Honduran Gasoline Price Freeze Extended; More

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 002044

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, EB/ESC
ENERGY FOR IA

E.O. 12958: N/A
TAGS: EPET ENRG EINV ECON PGOV PBTS HO
SUBJECT: Honduran Gasoline Price Freeze Extended; More
Hope Sunk into Domestic Oil Exploration, PetroCaribe.


C O R R E C T E D C O P Y (REMOVED SENSITIVE CAPTION, ADDED TAGS)

REF: A: Tegucigalpa 01910
B: Tegucigalpa 01970


1. (U) Summary: The Honduran "notables" committee selected
to review gas prices and investigate short and long term
solutions has recommended continuing the current price
freeze until October 16. What group will pay the estimated
$250,000 USD per day differential is still in doubt.
Pressure to find a long-term solution has put renewed
interest in Venzuela's PetroCaribe program and even sparked
interest in off shore drilling, which has a long history of
disappointing results and border disputes. End Summary.


2. (U) As the last gasoline price freeze recommended by the
Honduran "notables" Commission (reftel A) was set to expire
on Tuesday, September 27, the group recommended once again
to continue the price freeze at the August 26 price of 68
Lempiras (approx $3.60) per gallon for unleaded regular
gasoline until October 16. The price freeze was initially
instituted on September 7 for ten days, then extended on
September 17 for an indefinite period, widely assumed to be
for another ten days, though without a formal Congressional
Decree specifying this.


3. (U) Cardinal Oscar Rodriguez, head of the commission,
continued his more subdued rhetoric. While initially
calling the large price increases "immoral" and demanding
accountability, he has supported the price freezes as
"temporary solutions" and called for the people to
eventually "confront the reality" of higher gasoline
prices. "The problem (of high gasoline prices) is not
just a problem for the Government, or the Congress, or the
Commission, but for all of Honduras," he said.


4. (U) At issue is who will pay the differential between
the current market prices and the fixed 68 Lempira retail
price, estimated at around $250,000 USD per day. The GOH
will pay the differential for the first 10 day price
freeze, but its plans to have the six major gasoline
distributors pay for the second ten day price freeze has
met some industry resistance (reftel B). In addition,
without a formal Congressional decree establishing the
price freeze, foreign firms fear that the freeze could be
viewed as collusive price setting and therefore as a
violation of U.S. anti-trust laws. According to Texaco
managers that attended a September 27 meeting with
President Maduro, the GOH has specifically asked that they
pay the differential only for the period covering October 3
to 16, with the GOH paying the differential up to October

2.


5. (U) President Maduro stated that if the importers do not
agree to pay the differential during the latest price
freeze, the GOH may use a Congressional decree to import
gasoline directly and use private industry (mainly Texaco)
storage facilities (on market terms). This may open the
door to refined gasoline purchases from Venezuela, which
would require a Caribbean port to store and distribute
supplies. President Maduro has requested a meeting with
Venezuelan President Hugo Chavez, and Minister of Industry
and Trade Irving Guerrero plans to travel to Venezuela
within the next two weeks. Texaco managers have already
received specific pricing requests for the use of their
facilities.


6. (U) The search for longer term solutions has also
renewed interest in potential domestic oil production in
waters off Honduras' Caribbean coast. Over the past 85
years, 18 oil wells have been sunk in the region, with only
a few barrels of Brent-grade crude extracted. While
previous industry studies have concluded the area is not
sufficiently productive to justify development, calls
continue to reinvestigate potential production and the GOH
has announced plans to open permits for exploration. In
the meantime, Nicaragua has announced plans to concession
oil exploration rights off its Atlantic coast, including in
waters north of the 15th parallel. Honduras has a
competing claim to these waters, and has publicly announced
that any oil concessions granted in the contested waters
would be legally null and void. This maritime border
dispute with Nicaragua, going on since the early 1980's, is
now in the hands of an international court.


7. (U) Comment: The third in the continuing series of
gasoline price freezes is the GOH's latest attempt to avoid
social strife while hoping that world gasoline prices will
come down before the November 27 presidential elections.
Publicly, the GOH appears to be using this extension to
drive home the message that high gasoline prices are out of
their control and could continue for the foreseeable
future. Commission member Cardinal Rodriguez, whose early
strong reaction against the price increases helped foment
the social opposition and sparked widespread taxi strikes
and street blockages on September 6 and 7, has moderated
his recent remarks, warning the public that higher prices
are likely in the offing. History would suggest that
drilling for oil in the historically unproductive Honduran
offshore is unlikely to yield much (and certainly not in
the short term),but today's historically high prices for
crude oil significantly expand the definition of an
economically viable oil well. To date, Post is aware of
slight interest by oil companies in exploring in Honduras,
but Post will continue to follow developments with
interest. Post assesses the GOH engagement with Venezuela
and its PetroCaribe initiative as little more than
political theatre, but will watch that relationship
closely. End Comment.

Williard