(C) HONDURAN VICE PRESIDENT SEEKS TO SUPPORT U.S.

S E C R E T SECTION 01 OF 02 TEGUCIGALPA 001430

SIPDIS

NOFORN
SIPDIS

STATE PASS 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: 8/9/2031
TAGS: EPET HO PGOV PINR
SUBJECT: (C) HONDURAN VICE PRESIDENT SEEKS TO SUPPORT U.S.
STRATEGY ON FUEL BID

REF: TEGUCIGALPA 01393

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


1. (S) Summary: Honduran Vice President Elvin Santos
reached out to Post August 8 to better understand U.S.
strategy and concerns on the upcoming national fuel bid. In
the next few days Santos stated he will be trading his
unwilling public support of the bid process for a strict
evaluation of bid responses and a more defined path towards
market liberalization. While he fears potential Venezuelan
influence through their state fuel company PDVSA, he is more
concerned about how any deal will impact relations with
Honduras, largest trading partner ) the U.S. End Summary.


2. (S) Honduran Vice President Elvin Santos met with EconOff
August 8 to discuss an Intellectual Property Rights plan, but
the conversation quickly turned to the upcoming national bid
for all of Honduras, fuel requirements. Santos has
effectively remained on the sidelines on fuel until the last
few months, when a series of secret meetings between PDVSA
and Honduran government officials caused him to comment
publically that &Venezuela will not solve our problems.8
Since that time he has been viewed as against the national
bid. Santos confided that in the last few days the pressure
from President Jose Manuel &Mel8 Zelaya to publicly
announce he is in favor of the bid has grown more intense.


3. (S) Santos reiterated that, while he believes the national
bid will not deliver the anticipated savings, the process
needs to be followed and a bid winner selected in order to
avoid &social pressure.8 In the next few days he plans on
meeting with President Zelaya and giving his support to the
bid process, but in return realizes that he may be able to
dictate some terms and conditions. (Comment: EconOff probed
Santos on his knowledge of the situation, and found him to be
uninformed on the latest machinations involving the bid
documents and possible purchase of Honduran fuel company
DIPPSA. EconOff described the risks associated with
Venezuelan fuel, including PetroCaribe financing being used
for purposes other than lowering the price of fuel, and
potential regional repercussions of distributing fuel to FMLN
and FSLN municipalities in Nicaragua and El Salvador. Santos
also asked about DIPPSA, and EconOff described concerns with
the Miami-based company Caribbean PetroChemical and potential
connections between Argentine businessman Adrien Reca and
PDVSA. Santos took all on board with interest. End Comment).


4. (S) At this point Santos specifically asked EconOff what
Post strategy was on the national bid so he could help
promote the position in his coming meetings with President
Zelaya. EconOff gave Santos a copy Post,s comments on the
bid (formally submitted August 7),and presented a detailed
overview of Post's stated positions on transparency and
openness in the process. EconOff explained Post,s call for
establishing clear and decisive criteria to evaluate each bid
in the Terms of Reference document. Santos was clearly
interested in this point, and began thinking through
additional possibilities such as creating review periods
every few months for the eventual bid winner to determine if
they were still meeting savings targets. If these targets
were not met, he stated, the GOH should be able to terminate
the contract.


5. (S) EconOff also mentioned Post,s position on setting out
a path to a free market in fuel. While most representatives
in the current administration (including President Zelaya and
key advisor Enrique Flores Lanza) have professed their desire
to move eventually to a freer, more competitive market in
fuel, they have not elaborated the concrete steps they intend
to take to get there from the proposed single-source national
bid. As stated in comments on the Terms of Reference
document, Post has recommended a concurrent effort to analyze
and revise the current price setting formula with an eye
towards making it more efficient and eventually replacing it
with a more competitive approach. Santos agreed the steps
towards a liberalized market needed to be fleshed out, and

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planned on calling on business leader Mario Canahauti,
President of Honduran private sector umbrella organization
COHEP, to discuss how to best proceed. (Comment: Santos
recognized that by revising the formula he would be taking on
the powerful fuel retailers and transport unions that now
enjoy significant guaranteed margins. With the support of
COHEP, he believed, a more competitive solution could be
found &for the benefit of the Honduran people.8 End
Comment).


6. (S) Comment: Santos remains a staunch supporter of the
U.S., and stated several times that the national bid,
particularly if it involves PDVSA, needs to be analyzed for
impact on U.S.-Honduran relations. Therefore, in exchange
for his endorsement of the bid, he is seeking to protect that
relationship by supporting elements of Post,s strategy. By
the end of the meeting, he seemed to lock onto a plan that
would create quantifiable and explicit evaluation criteria
and establish contract stipulations giving the GOH a way out
if savings targets are not met, while starting a national
dialogue on revising the current fuel formula. The national
bid still faces many unanswered questions, in particular
regarding the use of private storage facilities and payment
terms, and per several sources is being set up to fail.
Whether Santos, engagement at this point can affect the
outcome remains to be seen. End Comment.
FORD