C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 000676

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: 04/07/2016
TAGS: ENRG EPET HO PGOV PINR PREL
SUBJECT: HONDURAS: FUEL BID CONSULTANT LEAVES WITHOUT
CONTRACT; DOOR MAY BE OPEN TO OTHER ALTERNATIVES

REF: TEGUCIGALPA 623 AND PREVIOUS

Classified By: CDA James Williard for reasons 1.4 (b) and (d)


1. (SBU) Summary: The main fuel consultant pushing for an
international fuel bid left the country abruptly March 31
when agreement was not reached on his contract to run a
proposed international fuel bid. Honduran President Jose
Manuel &Mel8 Zelaya continued to support the hiring of the
consultant, if offered sufficient performance guarantees, but
indicated that other alternatives are possible. With
momentum slowed, now may be the time for a better plan to
emerge. End Summary.


2. (C) U.S. citizen consultant Robert Meyeringh, the author
of the international fuel bid strategy and chief candidate to
lead the bid effort, left the country without an agreement
March 31 as pressure mounted to include a &guaranteed
savings clause8 in his contract. Per reftel, that savings
guarantee is estimated at about five U.S. cents per gallon,
or roughly USD 20 million per year. Per newspaper accounts,
the final payment on Meyeringh,s contract, estimated at USD
750,000, would be withheld pending a review of the savings
clause. The contract is also rumored to have a performance
bonus of USD 1.2 million if Meyeringh realizes his oft-stated
potential savings of USD 66.6 million per year.


3. (C) President Jose Manuel &Mel8 Zelaya made a point of
stating the agreement with Meyeringh will still go forward,
and that, of twelve major points in his contract, they have
already agreed to eleven. Interestingly, Zelaya stated that
he has received consulting offers on the bid from &Mexico,
Venezuela, and Costa Rica8 and would not have &to spend a
nickel for advice.8 Mexico has been in contact with

Honduras through their Mesoamerican Energy Initiative, and
Venezuela through PetroCaribe. Vice President Elvin Santos
mentioned Thursday to Ambassador that Venezuelan state oil
company PdVSA will be arriving this week for follow-up talks
after the recent visit by Minister of Labor Rixi Moncada
(reftel) to meet with President Chavez in Venezuela.


4. (C) While no consulting interest has been publicly
expressed by Costa Rica, a high level Honduran delegation
visited Costa Rica,s state petroleum company Recope in
January, and Costa Rican President-elect Oscar Arias was
reported on local radio last week warning Honduras that
&buying through a monopoly is a bad idea.8 Minister of the
Presidency Yani Rosenthal later added that the World Bank
also had expressed interest in providing a consultant.


5. (C) The UTP (Technical Petroleum Unit), the group that
currently sets retail gasoline prices and would eventually
constitute Meyeringh,s staff, expressed skepticism in
regards to the national bid. Wilberto Pinot, deputy chief of
the UTP, doubted that his team of ten people &would compete
effectively at the negotiating table with traders that have
years of experience.8 He added that a potential alternative
was to simplify the current formula (that sets end-user
prices), allow limited competition in the key areas of
importation, distribution and retail, and prove a clear path
towards market liberalization.


6. (C) The local representatives of gasoline importers
reacted to the news about Meyeringh with guarded interest.
The Exxon representative was planning on contacting his home
office to discuss the next steps, to include perhaps
contacting Invincible Energy, a U.K. energy consulting firm
that apparently has been contracted by the IDB to identify
the best location for a future refinery in Central America.
The refinery would play a key component in the proposed
Mexican Mesoamerican Energy Initiative. It,s not clear if
contacting Invincible would help Exxon develop a sorely
needed plan &B8 that might include regional integration.
Sounding jaded, the representative needed encouragement from
EconOff to follow-up on a meeting with President Zelaya that
Foreign Minister Milton Jimenez offered to arrange.


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7. (C) Mario del Cid, the fuel industry spokesman who had
previously correctly indicated that the contract with
Meyeringh had not yet been signed (reftel), was also vague on
next steps. He indicated that he had been in contact with
former president of Congress and failed Presidential
candidate Porfirio &Pepe8 Lobo, President of the National
Party and a personal friend, who stated that the U.S. Embassy
would be the key player in the next few weeks, but the
context was unclear. Del Cid did speculate that suitors for
Honduran gasoline retailer DIPPSA, rumored to range from
Venezuela,s national oil company PdVSA to local Honduran
business magnate Freddy Nasser, may now include the French
energy conglomerate Total. On potential bidders for the
national tender, del Cid could not identify one. &Every
fuel company here has had problems with delivery in the past,
but they,ve been able to cover their commitments from other
companies. Nobody is willing to take on that commitment
alone,8 he stated.


8. (C) Comment: The dispute over Meyeringh,s contract may
reflect President Zelaya,s growing confidence over a new
strategy: distance himself from the bid by placing the
ultimate responsibility of delivering results in Meyeringh,s
hands (and wallet). By showing the Honduran populace that
the move to an international bid may not guarantee savings,
Zelaya has effectively opened the door to new options. With
fuel industry representatives tiring of dealing with
seemingly rudderless government policy on this issue, a key
moment in helping define an alternative path could be missed.
End Comment.
Williard