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C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 000170 
 
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 AND WBASTIAN 
STATE PASS USTR FOR AMALITO 
 
E.O. 12958: DECL: 01/25/2017 
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: HONDURAN GOVERNMENT REVIEWING OIL COMPANY OFFERS; 
CONOCO STILL ON HOLD PENDING SETTLEMENT OF STORAGE QUESTION 
 
REF: A. A) TEGU 0149 AND PREVIOUS 
     ¶B. B) TEGU 0151 
 
Classified By: AMB Charles Ford for reasons 1.4 (b,d) 
 
¶1. (C/NF) As of mid-day January 26, the GOH and the 
international oil companies (IOCs) continue their quiet 
dialogue over reforms to the fuels pricing formula.  If the 
proposed reforms can deliver cost savings to the consumer 
while moving the market towards liberalization, the GOH 
appears inclined to accept such proposals instead of moving 
forward with a pending plan to nationalize the fuels import 
sector.  If the GOH takes control of imports, it will seek to 
sign a contract with U.S. firm ConocoPhillips to supply its 
fuel needs for the coming year.  However, it would also 
likely need to invoke legal proceedings to seize control of 
privately owned storage facilities in order to move forward 
with this plan.  It appears to Post that the GOH is now 
seeking a way to avoid such an outcome. 
 
¶2. (C/NF) EconChief spoke separately to both Esso 
(ExxonMobil) and Texaco about the state of talks.  Both firms 
met with the GOH in San Salvador last week and both 
subsequently accepted the GOH offer to present proposed 
pricing formula reforms.  The companies briefed GOH fuels 
advisor Arturo Corrales on their proposals on January 22 and 
23, and submitted written drafts of the proposals on January 
¶24.  Both companies felt their offers were quite reasonable 
and in keeping with the ideas floated at the San Salvador 
meetings.  The GOH has not formally responded to the 
companies yet, though both companies indicate a willingness 
to entertain counteroffers. 
 
¶3. (C/NF) In separate conversations with EconChief and 
Ambassador, Corrales was very upbeat, saying that the offers 
received were "very, very close" to what was discussed in 
Salvador.  Corrales briefed President Jose Manuel "Mel" 
Zelaya Rosales on the plans on January 25.  In yet another 
confirmation of the GOH's intent to liberalize (and 
apparently to begin distancing itself from implementing the 
national import scheme), Zelaya did not once mention the fuel 
bid solicitation in his January 25 speech to Congress 
celebrating his achievements after one year in office. 
Instead, he said, "We need to continue to advance the process 
of transparency in the distribution of petroleum products. 
We must create conditions that allow the companies now in the 
country to enter into free competition and competition based 
on prices and markets, for the benefit of better fuel prices 
to consumers. We cannot continue with the state bound to the 
international companies, but rather we have to let them enter 
a process of competition to begin to liberalize the fuels 
market for the benefit of the consumer, as they have done in 
Guatemala and El Salvador.  This is the pact to which we as 
Honduras must subscribe, to break with any kind of 
arrangement that does not benefit the market." 
 
¶4. (SBU) On January 26, ConocoPhillips sent a letter to the 
GOH that, according to Conoco representatives, "confirms 
Conoco's interest in the business and requests information on 
the tank farm and operator."  Post does not yet have a copy 
of that letter, but it appears the letter was much more 
specific than that.  According to public remarks by Minister 
Advisor for Legal Affairs and chief negotiator on the fuels 
issue Enrique Flores Lanza, the letter from Conoco rejects 
the GOH proposal to provide fuel storage by seizing privately 
owned tanks from DIPPSA and Esso.  According to Flores Lanza, 
Conoco is requesting the GOH produce written authorization 
from DIPPSA consenting to use of those tanks.  Flores Lanza 
said that the GOH will meet with DIPPSA President Henry 
Arevalo on Monday to discuss this matter. 
 
¶5. (C/NF) Comment:  Events of the past few days make it 
increasingly clear that the GOH is laying the groundwork for 
a course correction away from a national import scheme and 
 
TEGUCIGALP 00000170  002 OF 002 
 
 
towards a liberalized market.  It speaks volumes that the GOH 
received the Conoco letter on Friday morning and is willing 
to wait until Monday to begin a discussion with Arevalo. 
Post assesses that if the GOH were still serious about the 
Conoco offer, they would have summoned Arevalo to a meeting 
immediately, or at the latest the following day. The 
President's choice not to mention the fuel bid solicitation 
in his speech is equally noteworthy, and suggests that his 
rejection of "any kind of arrangement that does not benefit 
the market" is aimed not just at the alleged oligopolists, 
but also at the proposed state-run monopoly that would have 
been the centerpiece of the national import scheme. 
 
¶6. (C/NF) Comment continued:  The GOH has become increasingly 
aware of the risks to its reputation and investment climate 
that pursuing a strategy based on government seizures of 
sectors and assets would bring.  If the GOH can reach 
accommodation with the IOCs, and can sell the idea to the 
public, it can obviate the need for those heavy handed 
tactics and avoid the risk of major international lawsuits. 
As a result, the GOH's enthusiasm for signing a sole-source 
contract appears to be waning as the other IOCs present 
viable alternatives to the bid solicitation plan.  Zelaya 
will deliver a major one-year anniversary speech on Saturday. 
 Post assesses that he might well use that opportunity to 
make even more explicit the GOH choice to forego state 
interventionism in the fuels market and instead pursue market 
liberalization and competition.  We're not chilling the 
champagne yet, but we have plugged the refrigerator back in. 
End Comment. 
 
FORD 
FORD