HONDURAN GOVERNMENT TO MEET OIL INDUSRY REPS IN

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 000098 SIPDIS SIPDIS NOFORN 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 STATE PASS USTR FOR AMALITO E.O. 12958: DECL: 01/17/2017 TAGS: EPET ENRG PREL BBSR NI VE HO SUBJECT: HONDURAN GOVERNMENT TO MEET OIL INDUSRY REPS IN SALVADOR FOR "LAST CHANCE" DIALOGUE REF: TEGU 0091 AND PREVIOUS Classified By: AMB Charles Ford for reasons 1.4 (b,d) ¶1. (C/NF) Summary: A GOH delegation led by Minister Enrique Flores Lanza has agreed to travel to Salvador on January 18 to engage with the international oil companies in a last ditch effort to find an exit to the current fuel sector crisis. Flores Lanza proposed two topics for the Salvador talks: (1) modification to the pricing formula for gasoline, and (2) liberalization of the fuels market in Honduras. Successful talks could induce the GOH to abandon the bid solicitation process, reform the pricing formula, and allow the companies currently operating to remain in Honduras. Both the GOH and the companies have told Post that they understand this really is their last chance, and that they are prepared to be flexible and creative at the negotiating table. Many things could go wrong over the coming days, but Post considers it a major victory that we have persuaded both sides to sit down for a reasoned dialogue. End Summary. ¶2. (C/NF) Following an intensive round of discussion between Post and the GOH -- including a January 16 Ambassador call on President Jose Manuel "Mel" Zelaya Rosales -- the GOH as agreed to meet "one last time" with representatives of the international oil companies. Similarly, following calls from Ambassador and EconChief to executives of Texaco and Esso (ExxonMobil),those companies have agreed to meet the GOH representatives. Post has stressed to both sides that this meeting must be a serious and good-faith effort to reach a mutually acceptable outcome. Both sides must win something, and both must be prepared to think creatively and perhaps accept less than they hoped for. Both the GOH and the companies have told Post that they understand this really is their last chance, and that they are prepared to be flexible and creative at the negotiating table. ¶3. (C/NF) On January 17, EconChief spoke with Minister Counselor for Legal Affairs Enrique Flores Lanza, who said that he would travel to San Salvador on January 18 to meet with oil company representatives to seek a resolution to this crisis. He will be accompanied by Arturo Corrales, who for the last three months has been quietly negotiating with the companies on behalf of President Zelaya. Flores Lanza meanwhile was appointed by Zelaya on January 16 to be the primary point of contact for any discussions about the oil bid solicitation or the announced takeover of the storage facilities. Ambassador quickly confirmed with Zelaya that Corrales would retain his role. (Comment: Corrales had built up some credibility with the companies, and has significant understanding of the energy sector. Post assesses that his presence will help facilitate discussion and could moderate Flores Lanza's positions. Flores Lanza has long been a proponent of the bid solicitation. While he is loyally carrying out his President's directive to engage in these talks, Post questions whether his heart is in it. End Comment.) ¶4. (C/NF) Flores Lanza accepted EconChief's suggestion that while the GOH needs a short-term victory at the pumps, the firms need stable investment climate and would support longer-term moves toward sector liberalization. Flores Lanza proposed two topics for the Salvador talks: (1) modification to the pricing formula for gasoline, and (2) liberalization of the fuels market in Honduras. Lanza opened the door fairly wide, saying that the possibility of the current importers staying in Honduras was on the table, and even that a politically and financially acceptable offer from the companies could induce the GOH to abandon the bid solicitation process entirely. In other words, if the companies can meet the GOH's immediate political needs, the GOH might embark on market liberalization while allowing current importers to continue doing business in Honduras more or less unhindered. TEGUCIGALP 00000098 002 OF 002 ¶5. (C/NF) Post spoke with both Esso and Texaco to strongly encourage them to meet with Flores Lanza and Corrales, and to come prepared to deal. Both companies subsequently accepted the offer to meet with the GOH delegation. (Note: The meetings will take place in Salvador because several oil executives left Honduras when threatened with arrest for alleged economic sabotage. However, Attorney General Leonidas Rosa Bautista told Ambassador on January 16 that his instructions to his prosecutors were to make no moves to arrest any oil company executives. The GOH clearly was using the threat of arrest as a pressure tactic, and Post views the GOH delegation's willingness to fly to Salvador for the talks as a gesture of conciliation as well as a recognition of the oil companies' legitimate concerns. End note.) Flores Lanza told EconChief that the meetings will take place on January 18, but the delegation is prepared to stay an extra day if circumstances warrant. ¶6. (C/NF) Comment: Post has been working hard for over a year to convince the GOH that the bid solicitation process was an ill-conceived one that infringes investor rights and reduces competition in the marketplace. As of January 10, we had been informed that Zelaya was on the verge of canceling the solicitation process outright and moving aggressively towards market liberalization. However, following his meetings with Nicaraguan President Daniel Ortega and Venezuelan President Hugo Chavez on January 11, Zelaya returned a changed man, issuing fiery denunciations of "energy terrorism." Two days later, following an eight hour closed-door debate, Zelaya was persuaded to issue his decree announcing GOH intent to take over private sector storage facilities. Post's public expression of concern over this action seems to have led the GOH to constructively re-engage with the companies. At the same time, the decree shocked the companies sufficiently to finally motivate them to take these talks seriously. Many things could go wrong over the coming days, but Post considers it a major victory that we have persuaded both sides to sit down for a reasoned dialogue. End Comment. Ford FORD