MEXICAN RESPONSE TO HONDURAN FUEL IMPORT ANNOUNCEMENT

1. (C) Embassy delivered reftel points to GOM officials
involved in the Mesoamerican Energy Initiative (PIEM) both at
the Energy Secretariat (SENER) and at the Secretariat of
Foreign Relations (SRE). In a March 20 meeting, Energy
Secretariat officials admitted that the GOH had already

SIPDIS
approached PMI (the marketing arm of Pemex, the national oil
company) at the working level in search of crude supplies.
Our SENER sources reiterated that PMI officials told the
Hondurans that they were prohibited under Mexican law from
selling crude or gasoline outside Mexico at a discount from
the world price. As far as the effect the Zelaya plan would
have on the PIEM, our interlocutors noted that the Honduran
crisis is immediate, while the PIEM would not be operational
for at least 5 years and most likely more. They did not see
the two proposals as mutually exclusive. End Introduction
and Summary

2. (C) Our SRE interlocutors noted that the situation
threatened the stability of President Zelaya. While the GOM
has taken no specific position on the Honduran plan,
following our demarche, one source provided Econoff with a
GOM 'information memorandum' referring to reporting from the
Mexican Embassy in Honduras on the situation (protect).
While the memorandum does not take a specific stand, the
Mexican Ambassador in Tegucigalpa has engaged the Hondurans
on the issue. An informal Embassy translation follows.

3. (C) Begin informal embassy translation:

Our Embassy (the Mexican Embassy in Honduras) reports that
serious problems have arisen with the supply and high price
of oil in Honduras leading to President Manuel Zelaya
Rosales' decision to go ahead with an international bid for a
single fuel supplier. A distinguished persons group formed
in 2005 to address the rapid rise in gasoline prices
suggested the bid after strikes paralyzed the country.

In talks with the Embassy, Eduardo Valle, local expert and
representative of multinational energy companies in Honduras,
warned, "the government's decision is a great danger, like
playing 'Russian Roulette,'" adding "as an expert, I consider
it pretty risky for the government to drop from four to one
fuel supplier. Nowhere in the world is the state a good
administrator," referring to the government of Honduras'
planned position as monopoly supplier.

Some local analysts counter that Mr. Valle limits himself to
reiterating the same stubborn position of the importers --
that the bid doesn't guarantee low consumer prices and sends
a negative message to investors at exactly the moment that
the country must pull together behind CAFTA -- without
offering viable alternatives to Honduran authorities.

The Embassy also notes that in support of Valle's position,
and seriously questioning the Honduran government's decision,
U.S. Ambassador Charles Ford commented that "the rules of the
game changed overnight for foreign investment," although he
assured that neither he nor the U.S. government would be
upset by the Honduran decision. The U.S. would respect
whatever measures President Zelaya were to take to reduce
fuel prices. Ford questioned "the fact that policies
affecting businesses, especially U.S. businesses, changed
overnight," adding "we will have to evaluate these decisions.
Is this the best way to treat investors that have maintained
investments in the country for 80 years under one set of
rules? Why would the government of Honduras seek to create a
purchasing monopoly within an open market?" Ambassador Ford
also called into question the fairness and transparency of
the Honduran government's efforts to reduce fuel prices.


MEXICO 00001798 002 OF 002



On March 15, President Zelaya convened a press conference to
clarify aspects of the international bid:

1) The Government of Honduras did not, as Ambassador Ford
claimed, change the "rules of the game." The national
government decided to act in accordance with the Council of
Ministers' Accord in the best interests of the country.

2) It would not tolerate fuel importers "hiding" product
as a means to pressure the government to cancel its decision
with respect to the international bid.

3) If they did, the Government would apply the full force
of law.

4) Fuel importers had received increasing benefits over
the past seventy years; it was now time to favor the most
vulnerable in the population.

5) In conjunction with the international bid, the
government would begin constructing storage tanks and planned
to offer operating rights as a concession to private entities.

6) Government officials will visit oil-producing countries
to look for fuel supplies at prices more favorable to
Honduras. Presidency Minister Yani Rosenthal plans to visit
Mexico shortly.

The Embassy reports that, despite the claims made by
Ambassador Ford, President Zelaya underscored Honduras'
sovereign intention to make its own decisions on oil imports.
It will follow the suggestion of the distinguished persons
group designated for this purpose, and will go ahead with the
international bid. The Honduran government believes that it
will be possible to reduce the price of fuel in local
markets, and has sent delegations to producing countries
inside and outside the region to look for a lower cost supply.

Finally, on March 29 Ambassador Gutierrez Pita (Mexican
Ambassador to Honduras) met with Minister Yani Rosenthal.
Ambassador Gutierrez reviewed in detail the cooperation
programs Mexico has developed in Honduras, both from the
bilateral perspective and the programs offered through the
Tuxtla Agreement. The Ambassador suggested that he would
raise the possibility of holding a Binational Commission
meeting within the Mexican government at a future date in
2006.

Minister Rosenthal expressed interest in initiating contacts
with high-level Mexican government officials to discuss,
among other subjects, an invitation to Pemex to participate
in the international bid to supply fuel in the short term.
He would also be seeking meetings with the Secretary of
Energy and his Pemex counterparts dealing with fuel sales.

End Embassy Translation

4. (C) Comment: While our Mexican sources continue to
optimistically press the PIEM, they expressed sympathy with
the situation faced by President Zelaya. It is unlikely that
our Mexican counterparts would stake out any public position
at all on the Honduran situation, let alone one favorable to
current Honduran importers. End Comment.


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