Identifier
Created
Classification
Origin
05TEGUCIGALPA546
2005-03-10 14:36:00
CONFIDENTIAL
Embassy Tegucigalpa
Cable title:  

HONDURAS: PORT FEE NOT SUSPENDED AFTER ALL;

Tags:  EWWT ETRD ECPS EINV PGOV KMCA HO 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 000546 

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: 03/08/2015
TAGS: EWWT ETRD ECPS EINV PGOV KMCA HO
SUBJECT: HONDURAS: PORT FEE NOT SUSPENDED AFTER ALL;
PRIVATE SECTOR FEELS BETRAYED

REF: A. A) TEGUCIGALPA 399


B. B) TEGUCIGALPA 363

C. C) TEGUCIGALPA 331

D. D) TEGUCIGALPA 341

Classified By: Economic Chief Patrick Dunn for reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 000546

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: 03/08/2015
TAGS: EWWT ETRD ECPS EINV PGOV KMCA HO
SUBJECT: HONDURAS: PORT FEE NOT SUSPENDED AFTER ALL;
PRIVATE SECTOR FEELS BETRAYED

REF: A. A) TEGUCIGALPA 399


B. B) TEGUCIGALPA 363

C. C) TEGUCIGALPA 331

D. D) TEGUCIGALPA 341

Classified By: Economic Chief Patrick Dunn for reasons 1.4 (b) and (d).


1. (C) Summary: Contrary to alleged assurances made by
President Maduro on February 11 that he would suspend
publication and entry into force of the controversial new
contract for x-ray scanning at Puerto Cortes, the contract
was published in the official Gaceta on February 15. The
question of who will pay the contracted fee of $55 per
container remains unanswered. A united private sector group
believed it had succeeded in temporarily halting the entry
into force of the contract, fearing the potential economic
damage that the fee would do to Honduran competitiveness.
Now, citing perfidy by the GOH, the private sector is
threatening to sue, while the GOH alleges a conspiracy
against it by shadowy forces seeking to block security
improvements at the port. Post will continue to stress to
all parties that an efficient, secure, and competitive port
is the key infrastructural element in Honduras' strategy of
export-driven growth. End Summary.


2. (C) The GOH recently approved a USD 55 per container fee
for x-ray scanning at Puerto Cortes (Ref C). This fee, if
passed on to port users, will dramatically increase port
costs, potentially rendering the port uncompetitive and
diverting trade and investment away from Honduras (Ref D).
The private sector is united in opposing this new fee (Ref
B). On February 11, the private sector approached the
President to request that he delay publication of the
approved contract. Post previously reported (Ref A) that at
that time the President undertook to consult with his
advisors and reply to the group in the next few days, but
that there was apparently no firm guarantee that the contract

would not be published. Subsequently, several private sector
sources have told Econ Chief that they left that meeting with
the understanding that publication would indeed be delayed.


3. (C) In actuality, the printing request had been submitted
weeks before, on February 3, and was already scheduled for
printing on February 15. Mechanical difficulties delayed
printing until February 17 (though when printed the Gaceta --
Federal Register equivalent -- was back-dated to February
15). On Friday, February 18, Minister of the Presidency Luis
Cosenza delivered a written reply to the private sector's
appeal of February 10, in which he wrote that the GOH had no
power to delay printing and that to do so would have been an
"abuse of authority." (Comment: If true, this rule is
honored in the breach: the GOH has a history of not
publishing legislation as a means of delaying entry into
force. More frustrating for the private sector, Cosenza did
not raise this objection at the February 11 meeting, instead
allowing them to think the matter was in suspension pending
discussions when, in fact, the contract was already at the
printing office. End Comment.)


4. (C) In his February 18 letter, Cosenza also said that at
no time has the GOH claimed that the project was mandated by
the USG to assure certification of Puerto Cortes. Several
sources, including GOH Congressmen, claim administration
officials said precisely that to Congress to get the bill
passed. Cosenza also wrote that the question of who pays the
fees is yet to be worked out and that he awaits the results
of the Alvarado Commission before he will "sit down to listen
to the point of view" of the private sector. The private
sector counters that the Commission headed by former Minister
of Finance Arturo Alvarado, tasked with considering payment
methods for the fees, has not been called to session in the
last two weeks. Some are beginning to suspect the Commission
is a stalling tactic and that the fee structure will be
sprung on them as a fait accompli, as were both the passage
of the bill through Congress and its publication in the
Gaceta.


5. (C) Comment: Post finds Alvarado a credible and honest
interlocutor and does not believe he personally is stringing
the private sector along. That said, he has been given the
nearly impossible task of finding a source for USD 55 per
container in new fees. Unless the GOH is willing to pay much
of this new fee from increased customs revenues -- and we
have no indication they are willing to do so -- then the
Commission will have no choice but to recommend the fees be
passed on to port users. This will appear to the private
sector to confirm their worst fears, that the entire exercise
was for show, that the GOH intended to stick them with the
fees all along, and that the Commission was a farce. The
fact that the Commission is not actively meeting (which the
GOH attributes to intransigence on the part of the private
sector),and that Minister Cosenza refuses to even listen to
the private sector point of view until the Commission reports
its findings, only deepens private sector cynicism. However,
this stonewalling method is used frequently to settle
disputes in Honduras, leading to de facto acceptance of new
policies over time. End Comment.


