VZCZCXRO6355
RR RUEHLMC
DE RUEHMU #1214/01 2751732
ZNR UUUUU ZZH
R 011732Z OCT 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3217
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1322
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

UNCLAS SECTION 01 OF 02 MANAGUA 001214 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR 
STATE FOR WHA/ESPC AND WHA/CEN 
STATE ALSO FOR EEB/BTA 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
 
E.O. 12958: N/A 
TAGS: EINV ENRG ECON PGOV NU
SUBJECT: NICARAGUA: PROPANE FOR THE PEOPLE 
 
REF: MANAGUA 706 
 
Summary 
------- 

¶1. (SBU) On September 24, President Ortega declared a state of 
emergency and announced that the Nicaraguan Government would name an 
"Intervention Board" to manage propane distributor Tropigas for six 
months "to address a potential propane shortage."  A Tropigas 
official claimed there is no propane shortage, but he acknowledged 
privately having delayed the importation of new supply to leverage 
the government into raising propane prices, which are regulated. 
Petronic President and FSLN Treasurer Francisco Lopez had suggested 
the day before the intervention that Venezuela could supply propane 
through ALBANISA or that Petronic could rent Tropigas' facilities to 
distribute Venezuelan gas.  In the near term, the FSLN could 
tolerate neither a price increase for, nor a shortage of, the 
predominant cooking fuel.  In the long term, Petronic could use 
Tropigas' infrastructure to establish itself as a propane 
distributor. 
 
Ortega Orders Tropigas Takeover 
------------------------------- 

¶2. (U) On September 24, President Ortega signed Decree 53-2008, 
invoking constitutional powers to declare a state of emergency and 
authorize the Nicaraguan Energy Institute (INE) to intervene in 
propane distributor Tropigas for six months "to address a potential 
propane shortage."  Ortega justified the measure on FSLN-controlled 
Radio Ya, explaining that it was the role of government to 
"guarantee propane supply at fair prices."  Ortega said he had no 
choice but to intervene because Tropigas, which supplies 70% of the 
propane in Nicaragua, had threatened to cut off supply if INE, the 
government regulator, did not increase prices by 100%.  The decree 
also stated that "this intervention does not affect the property 
rights of Tropigas." 
 
¶3. (U) On September 29, the Executive Committee of the National 
Assembly returned the decree to the executive branch for 
clarification and technical corrections.  Legislators requested more 
information regarding the justification for declaring a state of 
emergency and suspending constitutional protections to allow INE to 
make financial and operational decisions on behalf of Tropigas. 
They also complained that First Lady Roasario Murillo, who is not a 
member of the Council of Ministers, was among the ministers who 
signed the decree.  When the decree is corrected and resubmitted, 
the National Assembly will meet in a plenary session and approve it 
as is, approve it with amendments, or reject it outright. 
Meanwhile, the measure remains in effect. 
 
¶4. (U) INE President David Castillo, a Liberal Constitutional Party 
(PLC) politician who often cooperates with FSLN officials in 
compliance with the power-sharing arrangement between Ortega and 
Aleman (reftel), told reporters that Tropigas "was in a weak 
financial position" and INE would "work with the company to supply 
propane at current prices."  Castillo asserted that Tropigas had 
reserves in Nicaragua for only three days, far below the ten-day 
cushion required under the 1998 Hydrocarbons Supply Law. 
 
¶5. (U) Castillo claimed that in a meeting on September 23, Tropigas 
rejected a number of INE options that would help the company improve 
its financial position and increase supply.  He said Petronic -- 
represented at the meeting by President Francisco Lopez, who also 
serves as FSLN Treasurer -- was available to provide financing to 
Tropigas.  Castillo said Venezuela could supply propane through 
ALBANISA for Tropigas to bottle and distribute.  He further 
suggested that Petronic could rent Tropigas' facilities for the 
distribution of Venezuelan propane. 
 
Tropigas Denies Supply Problems 
------------------------------- 

¶6. (SBU) Tropigas is a family-owned company based in Panama with 
operations in El Salvador as well.  A U.S.-citizen family member 
holds a minority share.  Tropigas General Manager Walter Calderon 
told Econoff on September 26 that Ortega's decree was unnecessary. 
He explained that the company had delayed purchasing additional 
supply as leverage for a price increase in its negotiations with 
INE.  The company never intended to completely cut off supply, he 
explained.  In fact, propane was in transit from Puerto Cortez in 
Honduras. 
 
¶7. (SBU) Calderon said that on September 19, Tropigas wrote INE 
complaining that the "situation had become untenable" and that 
without a price increase, the company could not import additional 
supplies and continue distribution at least in the form of 10- and 
25-pound tanks.  That letter, Calderon believes, triggered the 
government intervention.  He explained that INE establishes propane 
prices according to a formula that reflects changes in the market 
price of propane.  Since 1995, this formula has not factored 
increases in wages, transportation, and environmental compliance 
costs.  Calderon said Tropigas loses money on all 10- and 25-pound 
tanks for household use but sells 100-pound and larger tanks for a 
profit.  He said Tropigas is a wholesale distributor only and thus 
does not collect retail margins (regulated by INE) on which its 
competitors rely to make a profit. 
 
INE Establishes Intervention Board 
---------------------------------- 

¶8. (SBU) Since Ortega's September 24 decree, INE has established an 
"Intervention Board" that includes technical, administrative, and 
financial staff to oversee Tropigas' day-to-day operations.  Board 
Director Onasis Delgado ordered Tropigas to purchase 70,000 gallons 
of propane from competitor Zeta Gas on September 25.  Calderon has 
sought to block the delivery on safety concerns and as of September 
29 claims that his company has a ten-day supply.  In addition, 
Delgado has ordered Tropigas to allow him to sign for the company on 
all financial dealings. 
 
Propane for the People? 
----------------------- 

¶9. (SBU) At the September 23 meeting, Calderon told Econoff that 
Petronic President Francisco Lopez outlined a plan for the 
government to use ALBANISA funds to provide 25,000 stoves and 50,000 
propane tanks to the public during the next two months.  Calderon 
speculated that the government intervention may be motivated by the 
desire to use Tropigas' storage facilities and distribution 
capabilities to get these stoves and propane tanks into the kitchens 
of potential voters before the November municipal elections. 
 
Comment 
------- 

¶10. (SBU) It is plausible that Ortega would want Petronic to take 
over Tropigas operations.  In August 2007, he seized ESSO storage 
tanks for a similar purpose.  That led to the flow of funding from 
Venezuelan oil company PDVSA to FSLN-controlled entities and, 
likely, to the ruling party itself.  With municipal elections just 
six weeks away, Tropigas' gamble that creating a propane shortage 
would force INE to raise prices seems to have backfired.  In the 
near term, the FSLN could tolerate neither a price increase for, nor 
a shortage of, the predominant cooking fuel.  In the long term, 
Petronic could use Tropigas' infrastructure to establish itself as a 
propane distributor. 
 
CALLAHAN