Identifier
Created
Classification
Origin
06TEGUCIGALPA1649
2006-09-05 23:40:00
CONFIDENTIAL
Embassy Tegucigalpa
Cable title:  

HONDURAS: CONGRESS REVIEWS FUEL BID TERMS; DIPPSA

Tags:  ENRG EPET HO PGOV PINR PREL 
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RUEHCV/AMEMBASSY CARACAS PRIORITY 0429
RUEHME/AMEMBASSY MEXICO PRIORITY 6769
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C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 001649 

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: 09/05/2016
TAGS: ENRG EPET HO PGOV PINR PREL
SUBJECT: HONDURAS: CONGRESS REVIEWS FUEL BID TERMS; DIPPSA
SALE CONTINUES

REF: TEGUCIGALPA 1559 AND PREVIOUS

Classified By: AMB Charles Ford for reasons 1.4 (b) and (d).
C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 001649

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: 09/05/2016
TAGS: ENRG EPET HO PGOV PINR PREL
SUBJECT: HONDURAS: CONGRESS REVIEWS FUEL BID TERMS; DIPPSA
SALE CONTINUES

REF: TEGUCIGALPA 1559 AND PREVIOUS

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

1.(C) Summary: The Terms of Reference (TORs) for the national
fuel bid was sent to the GOH Congress for approval August 30,
but were returned to the Presidency with only a weak
endorsement. The GOH now has 15 days to send out the bid to
prospective companies. Meanwhile, Honduran fuel company
DIPPSA remains the subject of several conflicting purchase
rumors, but more concrete details are beginning to emerge.
As the bid process comes down to the final month, who wins
and who loses may soon be known. End Summary.

--------------
TORs: A Hot Potato Back to The President
--------------


2. (C) Revised Terms of Reference to initiate a bid for all
of Honduras, refined fuel requirements was sent to the GOH
Congress August 30, in a late night attempt to garner needed
support for the controversial process. The TORs were
accompanied by an executive decree that stated, among other
considerations, that a 1983 Congressional decree that
essentially nationalized fuel imports be resurrected. The
decree cited a Constitutional article (Article 332),which
provides that the state can exercise control over certain
basic industries for reasons of &public order or social
interest.8 (Comment: Post is researching the decree, but it
is questionable if the current environment is similar to the
situation that essentially required a state of emergency in

1983. End Comment).


3. (C) The TORs and the decree were delivered to the GOH
congress at 5pm August 30, and it soon became clear that
President of Congress Roberto Micheletti intended to pass a
Congressional decree supporting the measure that night. Post
began receiving calls by concerned opposition Nationalist
party members at around 7pm, requesting EmbOffs call key

Liberal Party congressmen to help stall the measure. EconOff
eventually contacted Micheletti, but only to state that Post
had not received a copy of the TORs and could not at this
time make a definitive judgment if they complied with CAFTA.
Micheletti took that under consideration, and Congress
eventually passed a weak decree that authorized the
Presidency to move forward with the bid solicitation as long
as &it conforms with the Constitution and other country
laws.8 (Comment: Various Congressmen felt that the
Presidency was looking for a blanket endorsement that could
set Congress up as a scapegoat if the bid process failed.
Congress returned the favor by tossing it right back without
recognizing the bid,s legitimacy. Consequently, should an
eventual bid winner be selected, the new contract will be
sent to Congress for approval and a final determination on
the bid,s legitimacy will take place. End Comment).


4. (C) EconOff also received a call August 31 from former
Nationalist Vice Presidential candidate Mario Canahauti, who
said he was very concerned about the fuel bid, its impact on
U.S. relations, and the general competency of the
administration of President Jose Manuel &Mel8 Zelaya.
Canahauti was convinced that the bid process would fail, and
indicated that it was time for Post to begin working more
closely with elements of the administration (like Vice
President Elvin Santos) that still appeared to be
&rational8. EconOff asked that he make any further
comments directly with the Ambassador, who Canahauti wanted
to meet with immediately. In a September 1 meeting with
EconOff, Vice President Santos described Canahauti as a
personal friend but &unbalanced,8 and indicated that
President Zelaya no longer took calls from him. Santos went
on to indicate that he was concerned about the situation but
wanted to keep his distance (and future political career)
away from the fuel issue. He indicated that President Zelaya

TEGUCIGALP 00001649 002 OF 003


has been in consistent contact with former president Carlos
Flores and Honduran businessman and presidential confidant
Arturo Corrales, and still appeared to be negotiating with
Venezuelan state fuel company PDVSA.

--------------
DIPPSA: The Deal That Just Keeps Going
--------------


5. (C) Honduran fuel retailer DIPPSA remains a prized piece
in the fuel bid puzzle. With over 800 thousand barrels of
capacity, the company could conceivably have enough storage
to supply the country with a single type of refined fuel, for
example premium and regular gasoline. The company also has
strategically located terminal and storage facilities on both
coasts, allowing for off-loading of fuel and storage on the
Caribbean side, and more storage and nearby access to
Nicaragua and El Salvador on the Pacific side (Note: Exxon
owns 50 percent of DIPSSA,s southern facilities and
nominally has first right of refusal in the event of a
purchase. End Note). DIPPSA president Henry Arevalo took on
significant debt to buy the outstanding shares of the company
earlier this year, and is eager to find a partner to purchase
a stake or buy him out entirely. (Comment: The current gas
price freeze, which began April 9, has been particularly
brutal on the heavily indebted Arevalo. Some have speculated
that President Zelaya has withheld reimbursing the fuel
importers during the price freeze to specifically force
Arevalo to sell the company. In a August 30 meeting with
EconOff Arevalo admitted to finally receiving a payment that
may have covered a significant portion of what he was owed,
estimated at USD 5 to 6 million. This may indicate Zelaya is
rewarding him for selling the company to the right bidder.
End Comment).


