Identifier
Created
Classification
Origin
06TEGUCIGALPA972
2006-05-30 12:22:00
CONFIDENTIAL
Embassy Tegucigalpa
Cable title:  

HONDURAN PRESIDENT SIGNALS PETROCARIBE DEAL

Tags:  EPET ENRG PGOV PREL PINR HO 
pdf how-to read a cable
VZCZCXRO1285
OO RUEHLMC
DE RUEHTG #0972/01 1501222
ZNY CCCCC ZZH
O 301222Z MAY 06
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2177
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHCV/AMEMBASSY CARACAS PRIORITY 0368
RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0029
RUEHBS/AMEMBASSY BRUSSELS PRIORITY 0127
RUEHME/AMEMBASSY MEXICO PRIORITY 6394
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC PRIORITY 0395
C O N F I D E N T I A L SECTION 01 OF 04 TEGUCIGALPA 000972 

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: 05/25/2016
TAGS: EPET ENRG PGOV PREL PINR HO
SUBJECT: HONDURAN PRESIDENT SIGNALS PETROCARIBE DEAL
LIKELY; RUMORS PERSIST THAT DIPPSA COULD PLAY KEY ROLE

REF: A. A: TEGUCIGALPA 897 AND PREVIOUS


B. B: MANAGUA 01079

C. C: SAN SALVADOR 000853

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 04 TEGUCIGALPA 000972

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: 05/25/2016
TAGS: EPET ENRG PGOV PREL PINR HO
SUBJECT: HONDURAN PRESIDENT SIGNALS PETROCARIBE DEAL
LIKELY; RUMORS PERSIST THAT DIPPSA COULD PLAY KEY ROLE

REF: A. A: TEGUCIGALPA 897 AND PREVIOUS


B. B: MANAGUA 01079

C. C: SAN SALVADOR 000853

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


1. (C) Summary: In a private lunch, President Zelaya
signaled to Ambassador that a PetroCaribe deal was likely,
reiterated the many areas that GOH worked closely with the
USG, and asked for "reciprocity" of support from the USG for
the GOH in its time of need. Zelaya stressed that any such
deal would be economically and not politically motivated.
EmbOffs stressed the political risks -- intended or not -- of
such an approach. Post also met separately with the current
and former owners of Honduran gasoline importer and marketer
DIPPSA, to better understand the role that company could have
in any such deal. Despite persistent rumors that a PDVSA
(Venezuela,s parastatal energy company) deal to purchase
Honduran fuel distributor DIPPSA is imminent, both the
current and former owners claim that the rumors aren,t true.
In addition to its wholly-owned chain of service stations,
DIPPSA is also a 50 percent owner (with Exxon) of key fuel
storage terminal facilities in Port Henecan, in southern
Honduras. Those facilities could in theory be used to
distribute PDVSA fuel to other Central American countries,
including Nicaragua where some Sandinista mayors have
reportedly signed PetroCaribe agreements. While maintaining
he is not interested in a PDVSA bid, new DIPPSA owner Henry
Arevalo is now in talks with Exxon on purchase agreements and
a potential sale of the terminal. A PDVSA purchase of DIPPSA
would give Venezuela a solid network of gas stations and
storage facilities in Honduras, and may set DIPPSA up as a
prime candidate to win the upcoming national bid for fuel
imports. End Summary.

-------------- --------------

Zelaya Signals PetroCaribe Likely; Seeks USG Understanding
-------------- --------------


2. (C) At a private May 25 lunch with Ambassador, EmbOffs,
and most of the GOH Cabinet, President Zelaya raised the
PetroCaribe issue publicly for the first time in many weeks.
He signaled that a PetroCaribe deal would happen, but that
the motivation for such a deal would be economic and not
political. (Note: Liberal Party President Patricia Rodas
echoed this view in a meeting May 26 with PolChief, stating
that, even if the GOH wanted a closer political relationship
with Chavez, it had to recognize the overarching importance
of the close relationship with the USG. End Note.) He
thanked the Ambassador for his restraint in his public
remarks, noting that some had helped calm a tense situation.
Nevertheless, Zelaya also noted that the GOH roundly supports
the USG internationally (including by sending troops to Iraq
in 2004),and expects "reciprocity" in that support now that
Honduras faces a fuel "crisis." EmbOffs corrected a number
of misapprehensions among the President and other Cabinet
members, pointing out technical, economic, and political
weaknesses in the PetroCaribe program and the risks in
aligning Honduras with Venezuelan President Hugo Chavez in
general. (Comment: We remain convinced that Zelaya receives
incorrect or perhaps even rosy-colored analyses of
PetroCaribe from his close advisors. Foreign Minister Milton
Jimenez, for example, during the lunch trotted out a number
of old canards regarding immigration, the F-5 fighters, and
PetroCaribe, each of which was gently corrected in turn by
Embassy staff. Ambassador reinforced these points more
forcefully in a brief pull aside with Zelaya following the
meal. Post will continue to press Zelaya to avoid dangerous
dependence on Chavez through PetroCaribe. End Comment.)

