HONDURAN PRESIDENT ZELAYA ON FUEL BID, CAFTA,

C O N F I D E N T I A L TEGUCIGALPA 000622

SIPDIS

SIPDIS

STATE FOR S, D, P, E, WHA, AND EB
STATE FOR WHA/EPSC, WHA/PPC, AND WHA/CEN
STATE FOR EB/TPP, INL/LP, AND IO/UNP
STATE PASS USTR
STATE PASS AID FOR LAC/CAM
NSC FOR DAN FISK

E.O. 12958: DECL: 03/30/2016
TAGS: PREL ETRD PGOV EPET SNAR MOPS PINR HO
SUBJECT: HONDURAN PRESIDENT ZELAYA ON FUEL BID, CAFTA,
NARCOTICS, GUATEMALA IN UNSC AND OTHER ISSUES


Classified By: DCM - James G. Williard for Reasons 1.4 (B) and (D)


1. (C) Summary: On March 28, Ambassador and DCM met with
Honduran President Mel Zelaya and Foreign Minister Milton
Jimenez regarding Zelaya's June visit to Washington. DEA
agents later joined the meeting for a candid anti-narcotics
briefing. A relaxed Zelaya appeared to waiver somewhat on a
proposed fuel import bidding process, eagerly anticipated the
April 1 CAFTA implementation, acknowledged U.S. immigration
reform efforts, supported Guatemala's bid for a UNSC seat,
and signaled his understanding of U.S. concerns over
Nicaraguan elections. Jimenez indicated progress on
resolving border issues with Guatemala, Belize, and El
Salvador and he announced GOH acceptance of U.S. military
requirements under Article 505/GPOI. Zelaya pledged full
support for DEA activities, particularly in pursuing heads of
major narcotics organizations. The Ambassador suggested
joint CAFTA promotion activities and asked Zelaya how the
fuel bid process would lead to greater market liberalization.
(Note: Despite Zelaya's stated reservations about the fuel
bid process, post subsequently learned that Honduran Labor
Minister Rixi Moncada had traveled on March 27 to Venezuela
for meetings with Hugo Chavez, several ranking Venezuelan
officials, and representatives of PetroCaribe and PdVSA. See
septel and para 7 for more details). End Summary.

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Background
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2. (C) The Ambassador met with Zelaya for over an hour and
a half at the Presidential Palace. During their joint visit
to dedicate the Container Security Initiative in Puerto
Cortes the previous Saturday, Zelaya had asked the Ambassador
for a DEA briefing that would identify heads of narcotics
organizations who could be arrested. The Ambassador set up
the DEA session, preceded by a discussion on preparing for
Zelaya's Washington visit in June. Zelaya, accompanied by
Minister Jimenez, appeared focused, friendly, and fully
engaged on all issues. Zelaya repeatedly stressed the value
of maintaining close, confidential communications with the
Ambassador. Prior to his arrival in the presidential office,
Zelaya's senior advisor stated that meetings with the
Ambassador had priority over all other matters and that
everything else could wait.

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Fuel Bid
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3. (C) The contentious bid process to select a single
national fuel importer was foremost on Zelaya's mind. Hours
earlier, Zelaya, accompanied by Vice President Elvin Santos,
had waded into a crowd of hundreds of demonstrators outside
the palace, where he told transport workers that he supported
their pleas for lower gas prices. However, Zelaya refrained
from criticizing the oil companies and he seemed to indicate
that the "licitation" process might be something different
than simply a bid for a sole importer of fuel. Even the
organizer of the populist march, Juliette Handal, toned down
the rhetoric in calling for greater social justice.


4. (C) Zelaya told the Ambassador that, during his
Washington visit, he hoped to dispel doubts about the fuel
bidding process. He maintained that the GOH continues
searching for alternative ways to bring down prices at the
gas pump and would not be swayed by political considerations.

The Ambassador outlined the importance of competitiveness,
open and transparent communications, the importance of
adhering to commercial rules, and the need to develop a
process leading to market liberalization. Zelaya accepted
the Ambassador's message, noting that he wanted to work with
U.S. oil companies, not oppose them. Recognizing the
difficulty in obtaining oil company participation in the bid
process, Zelaya stated clearly that there could be no bid
process without the multinationals.


5. (C) With regard to the hiring of American businessman
Robert Meyering to develop the bidding process, Zelaya stated
that no contract would be signed absent a guarantee of a
price reduction by a specific date. (Note: The press had
conflicting reports on March 30 on whether or not the
contract had been signed, and details of the terms were not
yet available. End Note.)


6. (C) Zelaya had earlier met with Vice President Santos,
who recently returned from a Washington visit. Referring
both to Deputy Secretary Zoellick and NSC Director for Latin
America Dan Fisk, Zelaya appeared to have heard the message
that the U.S. had several concerns with the bid process and
the resulting monopoly and threat to U.S. company interests.


