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.

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