Identifier
Created
Classification
Origin
07TEGUCIGALPA336
2007-02-20 21:55:00
CONFIDENTIAL//NOFORN
Embassy Tegucigalpa
Cable title:  

HONDURAN PRESIDENT ATTACKS PRO-NATIONALIZATION

Tags:  EPET ENRG PREL BBSR NI VE HO 
pdf how-to read a cable
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INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHCV/AMEMBASSY CARACAS PRIORITY 0541
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
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C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 000336 

SIPDIS

NOFORN
SIPDIS

STATE FOR EB/ESC, WHA/EPSC, WHA/PPC, EB/CBA, AND WHA/CEN
STATE FOR D, E, P, AND WHA
STATE FOR S/ES-O MMILLER AND MSANDELANDS
TREASURY FOR AFAIBISHENKO
STATE PASS AID FOR LAC/CAM
NSC FOR DAN FISK
COMMERCE FOR MSELIGMAN AND WBASTIAN
STATE PASS USTR FOR AMALITO

E.O. 12958: DECL: 02/20/2017
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: HONDURAN PRESIDENT ATTACKS PRO-NATIONALIZATION
FUEL COALITION; DENOUNCES CONOCO CONTRACT

REF: A) TEGU 302 AND PREVIOUS

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

C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 000336

SIPDIS

NOFORN
SIPDIS

STATE FOR EB/ESC, WHA/EPSC, WHA/PPC, EB/CBA, AND WHA/CEN
STATE FOR D, E, P, AND WHA
STATE FOR S/ES-O MMILLER AND MSANDELANDS
TREASURY FOR AFAIBISHENKO
STATE PASS AID FOR LAC/CAM
NSC FOR DAN FISK
COMMERCE FOR MSELIGMAN AND WBASTIAN
STATE PASS USTR FOR AMALITO

E.O. 12958: DECL: 02/20/2017
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: HONDURAN PRESIDENT ATTACKS PRO-NATIONALIZATION
FUEL COALITION; DENOUNCES CONOCO CONTRACT

REF: A) TEGU 302 AND PREVIOUS

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


1. (C/NF) Summary: Recently President Zelaya has become
openly critical of his former allies, the Patriotic Coalition
(the group led by Juliette Handal that seeks lower fuel
prices through nationalization of all imports). Zelaya has
also criticized the pressure tactics employed by
ConocoPhillips in presenting the GOH with a signed
sole-source contract making Conoco the monopoly fuel supplier
to Honduras. Zelaya also implicitly criticized the U.S.
citizen consultant responsible for the fuel import
nationalization plan and the Conoco contract. With these
statements, Zelaya has for the first time distanced himself
from Juliette Handal and the coalition she heads, and has
strengthened his building case for ultimately rejecting her
proposal to nationalize imports. Post's most significant
doubt about the outcome of the struggle to prevent that
nationalization had been precisely whether Zelaya would be
willing to confront Handal. It appears Zelaya has now done
so, preparing his exit from the fuel imports controversy that
for over a year has both buoyed his popularity with the poor
and threatened to poison his relations with investors. There
is no final deal yet between the GOH and Texaco and Shell,
but according to the GOH one is in the offing, perhaps as
soon as February 21. End Summary.


2. (SBU) Over the last several days, President Jose Manuel
"Mel" Zelaya Rosales has become increasingly critical in his
public remarks of the Patriotic Coalition (the group led by
Juliette Handal that seeks lower fuel prices through
nationalization of all imports.) Since January 18, Zelaya has

been moving steadily towards a decision to abandon the fuel
import solicitation plan in favor of liberalizing the fuels
market in Honduras. Because such a move always implied
Zelaya would need to confront the popular but disruptive
Handal and the Patriotic Coalition, Post had doubts about
whether Zelaya would follow through. This week, Zelaya
clearly stood up to Handal, openly taking on the Coalition
and reinforcing in even more explicit terms that no new
savings would be forthcoming even if the GOH were to conclude
the fuel import solicitation.


3. (SBU) In public remarks on February 14, Zelaya said,
"There will be no more price reductions, or rather, they have
already happened, specifically because I issued an executive
decree in the Council of Ministers, before any boat came as
part of the bid solicitation. I reformed the fuels pricing
formula. There will be no further price cuts or other
benefits, whether the Conoco boat comes or not." (Note: U.S.
firm ConocoPhillips won the GOH bid solicitation to provide
all Honduras' fuel imports for the next year, but has not yet
concluded a contract with the GOH. Had the GOH determined to
move forward with the nationalization of the sector, Conoco
would have been contracted as the monopoly supplier to the
GOH, closing the market to current importers Esso, Texaco,
and Shell. End note.)


