Identifier
Created
Classification
Origin
07TEGUCIGALPA368
2007-02-26 23:37:00
CONFIDENTIAL//NOFORN
Embassy Tegucigalpa
Cable title:  

OFFSTAGE, HONDURAN FUELS ISSUE NEARS RESOLUTION;

Tags:  EPET ENRG PREL BBSR NI VE HO 
pdf how-to read a cable
VZCZCXRO8255
PP RUEHLMC
DE RUEHTG #0368/01 0572337
ZNY CCCCC ZZH
P 262337Z FEB 07
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC PRIORITY 5056
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHCV/AMEMBASSY CARACAS PRIORITY 0544
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 0596
C O N F I D E N T I A L SECTION 01 OF 04 TEGUCIGALPA 000368 

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: 02/26/2017
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: OFFSTAGE, HONDURAN FUELS ISSUE NEARS RESOLUTION;
ONSTAGE, THE THEATRE OF THE ABSURD

REF: A) TEGU 336 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 04 TEGUCIGALPA 000368

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: 02/26/2017
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: OFFSTAGE, HONDURAN FUELS ISSUE NEARS RESOLUTION;
ONSTAGE, THE THEATRE OF THE ABSURD

REF: A) TEGU 336 AND PREVIOUS

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


1. (C/NF) Summary: President Zelaya continues to shift his
position on fuels to one increasingly aligned with the USG
market-orientation. His public remarks have moderated
significantly, triggering suspicion and even attacks from his
former allies in the fight to nationalize fuel imports that
he has now abandoned. It is important to discern the
difference between Zelaya's previous public remarks, which
were largely political theatre, from the real developments
taking place off-stage. Much of this confusion was cleared
away in a GOH communique dated February 22, that makes it
explicit that the GOH does not expect to continue the bid
solicitation process, does not foresee signing a monopoly
supplier contract with Conoco, and reiterates its belief that
the only way to guarantee the best prices for the consumer is
to move towards a more open and competitive fuels market.
Texaco has submitted a formal proposal and is optimistic a
deal is ready to be signed. GOH advisor Arturo Corrales has
reportedly been tasked with drafting a new GOH decree
memorializing this historic decision, but we won't truly
believe we have a deal until the new decree is promulgated.
End Summary.


2. (SBU) The continuing saga of the GOH plan to either
nationalize or liberalize the fuels import sector lately
appears to be more farce than tragedy. Politicians are
openly accusing each other of political theatre, the press
now mocks the process as a "soap-opera," and the melodramatic
posturing of leader of the Patriotic Coalition Juliette
Handal has begun to alienate even some members of the public.

At heart, however, the critics are correct: nearly all of
the public remarks of the last week have indeed been
political theatre, while a potentially durable solution to
this self-inflicted crisis has been quietly negotiated
off-stage.

The Cast
--------------


3. (SBU) The Hero: President Jose Manuel "Mel" Zelaya
Rosales continues to play the leading man, portraying himself
as steadfast in his defense of the Honduran consumer and
defiant in the face of (he would have us believe)
overwhelming opposition from the international oil companies.
That said, his public rhetoric has shifted recently from the
two-dimensional populism of last year (attacking the
"commercial tyranny" of "warmongering multinationals") to
that of a more nuanced, three-dimensional character. Zelaya
now openly proclaims the virtues of market opening and
increased competitiveness.


4. (SBU) The Sidekick: Arturo Corrales, one of the original
members of the Commission of Notables formed to seek lower
fuel prices, provides running commentary on events as they
develop, patiently and calmly explaining to the audience what
is happening on stage. While his actions will prove to be
key in the victory by the good-guys, he nevertheless politely
declines to take any credit, pointing instead to the
President as the courageous man of action.


5. (SBU) The Chorus: Led by Minister Counselor for Legal
Affairs Enrique Flores Lanza, the supporting players amplify
the central themes established by the President. When Zelaya
attacked the IOCs, the chorus was vitriolically
anti-multinational. Now that the President has shifted to a
free-market stance, the chorus sings the praises of
competition. Though not the most important players on stage,
the Chorus often drowned out the other dialogue, striving
instead to sway the audience through repetitive emotional
appeals.


