MEXICAN RESPONSE TO HONDURAN FUEL IMPORT ANNOUNCEMENT

C O N F I D E N T I A L SECTION 01 OF 02 MEXICO 001798



SIPDIS



SIPDIS



FOR WHA/MEX, WHA/EPSC, AND EB/ESC



E.O. 12958: DECL: 04/05/2011

TAGS: ECON, ENRG, EPET, MX, HO

SUBJECT: MEXICAN RESPONSE TO HONDURAN FUEL IMPORT

ANNOUNCEMENT



REF: A. STATE 44500



B. TEGUCIGALPA 534 AND PREVIOUS



Classified By: ECONOMIC MINISTER COUNSELOR JAMES T. HEG FOR REASONS 1.4

(B) AND (D)



Introduction and Summary

--------------



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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GARZA