7. (C) Note: On March 30, Labor Minister Moncada informed
the Ambassador that she traveled to Venezuela on the day
prior to the Ambassador's meeting with Zelaya. According to
Moncada, she had been directed at a very high level to urge
Venezuela to participate in the fuel bid. She was apparently
told to keep her visit quiet. In speaking to the Ambassador,
Zelaya had made no mention of Moncada's trip, though he did
allude to his belief that a country should never negotiate
from a standpoint of weakness. Zelaya then added that at
times it might be useful to refer to the Venezuelan option.
The Ambassador cautioned Zelaya that he needed to consider
how people in Washington react to such references. End Note.

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CAFTA
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8. (C) Zelaya underscored the value of CAFTA to Honduras
and the opportunities the agreement will offer. While
expressing sensitivity to perceived "U.S. favors" extended to
El Salvador, Zelaya recognized that Honduras needs to make
CAFTA work in order to compete with El Salvador and other
nations. He noted that CAFTA opens the doors and windows of
Honduras to U.S. investment and he stressed the importance of
the Port of Cortes Container Security Initiative as well as
opportunities to develop agriculture, the maquila industry,
and tourism. Zelaya also referred to the possibility of
expanding Soto Cano Air Base (Palmerola) to include
commercial use - a topic Zelaya discussed with SOUTHCOM
General Craddock several weeks ago. Zelaya said he wants to
talk about CAFTA during his June visit to Washington and the
Ambassador noted opportunities to jointly promote CAFTA
during that visit.

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Narcotics
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9. (C) Zelaya warmly received the DEA Country Director and
Deputy Director, congratulating them on the recent seizure of
some three tons of cocaine in international waters that
involved both the U.S. Coast Guard and the Honduran Navy. In

response to Zelaya's request, DEA named several specific
major drug organization leaders operating in Honduras. One
of those names surprised Zelaya, who has known the individual
for many years. Zelaya concurred with DEA on various
suggestions regarding cooperation with telephone companies,
broader authorities for prosecutors, consolidation of
anti-drug police forces, and general support for anti-drug
operations. Zelaya requested that DEA prepare a plan of
action for his consideration, to be coordinated with the
Minister of Public Security. Zelaya mentioned the possible
convening of the Security Minister, Supreme Court President,
Attorney General, and others to discuss ways to better deal
with narcotics chiefs. Zelaya saw little gain by simply
arresting low level traffickers.

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Other Issues
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10. (C) Zelaya and Jimenez commented on a range of other
issues:

-- After listening to latest developments on U.S. immigration
reform, Zelaya nodded his understanding and stated that
Honduras would never defend illegal immigration.

-- Zelaya readily accepted the Ambassador's demarche on
Guatemala's candidacy for the UN Security Council. He said
it was logical that the Central Americans support Guatemala
and he concurred with Jimenez contacting the Panamanian
Foreign Minister to urge Panama's support for Guatemala.
(Note: Jimenez suggested that Costa Rica's support for
Guatemala may not be firm. End Note.)

-- Zelaya listened to the Ambassador's comments about the
importance to the U.S.of Nicaraguan election. Zelaya agreed
to look very closely at the political situation in Nicaragua
in establishing a position on the elections.

-- The Ambassador reminded Zelaya of the Center for
Hemispheric Studies' facilitation of a conference on building
a national security strategy to be held outside Tegucigalpa
on May 5-7 - a conference set up by the U.S. Southern
Command. Zelaya confirmed his interest in attending a
portion of the event.

-- Jimenez stated that good progress is being made on border
dispute issues. He has participated in discussions with
Belize and Guatemala. Jimenez said that he hopes for an
agreement with El Salvador on border issues, perhaps in April.

-- Jimenez also confirmed GOH acceptance of conditions
related to the acceptance of U.S. military equipment
contained in our diplomatic note on Article 505/GPOI.

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Comment
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11. (C) Comment: Zelaya's cooperation on CAFTA,
immigration, anti-narcotics, Guatemala/UNSC, and other issues
appears firm and consistent. The fuel bid issue, however,
raises doubts about his style and candor. While appearing to
be open and frank, Zelaya gave us no indication that his
Labor Minister was in Venezuela discussing the actual terms
of a possible PetroCaribe deal at the very moment he conveyed
his reservations about the bid process. Zelaya's almost

mocking reference to the fuel bid process netting a mere 1
Lempira reduction at the pump, belies his possible signing of
a high-priced contract the next day with the American advisor
who is promoting the bid scheme. Zelaya's "shoot from the
hip" style is often difficult to fathom and leaves us
guessing as to whether he misunderstands complex issues,
deliberately deceives his audience, simply lacks experience
in diplomatic communications, or acts on the last message
received from his mixed group of advisors. It could also be
that Zelaya is much smarter and politically astute than
others might think, leading opponents to underestimate his
abilities. Perhaps, Zelaya may be maneuvering out of the bid
process by having it fail, blaming the contractor, and then
resorting to more liberal market approaches. Or, perhaps he
has already arranged a deal with PetroCaribe to help him
achieve his political imperative to lower gas prices. The
direction this process takes over the next two/three months
will tell us much about Zelaya's leadership. End comment.
Ford