--------------
DIPPSA For Sale? ) If So, to Whom?
--------------


3. (C) As reported in ref A, Honduran fuel distributor

TEGUCIGALP 00000972 002 OF 004


DIPPSA remains the subject of persistent rumors that PDVSA
plans to buy the company, or at least a key fuel terminal in
the southern Honduran Port Henecan, located adjacent to the
town of San Lorenzo. The fuel terminal, jointly owned by
Exxon and DIPPSA but operated entirely by DIPPSA, is
strategically located near the Pan-American highway, with
easy access to neighboring Central American countries
Nicaragua and El Salvador. Through PetroCaribe, PDVSA has
initiatives in each of these countries and could in theory
use the San Lorenzo facilities as a key supply point (refs B
and C).


4. (C) Ambassador, EconChief, and EconOff spoke with DIPPSA
owner Henry Arevalo on May 23. Arevalo, who was already a 40
percent partner in DIPPSA, bought out majority owner Jose
Lamas, 60 percent stake five months ago. Arevalo said he
has been approached by PDVSA for a possible sale, but
maintained that he had no interest in selling to the
Venezuelan company. He indicated that another potential
buyer for the company was Salvadorian real-estate and sugar
businessman Guillermo Borjas, cousin of the owner of small
conservative newspaper El Mundo. (Comment: Given Borjas,
lack of experience in fuels, it seems odd he would
contemplate a USD 60 million purchase for fuel assets,
particularly in Honduras where expropriation remains a high
probability. Post suspects he may be fronting for other
interests. More recently, Embassy San Salvador reports
(notal) that Borjas might have lost interest in the sale.
End Comment).


5. (C) Arevalo also stated that he will be traveling to the
U.S. soon to talk with his partner Exxon regarding the San
Lorenzo terminal. While he explained he will be discussing
usage costs and other business matters, he indicated that
Exxon has the right of first refusal to buy the terminal if
it is put up for sale. Exxon's Honduran representative
acknowledged that Arevalo will be meeting with Exxon, but
said that the meeting was requested by Exxon because &we
think he will have some problems paying8 in the near future.
(Note: In May 12 conversation with Ambassador, Ficohsa Bank
CEO and former Minister of Investment Camilo Atala (reftel)
indicated that Arevalo had borrowed USD 18 million to
purchase the remaining 60 percent stake in DIPPSA, while also
borrowing USD 34 million to repay existing debt to other
creditors, particularly Banco Mercantil (BAMER). With DIPPSA
valued at an estimated USD 50 to 60 million, Arevalo by this
calculation holds about USD 52 million in debt. End Note.)

-------------- --------------
Following the Money ) to a Honduran Shell Company?
-------------- --------------


6. (C) While Arevalo maintained he wasn,t interested in
selling to PDVSA, he has participated in meetings with the
GOH regarding how PetroCaribe might work. As previously
reported, Honduran businessman Arturo Corrales will be
traveling to Caracas (dates still TBD) to propose a
&commercial8 version of PetroCaribe, and President Zelaya
has maintained that the GOH will not be involved in the
financing of PetroCaribe shipments. Arevalo outlined a plan
where a shell company, 49 percent owned by the GOH, would
line up the financing for the estimated USD 80 million
required each month to import Honduras, fuel products. With
90 day payment terms, this company could demand a 60 day term
from Honduran distributors, offsetting their payment risk.
With the generous payment conditions under PetroCaribe, this
shell company would pocket 40 percent of the fuel bill and
could, per Arevalo, &invest in crops to grow and pay Hugo
Chavez back in bananas or corn.8 (Comment: Arevalo,s
comments echo Corrales,, who described Honduran bank Banco
Atlantida as holding the cash proceeds and using them in a
variety of goodwill projects. It is our understanding that
the terms of PetroCaribe prohibit repayment in the form of
barter, however using PetroCaribe financing to subsidize
small farmers, production for export to Venezuela would be

