Identifier
Created
Classification
Origin
06TEGUCIGALPA2232
2006-11-27 22:54:00
CONFIDENTIAL
Embassy Tegucigalpa
Cable title:  

HONDURAS: PRICE CONTROLS ON OIL AND CEMENT

Tags:  EINV ETRD ECON EPET PGOV HO 
pdf how-to read a cable
VZCZCXRO9587
PP RUEHLMC
DE RUEHTG #2232/01 3312254
ZNY CCCCC ZZH
P 272254Z NOV 06
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC PRIORITY 4217
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC PRIORITY 0526
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 002232 

SIPDIS

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, WHA/PPC, EB/OIA/IFD, EB/ESC
TREASURY FOR AFAIBISHENKO
COMMERCE FOR MSELIGMAN
STATE PASS AID (LAC/CAM)
STATE PASS USTR FOR ANDREA MALITO
SAN SALVADOR FOR COMMAT: NCHARLESPARKER

E.O. 12958: DECL: 11/27/2016
TAGS: EINV ETRD ECON EPET PGOV HO
SUBJECT: HONDURAS: PRICE CONTROLS ON OIL AND CEMENT
CONTINUE TO CAUSE CONSTERNATION

REF: A. (A) TEGUC 2136 AND PREVIOUS (FUEL)

B. (B) TEGUC 2127 (CEMENT)

Classified By: Ambassador Charles Ford for reasons 1.4(b,d)

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 002232

SIPDIS

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, WHA/PPC, EB/OIA/IFD, EB/ESC
TREASURY FOR AFAIBISHENKO
COMMERCE FOR MSELIGMAN
STATE PASS AID (LAC/CAM)
STATE PASS USTR FOR ANDREA MALITO
SAN SALVADOR FOR COMMAT: NCHARLESPARKER

E.O. 12958: DECL: 11/27/2016
TAGS: EINV ETRD ECON EPET PGOV HO
SUBJECT: HONDURAS: PRICE CONTROLS ON OIL AND CEMENT
CONTINUE TO CAUSE CONSTERNATION

REF: A. (A) TEGUC 2136 AND PREVIOUS (FUEL)

B. (B) TEGUC 2127 (CEMENT)

Classified By: Ambassador Charles Ford for reasons 1.4(b,d)


1. (SBU) Price controls -- existing or proposed -- continue
to be a worrisome topic in Honduras, as recent developments
leave both the private sector and the consuming public
unsatisfied. In the last few days, talk has centered on
challenging a private sector price increase in corn flour, a
staple for many Hondurans. Building on other high-profile
cases of GOH intervention in markets and prices, the public
immediately clamored for at least an explanation if not a
government-mandated rollback of this price increase.
Minister of Commerce Elizabeth Azcona, in a correct if
politically tone-deaf prescription, advised consumers that if
they object to the price hike, they should buy a different
product. In a separate remark that did little but make him
look foolish, Vice Minister of Commerce Jorge Rosa said that
the Ministry did not intend to take any action because its
inspectors found no evidence of the alleged price hike in the
markets and therefore could not verify it. (Note: The
company, Maseca, had announced the price hike publicly, and,
as one newspaper drolly pointed out, a single call to the
company was sufficient to confirm the new price being
charged. End note.)


2. (C) Simultaneously the Ministry of Commerce continues to
draw fire for its handling of the price controls being
imposed on cement manufacturer Incehsa/LaFarge (ref B). That
firm was forced earlier this month by the GOH to roll back
prices, pending the results on an inquiry by an ad-hoc
commission into what a "proper" price for cement would be.
President of the private sector umbrella group COHEP and

architect of the deal, Mario Canahauti, privately confided to
EconChief that this commission was intended to be window
dressing for a political settlement that would allow the firm
to raise prices in January. However, things have not gone as
planned, as construction and other groups have announced they
will not accept any price increase, and the ad-hoc commission
has thus far failed to reach a conclusion. Once it does, the
commission's recommendation will be passed to President Jose
Manuel "Mel" Zelaya Rosales, who according to Rosa, will have
the final say on setting the price of cement. (Comment: It
is important to note that while cement is a duopoly in
Honduras that almost certainly deserves anti-trust oversight,
the current commission is an ad-hoc, non-transparent affair
that, by the admission of Vice Minister of Commerce Freddy
Cerrato, has no established methodology for determining if
price manipulation is taking place. Honduras has taken some
initial steps toward establishing a regular process of
resolving antitrust-related issues through a competition
commission, however, formation of that commission has been
fraught with bureaucratic delays and insufficient funding.
End Comment.)


3. (C) Finally this week, the GOH's year-long effort to
control prices for gasoline and other petroleum-based fuels
appears to be coming unraveled. Henry Arevalo, President of
DIPPSA (a Honduran gasoline importer and marketer, and a
leading bidder in the ongoing GOH plan to nationalize fuel
imports and then award import contracts to one or more firms
-- ref A) has publicly announced that in his view the fuel
import bid solicitation has failed and should be vacated.
The best bids, he points out, would yield a projected savings
of less than 1.5 lempira (about USD 0.07) per gallon, less
than the three to four lempira savings promised by Zelaya,
and far short of the ten lempira savings the public expects.


4. (C) The GOH is concerned as well, as evidenced by
Zelaya's reported decision to dispatch former Congressman and
Presidential confidante Arturo Corrales to Miami to discuss
alternatives with the U.S. oil companies (Esso and Texaco).
The GOH continues to espouse market liberalization, though it
has taken no steps in that direction -- in fact, the current
proposal to nationalize and potentially monopolize the sector
moves Honduras in the opposite direction.


5. (C) Comment: Declaring the bid process a failure and
launching a new effort to liberalize the market would perhaps
be a politically viable way out of this morass for Zelaya.
Convincing the oil companies to play along will be difficult,

TEGUCIGALP 00002232 002 OF 002


though, since they have seen Zelaya was willing to destroy
their market and even threaten expropriation of their assets,
all under a plan that even GOH insiders admit makes no
economic sense but is only being done because it is popular
with voters. An even bigger obstacle to true liberalization
will be opposition from gasoline station owners, many of whom
are predicted to go out of business in a truly competitive
market. Only if Zelaya demonstrates some political will in
attacking this privileged group and its bloated profit
margins will Post and the private sector begin to believe his
rhetoric about liberalization. End Comment.

Ford
FORD