HONDURAS: PORT FEE IMPLEMENTATION SUSPENDED

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 000399 SIPDIS STATE FOR EB/TRA, WHA/EPSC, AND WHA/CEN STATE FOR EB/TRA (DHAYWOOD) TREASURY FOR DDOUGLASS COMMERCE FOR AVANVUREN, MSIEGELMAN STATE PASS AID FOR LAC/CAM E.O. 12958: DECL: 02/18/2015 TAGS: EWWT ETRD ECPS EINV PGOV KMCA HO SUBJECT: HONDURAS: PORT FEE IMPLEMENTATION SUSPENDED REF: A. A) 05 TEGUCIGALPA 363 ¶B. B) 05 TEGUCIGALPA 331 ¶C. C) 05 TEGUCIGALPA 341 ¶D. D) 04 TEGUCIGALPA 2165 ¶E. E) 04 TEGUCIGALPA 2267 Classified By: Economic Chief Patrick Dunn for reasons 1.4 (b) and (d) ¶1. (U) Summary: A united private sector has succeeded in temporarily halting the entry into force of a contract for x-ray scanning at Puerto Cortes, citing the potential economic damage that the contracted fee of USD 55 per container would do to Honduran competitiveness. The respite is temporary, and talks continue with the GOH. End Summary. ¶2. (C) Background: The GOH had recently approved a USD 55 per container fee for x-ray scanning at Puerto Cortes (Ref B). This fee, if passed on to port users, would have nearly doubled port costs, rendering the port uncompetitive and possibly diverting trade and investment away from Honduras (Ref C). The private sector united in opposing this new fee (Ref A). The decree containing the contract terms and fees, already approved by the National Congress, was transmitted in mid-January to President Maduro, who signed it despite a written request from the Honduran Private Enterprise Council (COHEP) strongly urging him to veto the bill. Until it is published in the Gaceta (the GOH Federal Register equivalent),the contract does not become official. On February 11, the private sector approached the President to request that he delay publication of the approved contract. (For additional background on the controversy surrounding the procurement of this contract, see Refs D and E.) ¶3. (C) The petition was presented to the President by a united private sector front consisting of representatives of COHEP, the Honduran Industrialists Association (ANDI),the Chamber of Commerce of Cortes, the Chamber of Commerce of Tegucigalpa, the Honduran Manufacturers Association, and AmCham members Dole and Chiquita. All had previously publicly agreed on their opposition to the new fees as non-transparent and potentially economically devastating. On February 16, EconChief spoke with the COHEP Executive Director Benjamin Bogran, who said that the President told the group it had been his understanding that the project would be fully financed from increased customs revenues and fines. In response to the group's complaint, the President undertook to consult with his advisors and reply to the group in the next few days. In the meantime, there is apparently no firm guarantee that the contract will not be published. According to Bogran, it was not published yesterday as expected because of a mechanical failure in one of the typesetting machines. ("You have to believe me," Bogran told EconChief, "it really was an accident!") ¶4. (C) The private sector group is now preparing for two future courses of action. First, the group hopes that the President will revisit the issue and will open a dialogue that results in no pass-through of fees to port users or pass-through only to importers, while exempting exporters. Even in that case, Bogran noted, the GOH should pay a substantial part of the fee from customs revenues, with much of the remainder paid for by fines on customs violators. Additionally, he said, the overall cost structure of the deal should be examined, since it appears to many that the per-container fee proposed is simply too high to begin with. As a second course of action, should the first fail, the group has asked lawyers to prepare legal motions seeking to declare the entire bid solicitation process invalid and unconstitutional. ¶5. (U) According to Adolfo Facusse, President of ANDI, the private sector's principal objection to the proposed fees was the concern that the high fees will price Honduran ports and Honduran producers out of the market. According to figures presented by the group, Puerto Cortes was already the most expensive port in the region, even before the new proposed fees are added. Including all handling fees, wharfage, and other costs, port fees in Cortes were estimated to be USD 171, where costs in nearby Guatemalan ports of Santo Tomas and Barrios were notably lower, at USD 133.83 and USD 136.72 respectively. Puerto Limon, Costa Rica, was the least expensive, at just USD 75.09. Facusse told one reporter, "If Costa Rica can sustain port operation for this little, why can't we do the same? Instead, we risk losing the competitiveness of Puerto Cortes." ¶6. (C) Comment: The private sector has repeatedly assured both Post and the GOH that it is not opposed to increased security, improved port efficiency, or fighting corruption in the Customs Service. If a way can be found for the x-ray contract to self-finance (for example, out of the increased customs revenue it is expected to generate) then the private sector would likely support it. That said, Post agrees with the private sector that adding up to USD 55 in additional user fees to the port threatened the port's competitiveness and the viability of economic development strategies (including CAFTA and MCC) predicated on exports via Cortes. Post encouraged the private sector to make a strong, well-researched economic argument against full pass-through of the fees. Post also approached senior GOH officials to express our concerns. This two-pronged approach appears to have worked, as the GOH has agreed to pause to reconsider the level of the fees and seek an appropriate way to apportion them that will not prejudice Honduran competitiveness. We will continue to follow this issue closely as it develops. End comment. Pierce Pierce