6. (SBU) On February 22, private sector representatives,
meeting to discuss next steps, expressed anger and resentment
at the GOH's response to their concerns. The group reviewed
its litany of complaints (reported extensively in reftels)
about the bid solicitation, the pricing structure, and the
likely impacts on competitiveness. Honduran Industrialists
Association (ANDI) President Adolfo Facusse then noted that
the Port Authority (ENP) generates net revenues of
approximately 280 million lempiras annually, of which 33.6
million are transferred to local government and 210 million
to the central government, leaving the port with 38 million
lempiras (about USD 2 million) in profits. Using the
contractually-stipulated baseline of 300,000 containers per
year (well above the 240,000 that actually arrived in 2004,
another source of contention),the scanning consortium will
be owed approximately 195 million lempiras in payments per
year. Obviously, Facusse said, the Port Authority could not
pay these fees, as that would entirely exhaust the entire
year's cash flow and bankrupt the port. Some other source
must be found to pay, and he is convinced the GOH intends
that it be the private sector.


7. (SBU) Some present noted that physical constraints made it
impossible for everyone to abandon Puerto Cortes at the same
time. Additionally, for some Honduran shippers, the costs of
doing so would be prohibitive. Finally, the Honduran Private
Enterprise Council (COHEP) representative asked how shippers
would get all those goods to Guatemalan ports? If the
private shippers tried to set up their own firm just to
transport goods to Guatemala, he said, "the truckers' unions
would take over the highways" in protest. Many agreed with
these points but noted that Maersk and Crowley, two major
shippers with regional traffic sourced from Nicaragua and El
Salvador, have each announced plans to abandon Cortes if fees
are set too high. Since both previously used Guatemalan
ports, before being lured away by price cuts and preferential
treatment at Cortes, their threat to return to Guatemalan
ports is a credible one and could cost Puerto Cortes up to
100 million lempiras annually, according to some published
estimates. Maersk officials claim they could switch ports
over a period of just eight days.


8. (SBU) The group brainstormed options, eventually listing
nine for consideration: (1) demand a new contract; (2)
demand the GOH pay the entire fee; (3) launch a PR campaign
alleging corruption; (4) open the scanning service to
multiple providers to spur competition and lower prices; (5)
listen to the "siren song" of the Alvarado Commission and
hope for the best; (6) launch a legal fight to have the
contract voided; (7) open negotiations with Santo Tomas and
other Guatemalan ports; (8) meet with President of Congress
and Presidential candidate Porfirio "Pepe" Lobo and emphasize
the political damage this fee could do to his campaign; and
(9) demand that Minister Cosenza engage immediately in this
discussion. Many of these options can be undertaken
simultaneously, but the group decided first to seek
nullification of the entire contract via a legal challenge.


9. (C) On February 25, the issue again exploded into the
press, with public announcements by a number of companies
that they intend to consider switching their shipping to
Santo Tomas in Guatemala. The GOH immediately responded,
ignoring the private sector's expressed support for the goals
of reducing customs fraud and improving security and instead
deliberately misrepresenting the private sector's concern not
as one of costs but as one of opposition to the objectives.
In public remarks, Minister Cosenza said (incorrectly) that
the groups that are complaining have refused to support the
work of the Alvarado Commission and that opposing this
project is the same as supporting smuggling and tax evasion.
President Maduro extended this ad-hominem attack by saying
that those opposed to the scanning contract fees are
smugglers and tax evaders and saying that "there are always
those that oppose the imposition of order." Privately,
Cosenza made similar remarks to Charge, alleging that the
private sector's complaint is merely a front for shadowy
criminal elements conspiring to ensure the GOH cannot crack
down on corruption or tighten security. (Comment: Cosenza's
comments are disturbing, as they reflect what others involved
in port security privately believe about resistance to the
new fees, to wit, that there is opposition to enhanced port
security by many who benefit for the existing security
loopholes. However, neither he nor these others have
presented any evidence to support these charges. End
Comment.)

10 (C) Comment: Post is increasingly concerned by the GOH's
refusal to accept that this fee, if passed on to port users,
could be damaging to Honduran competitiveness. For that
reason, the private sector has legitimate concerns that merit
careful consideration. GOH actions to date (skipping second
and third legislative readings by pushing the bill through
Congress as an "urgent" measure; and allegedly falsely
claiming it was required by the USG for port certification;
publishing the law despite alleged agreement to suspend such
action pending further consideration) force us to question
whether the GOH is fully considering the impact these fees
could have on its export sector. Finally, if private sector
estimates are correct, the apparent windfall from the
scanning fees seems excessive and raises the specter that the
project, while based on laudable goals, is being set up as a
cash cow for crony interests, such as potentially financing
the incumbent party's national campaign this fall. End
comment.

Palmer
Palmer