spoke on September 23,
Aguilera will resume his price-setting duties, but from an
office within the Ministry of the Presidency. The UTP will
be expanded, Guerrero said, to enable it to deal with broader
energy policy issues including biodiesel, renewable energy,
and ethanol. End Note.)

Williard
Williard