4. (C/NF) In a letter to President Zelaya on February 12 and
in subsequent public remarks, Handal and others from the
Patriotic Coalition pushed back, saying that anyone who
opposes the nationalization plan "is working against the
national interest." Her strident tone and the implication
that the President himself is working against the national
interest reportedly provoked Zelaya to anger, and may have
hardened his stance in favor of liberalization. (Comment:
It was perhaps inevitable that Zelaya would have to confront
Handal, a firebrand who has caused Zelaya no end of troubles
over the last year. As long as Zelaya sought to pressure the
international oil companies, Handal's zealotry was useful to
him. Now that he is preparing to change course, she has
become both a liability and a potential political rival. End
Comment.)

TEGUCIGALP 00000336 002 OF 003




5. (SBU) Zelaya also implicitly criticized the U.S. citizen
consultant advising the Patriotic Coalition and the GOH on
the fuel import solicitation. In private remarks to
EconChief, Minister Enrique Flores Lanza said the consultant
had encouraged Conoco to submit a signed, revised draft
contract to the GOH, to pressure them to conclude the
nationalization scheme and agree to make Conoco the sole
importer. (In his public remarks Flores Lanza has been much
more circumspect.) News of the signed contract leaked to the
press on February 15. Zelaya responded sharply, criticizing
the new contract as "unilateral, incorrect, and a
straightjacket" for Honduras. Zelaya went on to say, "I
don't want to judge anyone, but I did not like what happened
(with the contract). It seems to me that was not done using
appropriate business sense and that they have gone too far
with these kinds of arrangements, which have not been
approved either by those overseeing the process or by the
government. It is incorrect that they have unilaterally sent
me a signed contract in which they have altered ten important
clauses without having first consulted the government. In a
process of negotiation, you don't send a signed contract; you
send an unsigned one for analysis." Zelaya then said he
would question the U.S. citizen consultant about "what's
really going on here." Asked on February 16 about the
consultant, Flores Lanza remarked to the press that, "If one
loses confidence in a consultant, well, quite simply, that
relationship must be ended."


6. (C/NF) Comment: Whatever his flaws, Zelaya is a gifted
retail politician, one who chooses his battles carefully and
only ones he feels he can win. That he has taken on the
Patriotic Coalition and Juliette Handal frontally signals
that he is perhaps prepared to end this debate once and for
all, and remove that group as a potential threat to his
popularity and stability as President. Flores Lanza has made
several statements explicitly impugning the U.S. consultant
(a close friend and supporter of Handal),and several media
outlets from all parties have joined in the attack on the bid
solicitation process (noting, for example, that following
through with nationalization would create legal problems and
not create additional savings, so why do it?). It seems
clear to Post that this is a coordinated attack on Handal and
her supporters. To his credit, Zelaya realized (albeit only
after more than a year of pressure from Post and the private
sector) that his populist fuel import scheme would not work,
and he has repeatedly assured Ambassador that he has changed
course dramatically and embraced market liberalization.
Handal lacks the intellectual integrity to admit her plan
does not work, and the political smarts to change course with
her President. Her tenacious and ultimately self-destructive
refusal to let go of this misguided scheme ha put her in
conflict with Zelaya, a conflict he wll likely win.


7. (C/NF) Comment, continued: Hving come out even more
forcefully against the ntionalization option, Zelaya seems
to us now to e even more committed to a strategy of market
lieralization. There is no deal yet in hand with Texco and
Shell, but according to the GOH one is inthe offing, perhaps
as soon as February 21. Shel has reportedly come to terms
with the GOH, whie Texaco sent a senior-level delegation on
Februry 19 to discuss next steps and could potentially t
close the deal in the next few days. Esso remans reluctant
and will have to engage the GOH at ome point, when and if it
feels comfortable doin so. DIPPSA/Trafigura remains a wild
card, as i faces several pending lawsuits (over storage
tans and over allegations of selling at inflated prics to
its distributors) and could itself launch aseries of
lawsuits at the GOH for the losses it s suffering under the
new pricing scheme. Neverheless, DIPPSA/Trafigura could be
one of the bestpositioned to benefit from a market
liberalizatin. An uncharacteristically ebullient Flores
Lana told Ambassador on February 15 that he felt all arties
were on the verge of closing a deal and fnally ending this

TEGUCIGALP 00000336 003 OF 003


year-long saga. Post will continue to track developments
with interest.

Ford
FORD