6. (C) Arevalo indicated to EconOff that he had met with
Holland-based oil trader Trafigura on August 29 regarding a
potential sale of 50 percent of the company. Per Arevalo,
the 50 percent sale would bring needed capital and allow
DIPPSA to diversify its business base out of Honduras and
give the company flexibility to respond to situations like
the gas price freeze. Trafigura has a small presence in
Honduras through their PUMA brand retail gas station network.
EconOff also met August 30 with the PUMA Honduran
representative who, while not familiar with the Arevalo
discussions, indicated that he doubted Trafigura would get
involved in Honduras at this time, given the doubts regarding
the fuel bid. (Comment: The Trafigura-DIPPSA combination
would make a good strategic fit, but given the current
environment of potential expropriation it is difficult to
believe that Trafigura would take on the risk. End Comment).


7. (C) Arevalo also continued to strongly deny any serious
discussions with Adrian Reca, the French and/or Argentine
businessman that is looking to buy DIPPSA through his company
TransPetrol (or another recently formed company called
Petroleos de Centroamerica). However, a business partner of
Reca indicated that TransPetrol has already signed a deal
with Arevalo and is set for an announcement on the purchase
Monday Sept 4 (Note: As of Sept 5 there has been no reported
announcement. End Note). Reca has made clear that he
intends to source his fuel from PDVSA, and per the source is
currently in Caracas discussing terms. Reca was also
recently in the Dominican Republic, where he apparently made
a bid for fuel giant Shell,s assets. (Comment: Per EconChief
in the Dominican Republic, Shell has been looking for a buyer
for some or all of their operations, but no definitive buyer
has emerged. End Comment). Rumors of involvement by former
President Rafael Callejas in the Reca venture were confirmed
by Santos in the September 1 meeting.


8. (C) Arevalo also stated that he had continued to receive
offers directly from PDVSA, but that he has refused serious
talks with the Venezuelans based on his belief that the

TEGUCIGALP 00001649 003 OF 003


company would &damage Honduras and hurt relations with the
U.S.8 A fuel industry representative confirmed that Arevalo
was seen meeting with PDVSA representatives as late as two
weeks ago. In addition to direct negotiations with PDVSA and
indirectly through Reca,s companies, Arevalo also has been
in early discussions with LukyPetrol, a Venezuelan company
that per sources in Embassy Caracas is in &pre-operation,8
and is identified as a &shell company with links to the
government.8 In an August 28 meeting with EconOff, Honduran
Attorney General Leonidas Rosa Bautista specifically
identified LukyPetrol as a company that had been delivering
illegal fuel shipments throughout the Honduran Bay Islands,
particularly the island of Guanaja. Bautista had sourced
this information from a gathering of Attorney General,s in
Panama City the week before. (Comment: DEA sources confirm
that illegal shipments of low priced diesel have recently
been identified around the islands, selling the fuel for as
little as USD 1.65 per gallon. End Comment ).


9. (C) A final suitor for DIPPSA, Caribbean PetroChemical
(CPC) of Miami, has apparently decided to give up its pursuit
of the Honduran fuel company. EconChief was contacted in
July by the CEO of CPC, who indicated that he had already
signed a contract with Arevalo valued at USD 65 million.
Among his demands to close the deal, however, was an official
letter from the GOH Congress indicating that the fuel bid was
not going to go through. By August CPC had stopped returning
EconOff,s phone calls. Like LukyPetrol, CPC had apparently
just started operations in June. (Comment: Post assumed
that CPC was a front company. A source in the Reca camp
indicated that Minister of the Presidency Yani Rosenthal and
his father, Liberal Party godfather Jaime Rosenthal, were
behind the venture. Vice President Santos also mentioned the
Rosenthal connection. Interestingly, about the time CPC
dropped off the radar screen, Yani Rosenthal came out with an
announcement stating that all imports would only come from
the GOH under the new scheme. While in principle that rings
true, the announcement might have been a clear signal that,
while his team might have lost out in the purchase of DIPPSA,
he still had control over the process. End Comment).


10. (C) COMMENT. With their weak support the Congress has
opened a window that will allow ample legal challenges to the
fuel bid. Honduran business association COHEP, that
initially identified 15 legal discrepancies with the fuel
bid, is gearing up for another thorough review. Post has
forwarded the TORs to USTR for review, and will also send the
1983 Decree and Constitutional amendment when available. On
DIPPSA, it would appear Arevalo,s version of events with
Trafigura makes the most sense, but that deal is far from a
sure thing. The Reca deal incorporates more information that
Post has heard all along: involvement of PDVSA, intervention
of ex-President Callejas, close association of the principals
with President Zelaya. Post will remain vigilant as the bid
enters its final month. END COMMENT.
FORD