C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001427

SIPDIS

NOFORN
SIPDIS

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

E.O. 12958: DECL: 08/08/2016
TAGS: EPET PINR PGOV HO VE
SUBJECT: HONDURAS: DIPPSA NOT SOLD YET, BUT BOTH RECA AND
VENEZUELAN FIRM REMAINS INTERESTED

REF: TEGUC 1393 AND PREVIOUS

Classified By: AMB Charles Ford for reasons 1.4 (b) and (d)


1. (C) Henry Arevalo, President and owner of Honduran
gasoline distribution company DIPPSA, confirmed to Ambassador
and EconChief on August 8 that he had not concluded the sale
of his company and continues to seek a buyer. According to
Arevalo, uncertainty surrounding the pending national fuel
bid solicitation "scared off" other bidders, such as
Trafigura. Caribbean Petrochemical -- a company founded in
June 2006 with only USD 100 in capitalization -- has also
contacted Arevalo to withdraw its alleged USD 65 million
offer for his company. According to Arevalo, CPC belatedly
realized that the nationalization of imports and bid
solicitation underway could create an import monopoly,
damaging DIPPSA's ability to compete and potentially exposing
it to millions of dollars in losses. (Comment: This is
true, but CPC seems to have arrived at this insight rather
late in its attempt to purchase DIPPSA. End Comment.)


2. (C) Arevalo has been approached by Venezuelan company
Luky Oil, which has indicated an interest in purchasing
DIPPSA for an unidentified sum. Arevalo admitted that he
favors selling his firm outright to any respectable bidder,
and sought Post's views on Luky as a suitor. Post undertook
to check on Luky's bona fides, and has learned from AmEmbassy
Caracas that Luky is "pre-operational" and its address is
located in a residential area. The firm is unknown to
experienced sector contacts and is not listed in sector
guides. AmEmbassy Caracas concludes the firm is potentially
a front for other interests, possibly including the GOV.
(Comment: Luky claims the firm is unrelated to either PDVSA
or the GOV, though AmEmbassy Caracas' investigations tend to

cast doubt on this assertion. Furthermore, it strikes Post
as odd that Luky should wish to buy DIPPSA, given
uncertainties in the market here and DIPPSA's reportedly dim
future prospects. Post will remain vigilant to any evidence
that Luky is collaborating with PDVSA or the GOV in any form
of non-transparent manipulation of this purchase or the
ongoing GOH bid solicitation process. End Comment.)


3. (C) Arevalo was also approached once again by dealmaker
Adrien Reca, accompanied by business partner Marc Olivier and
father-in-law (and close personal friend of President Zelaya)
Bernardo Casanova. Reca again told Arevalo that he was "only
days away" from securing an estimated USD 30 million
financing for the deal. According to Arevalo, the remainder
(Note: Perhaps another USD 40 million. End note.) would be
financed from cash receipts from sales of the first three
months' deliveries of PDVSA petroleum. Reca indicated PDVSA
had agreed to extend him 120 day repayment terms, allowing
him to use oil acquired on credit to bootstrap his effort.
Arevalo was at a loss to explain either why PDVSA would offer
such generous terms or what Reca might have offered in
exchange. Arevalo again dismissed Reca and rejected his
offer with a wave of his hand, saying "there's no such thing
as a free lunch." (Note: It was Arevalo's understanding
that Reca had just returned from a trip that included stops
in Venezuela and the Dominican Republic. End Note.)


4. (C) Regarding the conduct of the bid solicitation,
Arevalo said there were "growing uncertainties," including a
legal challenge asserting that the GOH lacks the legal
authority to launch such a process. Arevalo independently
confirmed what Post already knew: that Esso has chosen not
to participate and further has informed the GOH that it
intends to continue importing under its own license, and
using its own offloading and storage terminals. In effect
Esso is ignoring the solicitation process in its entirety,
and practically daring the GOH to stop them from continuing
business as usual. Texaco's position, Arevalo said, is
"unclear" and "difficult to understand." Private sector

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umbrella group COHEP has also undertaken a detailed legal
review of the terms of reference and has submitted over 30
pages of comments to the GOH.


5. (C) Arevalo closed by highlighting the political and
financial pressures he is under to conclude some form of
deal. He noted that the GOH has continued to fail in its
repayment obligation to reimburse his and other gasoline
retailers for losses absorbed at the pumps under the
GOH-mandated price freeze. Arevalo said those arrears now
total between 140 and 180 million lempiras, or nearly USD 10
million. (Note: Post has heard figures of more than USD 18
million from other company representatives. End note.)
While little more than an irritant to a firm the size of an
Esso, for DIPPSA such arrears are beginning to cut into
operating capital. In addition, President Zelaya has on more
than one occasion told Arevalo that he would have preferred
the GOH itself purchase DIPPSA. This comment echoes one made
by Reca, who told Arevalo the ultimate ownership of DIPPSA
under his scheme could be 51 percent Reca and associates and
49 percent GOH.


6. (C) Comment: Arevalo helped build DIPPSA from its
inception, and Post was convinced of his early desire to seek
a strategic partner while retaining management control. That
seems to have changed, as even Arevalo has ceased trying to
keep that option open and now explicitly seeks only to sell
his company lock, stock, and storage tanks. The financial
and political pressures are becoming more than he is willing
(or perhaps able) to withstand, and the business climate is
clearly deteriorating. Post assesses that, with a nod from
the USG, Arevalo would be prepared to sell as soon as
possible. End Comment.

Ford
FORD