TEGUCIGALP 00000972 003 OF 004


consistent with Zelaya's current agriculture sector strategy.
If successfully implemented with specific reference to
PetroCaribe, such a plan could extend Chavez's popularity far
into the Honduran countryside, winning the approval of
subsistence farmers who might not be direct consumers of
gasoline, but would be exposed to Chavez's "generosity"
through the crop subsidies. End Comment)


7. (C) On May 24, Ambassador, EconChief, and EconOff met
with former DIPPSA majority owner Jose Lamas. Lamas, a
Cuban-born Honduran who fled the Castro revolution, has until
recently had a broad spectrum of financial interests
throughout Honduras, including banking, airports, wood
products, and real estate. Lamas has recently sold several
companies he owned or had stakes in, including DIPPSA and
airport service provider Inter-Airports. (Comment: Post
believes Lamas' decision to divest from many lines of
business in Honduras reflects his negative views of both the
political and business prospects in Honduras. Lamas
reportedly contributed significantly to Nationalist
Presidential candidate Porfirio "Pepe" Lobo's campaign, and
was deeply disappointed by his November 2005 electoral loss.
Lamas said "Zelaya is not a communist," but he expressed
doubts about the policies being pursued by the Zelaya team,
and about the leftist orientation of a number of advisors
surrounding Zelaya. In the case of DIPPSA, Lamas also
foresaw a tough market ahead, with either increased state
regulation of the gasoline sector or moves towards market
liberalization threatening the viability of his business.
End Comment.)


8. (C) Strongly anti-communist, Lamas indicated that he was
never contacted by PDVSA and sold his stake in DIPPSA
because, with revisions coming on how fuel is imported and
distribution prices set, a &purely Honduran company will
never survive8 without being subsidized by higher margin
upstream activities like those enjoyed by the oil majors. On
the potential for PDVSA to win the upcoming Honduran national
fuel bid, Lamas discounted the possibility, stating that he
thought President Jose Manuel &Mel8 Zelaya would bring the
bid to the brink of a decision, then &use it as leverage to
modify the (current price fixing) formula.8 This view
conflicts with current owner Arevalo's assessment that the
international bid solicitation will "without doubt" be won by
Venezuela. (Comment: It comes as no coincidence that rumors
of a sale to PDVSA coincided with Lamas, exit ) the Cuban
emigrant radiates anti-communist sentiment. His idea that
President Zelaya would use the bid to force revision of the
formula, though, seems off the mark to Post ) why trade away
a potentially lucrative deal with Venezuela to attack the
truckers and dealerships that have considerable political
clout? End Comment.)


9. (C) Comment: Arevalo would appear to be the linchpin in
any strategy involving PDVSA obtaining a share of the
Honduran market. Arevalo seems to be under some pressure to
sell, and while Exxon has the first option to buy the
terminal, that company has effectively frozen all new
investment in Honduras due to current uncertainties. Should
Exxon (as seems likely) choose not to exercise its right to
buy-out Arevalo's share of the terminal, Arevalo would then
be free to sell that facility to Borjas or other suitors.
With PDVSA looking for a way to supply towns in El Salvador
and Nicaragua with PetroCaribe fuel, the company likely
retains an interest in buying the storage facility, and could
be in talks already with investors and distributors like
Borjas. One question remains: if it is likely to win the
international bid solicitation anyway, why would PDVSA need
to buy DIPPSA? The answer might lie in the need to secure a
key supply strategy. Alternatively, a newly purchased
DIPPSA, with its established licenses and contracts, could
bid on and win the proposed national bid with a
PetroCaribe-like deal. Post continues to follow this matter
closely, but the intertwining economic and political
interests continue to cloud understanding of the deal, even

TEGUCIGALP 00000972 004 OF 004


among the key players themselves. Whether Zelaya has an
interest in a warmer relationship with Chavez is one
question; whether Zelaya's advisors could use his interest in
an expedient economic solution to achieve such aims even
without his intent is another. End Comment.

Ford

Ford