TEGUCIGALP 00000368 002 OF 004



6. (SBU) The Jilted Lover: Juliette Handal, leader of the
Patriotic Coalition and zealous supporter of nationalization,
began Act I as the object of the President's political
affections. Blind to her flaws, he courted her and showered
her with support, adopting her cause as his own. By Act III,
however, the President has had a change of heart: he has
resolved to leave her and instead seeks to find an
accommodation with the oil companies. Playing every inch the
spurned lover, Handal has accused the President of treachery
and betrayal, and vowed that "God would judge him" for his
actions. She sought public sympathy with an allegedly broken
arm (one that equally mysteriously was healed a week later),
and darkly accused "outside forces" of trying to destroy her
and her plan for nationalization of the oil sector. Her
increasingly shrill statements have left some observers
(including the radio commentators who hosted one of her
recent interviews) wondering aloud about her emotional
stability. Many, however, have merely tired of her
over-emoting in her role as perpetual victim, and wish she
would just exit the stage.


7. (SBU) The Mad Scientist: The U.S. citizen consultant who
designed the nationalization scheme was introduced to the
audience as the expert who would assist the President in
saving the day. Recently, however, public opinion has turned
on him, as questions have been raised about his ethics, and
about whether his elaborate scheme was ever a good idea.
Even Juliette Handal, a long-time friend and the person who
brought him into this production, now publicly shuns him and
declares that she barely knows him. He has, as the press
delights in pointing out, become a soap opera caricature:
the good-guy turned bad-guy. Some now wonder whether he will
be forced to flee in the night, pursued by a crowd bearing
pitchforks and torches. (Note: Both his lionization last
year and his demonization more recently are overdone, and
Post has no evidence of any illegal acts on his part. End
note.)


8. (SBU) The Innocent Man, Wrongly Accused: The
international oil companies found themselves cast in the role
of villain. At first they tried to persuade the audience
that they were innocent of the crimes of which they stood
accused, but their early dialogue was poorly written and
poorly delivered, and left the audience unconvinced and
unmoved. The President's charismatic and populist rhetoric
held them in its sway. By Act II, the companies had realized
it is not the audience, but the President who must be
convinced, and that they could only do this off-stage. Yet
they remained troubled by the disconnect between the content
of those private talks and the President's words on stage.
Post reminded the companies that the President's fiery
speeches on stage are, after all, theatrics, and that the
more meaningful words are those he says in private.


9. (SBU) The audience: The Honduran public continues to watch
the action, more bemused than amused. As the plot twists
become increasingly improbable, the artifice has worn off and
the public has begun to see through to the true story
underneath. The President remains popular for his defense of
lower prices, even if the public is no longer sure if they
entirely believe him. Some have gradually appreciated
Corrales' repeated presentations and they now understand some
of the core market concepts. (This will also help the
President sell his new strategy when the time comes.) Some
of those that Corrales could not rally through reasoned
argument have been brought along through sentiment as Flores
Lanza and others continue to drive home the key messages.
The Honduran public is increasingly suspicious of the
consultant, and some have grown tired of Handal relentlessly
overplaying her part.

This Week's Exciting Chapter
--------------


TEGUCIGALP 00000368 003 OF 004



10. (C/NF) On February 19, a delegation of senior officials
from U.S. oil company ChevronTexaco met with GOH officials to
seek a resolution to the current situation. They emerged
from talks "calm" and "comfortable" that they understood what
the GOH needed from them in order to accept a deal. On
February 21, ChevronTexaco presented a formal offer to the
GOH, outlining their proposal for restructuring the fuel
pricing formula in a way that would allow the GOH to claim
price reductions, while safeguarding the long-term interests
of the company and setting Honduras on a path towards rapid
market liberalization. On February 23, ChevronTexaco
representatives told EconChief that the offer had been well
received by Zelaya, and that they were confident a deal might
be announced the week of February 26.


11. (C/NF) In the meantime, Handal openly and increasingly
stridently accused the GOH of conspiring to undermine the
fuel import nationalization scheme and of seeking an
arrangement with the IOCs. (Comment: In this, she was
absolutely correct. She hoped that by saying this aloud, the
public would rise up and demand the GOH return to the
nationalization process. That they have not done so must be
a bitter disappointment to her. End comment.) When her
denunciations of GOH perfidy failed to rouse a public outcry,
Handal took the most drastic step remaining to her: she and
the other "witnesses of honor" to the nationalization process
resigned. Their resignations went largely unnoticed, and
within a day had disappeared from the news. The President,
when asked later about the resignations, merely thanked the
witnesses for their hard work and support throughout the
process. This left the impression (carefully cultivated by
Corrales as well) that the fuel imports bid solicitation
process had not broken down, but had simply run its course.
The GOH, Corrales implied, is not abandoning the process so
much as moving beyond it in search of bigger savings and
better efficiency improvements. In the minds of the public,
Handal's resignation -- intended to be in protest -- thus
became instead her stepping down at the conclusion of a long
but fruitful process. Making another attempt to rally her
waning base of support, Handal has called for another meeting
of the Patriotic Coalition to "endorse" the resignations and
call on the GOH to continue forward with the nationalization
process.


