Identifier
Created
Classification
Origin
06TEGUCIGALPA1329
2006-07-25 21:36:00
CONFIDENTIAL
Embassy Tegucigalpa
Cable title:  

Honduran President Zelaya Discusses Fuel,

Tags:  PREL EPET ENRG PGOV PINR HO 
pdf how-to read a cable
VZCZCXRO1005
OO RUEHLMC
DE RUEHTG #1329/01 2062136
ZNY CCCCC ZZH
O 252136Z JUL 06
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2799
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHCV/AMEMBASSY CARACAS PRIORITY 0400
RUEHME/AMEMBASSY MEXICO PRIORITY 6602
RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0036
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0432
C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001329 

SIPDIS

SIPDIS

STATE FOR EB/ESC, WHA/EPSC, WHA/PPC, AND WHA/CEN
STATE FOR D, E, P, AND WHA
TREASURY FOR DDOUGLASS
STATE PASS AID FOR LAC/CAM
NSC FOR DAN FISK

E.O. 12958: DECL: 07/24/2031
TAGS: PREL EPET ENRG PGOV PINR HO

SUBJECT: Honduran President Zelaya Discusses Fuel,
Electricity and the Economy with Ambassador


C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001329

SIPDIS

SIPDIS

STATE FOR EB/ESC, WHA/EPSC, WHA/PPC, AND WHA/CEN
STATE FOR D, E, P, AND WHA
TREASURY FOR DDOUGLASS
STATE PASS AID FOR LAC/CAM
NSC FOR DAN FISK

E.O. 12958: DECL: 07/24/2031
TAGS: PREL EPET ENRG PGOV PINR HO

SUBJECT: Honduran President Zelaya Discusses Fuel,
Electricity and the Economy with Ambassador



1. Classified by: Ambassador Charles Ford for reasons 1.4
(b) and (d)


2. (C) Summary. Ambassador and A/DCM met with Honduran
President Jose Manuel "Mel" Zelaya and Foreign Minister
Milton Jimenez for more than an hour during the evening of
July 23. Zelaya was relaxed and discussed plans for an
international bid process to supply HondurasQ petroleum
needs, the sale of a Honduran importer and distributor of
petroleum products, the country's macroeconomic situation,
and his plans to reduce the cost of some privately
generated electric power. A readout of the meeting
follows. End Summary

The Fuel Bid
--------------


3. (C) Zelaya said the draft terms of reference (TOR) for
the proposed international oil bid would be made public via
the Internet on July 25 and would be held open for public
comment for ten days. Zelaya promised to provide the
Ambassador a copy of the TOR. He noted that legal advisor
Enrique Flores Lanza had originally planned to use a
committee of experts to assess the draft TOR. Zelaya said
the bid would be structured to use trade financing, not
project financing.


4. (C) Zelaya saw three possible outcomes from the bid
process. The winning bidder could already possess the
needed storage and distribution facilities. The winning
bidder might not possess the needed storage and
distribution facilities, but would be able to acquire or
build them within about one year. The third choice would
be that the bid would fail. In this last case, Zelaya said
he had reason to believe one or more of the existing
multinational petroleum companies would offer Honduras a
reduced price for petroleum.

Sale of DIPPSA
--------------


5. (C) In response to the AmbassadorQs observation that
DIPPSA exists because of the GOH-mandated structure of the

petroleum market in Honduras, Zelaya said the GOH had
nothing to do with DIPPSA's sale. FM Jimenez referred to
the apparent buyer of DIPPSA, U.S. firm Caribbean
Petrochemical Company, as a front company for Venezuela
that would be hard to investigate. Zelaya directed Jimenez
to find out on July 24 to whom DIPPSA owner Henry Arevelo
had sold his firm. Despite averring to not knowing who had
or would buy DIPPSA, Zelaya knew that Arevelo had paid USD
60 million for the firm and would sell it for USD 90
million. The Ambassador offered to use Embassy resources
to help investigate the sale.

Macroeconomics
--------------


6. (C) Zeleya identified two goals vis-a-vis the
International Monetary Fund (IMF),to close the current
agreement and to negotiate a new three-year agreement. He
said he had spoken to senior Fund representatives and had
requested flexibility to deal with the teachers' unions.
Zelaya expressed confidence he could successfully negotiate
with the teachers and meet Fund targets.


7. (C) Zelaya said he had increased liquidity in the
Honduran economy by reducing the amount local banks are
required to leave on deposit with the Central Bank. This
has lead to reduced interest rates and a six percent growth
rate for the economy. He said strong economic growth was
leading to increased tax revenues. Zelaya recognized the
risk of inflation, but said he had identified and could
control the two main causes of inflation, rising fuel
prices and increased taxes. Zelaya said the Fund was

TEGUCIGALP 00001329 002 OF 002


satisfied ("esta contento") with his plans.

Fuel Subsidies
--------------


8. (C) The Ambassador asked Zelaya how he intended to get
away from subsidizing fuel prices. Zelaya said the GOH
could afford to continue; it is spending about USD 2
million a month or less than one percent of income. If oil
prices continue to rise, he will go to targeted subsidies
for buses, taxis, and transport companies. If oil hits USD
100 a barrel, it will be impossible to continue subsidies.

Reducing Cost of Electricity
--------------


9. (C) Zelaya noted that the Government of Panama had just
conducted an open bid for private energy providers and
received bids of nine cents per kilowatt hour for coal-
fired power and eleven for oil. Current contracts with
Honduran private generators, who use oil, range in price
from nine to 19 cents. Zelaya said the suppliers would,
this week, accept long-term, renegotiated contracts that
drop all prices to nine cents. The national energy firm
resells the power for about 10 cents.

Venezuela
--------------


10. (C) Zelaya said that during a recent regional meeting
in Panama, Salvadoran President Tony Saca asked President
Martin Torrijos to ask Venezuela not to meddle in
Salvador's affairs by supporting FMLN candidates. Saca
sought Central American solidarity to stop Venezuelan
meddling in their affairs. Zelaya said GOH dealings with
Venezuela would be purely commercial.


11. (C) The Ambassador, DCM, EconChief and ConGen will meet
with FM Jimenez, Minister of Defense Aristedes Mejia, and
legal advisor Flores Lanza on July 26 to continue
conversations on a range of issues.

Ford