12. (C/NF) Reportedly on the advice of the U.S. citizen
consultant working for the GOH, U.S. firm ConocoPhillips
submitted a signed contract to the GOH for approval. (Note:
Under the nationalization scheme, Conoco was to have been
awarded a contract as the monopoly supplier of fuels to
Honduras, excluding from the market several current
suppliers, including U.S. firms Texaco and Esso. End note.)
The GOH objected that Conoco had made substantial changes to
the draft contract, that those changes would need to be
reviewed and agreed upon, and therefore it was inappropriate
and disrespectful for Conoco to have submitted the contract
already signed. Allegations quickly spread that the U.S.
consultant had "negotiated" a deal with the firm without the
GOH's consent. Other stories circulated that the consultant
sought to claim his USD 1 million bonus for cost savings,
even though those savings resulted from GOH action on pricing
and not from the consultant's work on the import scheme.
(Comment: According to GOH sources, this is accurate. The
consultant's contract apparently does give him credit for
changes to domestic policies that result in savings, and not
just for savings resulting from his own work on imports.
When informed of this fact, President Zelaya was reportedly
furious. End Comment.)


13. (C/NF) As a result, the public is demonizing the
consultant, and the press portrays him as treacherous and
greedy. Conoco, meanwhile, has not made any public
statements in over two weeks, nor has it sent a delegation to
meet with the GOH. Conoco had given the GOH until February
24 to resolve the pending issue of storage facilities and to

TEGUCIGALP 00000368 004 OF 004


sign a contract with them. Since that deadline has now
arrived with no deal and no likelihood of such a deal, Post
assesses that Conoco might be losing interest in concluding
this relatively minor but increasingly nettlesome matter.
(At only 8 million barrels of product per year, a Conoco
official recently told EconChief the deal was "peanuts" for
the firm.)


14. (C/NF) DIPPSA President Henry Arevalo remains in hiding,
seeking to avoid being served with a court order to allow GOH
use of his oil storage facilities. The GOH's inability to
secure these facilities held up and might in the end have
scuttled the import nationalization plan and the resulting
Conoco deal. Recently, DIPPSA has appealed the original
ruling, further dragging out the proceedings. (Comment: Post
assesses that these dilatory tactics are deliberate and have
likely been approved by Zelaya. It is clear that by January
18 Zelaya had decided not to pursue a nationalization scheme.
He therefore needed time to shift his position and prepare
the public for his decision not to sign with Conoco.
DIPPSA's refusal to turn over its tanks and subsequent legal
maneuvering gave Zelaya the time he needed. End Comment.)


15. (SBU) On February 22, Zelaya made his intentions plain
for all to see. Flanked by Vice President Elvin Santos and
Foreign Minister Milton Jimenez, Zelaya released a GOH
communique on the fuel situation. Among its five brief
points, the communique requires that the IOCs continue to
offer the lowest possible fuels prices. It also says the GOH
will not sign with Conoco ("for now"); will promote renewable
energy; and will halt the bid solicitation process ("for
reasons entirely outside the control" of the GOH). They key
sentence, however, appears in point five, in which the GOH
"holds that the only way to benefit consumers with fair
prices is by opening the market to true competition,
guaranteed by the state and in the national interest."


16. (C/NF) Comment: With each of his action over the last
three weeks, Zelaya has strengthened our credence in his
claims that he has embraced the idea of market competition as
the only durable long-term solution to his fuel import
concerns. We are far less concerned about the theatrics,
whether his or the oppositions', and we have the impression
that the Honduran public's attention is also waning. As
Flores Lanza recently told EconChief, "The public doesn't
care if we sign the contract (with Conoco.) They already have
their savings." We do not discount the possibility that
Handal will seek to stir up social unrest in reaction to her
defeat. However, it seems clear that Zelaya has steeled
himself to deal firmly with her, should the need arise.
(This impression was further reinforced by his surprise
decision two weeks ago to use troops to clear protestors from
a highway in Olancho. Zelaya is clearly sending a signal to
social groups that law and order will be imposed, and that
taking highways -- one of Handal's favorite tactics -- will
no longer be tolerated.) We are pleased Texaco is optimistic
about a deal. Corrales has been instructed by Zelaya to meet
with Petroleum Administration head Lucy Bu to craft a new
decree memorializing the accord, but we won't truly believe
we have a deal until the new decree is promulgated. In the
meantime, the show must go on.

Ford
FORD