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INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHCV/AMEMBASSY CARACAS PRIORITY 0504
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
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S E C R E T SECTION 01 OF 04 TEGUCIGALPA 000076 
 
SIPDIS 
 
SIPDIS 
NOFORN 
 
STATE FOR EB/ESC, WHA/EPSC, WHA/PPC, EB/CBA, AND WHA/CEN 
STATE FOR D, E, P, AND WHA 
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: 01/11/2036 
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: HONDURAN PRESIDENT CALLS U.S. OIL COMPANIES 
"ENERGY TERRORISTS" BUT STILL SEEKS NEGOTIATED RESOLUTION 
 
REF: TEGU 2372 AND PREVIOUS 
 
Classified By: CDA James Williard for reasons 1.4 (b,d) 
 
¶1.  (S/NF) Summary:  Honduran President Jose Manuel "Mel" 
Zelaya Rosales returned "a changed man" from meetings with 
Nicaraguan President Daniel Ortega and Venezuelan President 
Hugo Chavez on January 10.  Zelaya was clearly frustrated at 
his continuing inability to resolve Honduras' energy 
problems, and lashed out when (incorrectly) informed upon 
landing that gasoline shortages were imminent.  Zelaya called 
U.S. oil companies "energy terrorists" for refusing to 
support what they view as an illegal nationalization of fuel 
imports by either participating in the bidding or allowing 
the GOH to use their storage facilities.  Zelaya implied in 
his January 11 public remarks that a January 13 Council of 
Ministers emergency meeting would take up the question of 
expropriating these assets, but by January 12 had softened 
his views and told Vice President Elvin Santos that 
nationalization would not be raised at that meeting. 
Presidential envoy Arturo Corrales has worked to calm the 
President, noting that the President's information that 
importers were boycotting Honduras to cause a fuel shortage 
was incorrect and was "disinformation" on the part of certain 
groups with anti-oil company agendas.  Corrales will continue 
his shuttle diplomacy between the GOH and the oil companies, 
seeking an exit strategy.  In the mean time, he is confident 
the Council will ask only for an analysis of the situation. 
Vice President Santos conveyed three possible exit strategies 
to Post, but two involve the likely non-starter proposal to 
let the GOH use U.S. firms' storage facilities.  Post is 
troubled that Zelaya acted in such a provocative and 
demagogic manner, especially based on incorrect information. 
We noted to Corrales and to Santos that even if such threats 
are not carried out, they inflict real damage on potential 
investors' perceptions of Honduras.  Post is also concerned 
that in his frustration Zelaya could reach out to Chavez and 
PDVSA.  End Summary. 
 
¶2.  (S/NF) Vice President Elvin Santos told Charge on January 
12 that President Zelaya had returned from the inauguration 
of Nicaraguan President Daniel Ortega "a changed man." 
Zelaya was deeply frustrated that after a year of effort he 
has still failed to fix Honduras' energy problems, while 
Ortega could simply take advantage of pledges from Venezuelan 
President Hugo Chavez to fix similar problems in Nicaragua. 
According to Santos, Zelaya in sidebar with U.S. Assistant 
Secretary of State Tom Shannon requested that POTUS intervene 
 
SIPDIS 
to convince U.S. firms to cooperate with the Honduran 
nationalization plan.  Lacking such cooperation, he said, he 
"would have no choice" but to turn to Chavez. 
 
¶3.  (S/NF) Santos confirmed what Post had heard previously, 
that Zelaya prior to his trip to Nicaragua had been on the 
verge of declaring the entire fuel solicitation void. 
According to Santos, Zelaya would have blamed Minister of the 
Presidency Yani Rosenthal for the failure.  Zelaya did not do 
so because declaring the bid a failure would have also 
implicated Presidential Legal Advisor Enrique Flores Lanza, a 
lifelong Zelaya friend.  (Comment:  Santos also said that it 
was Flores Lanza who had first mis-informed the President of 
the impending fuel shortage, setting off the President's 
outburst.  Flores Lanza has been a strong supporter of the 
fuel nationalization plan all along, and continues to do 
whatever he can to see it come to fruition.  Post does not 
discount the possibility that Flores Lanza deliberately 
sought to inflame the President with his incorrect reports of 
boycotts by the oil companies.  End Comment.) 
 
¶4.  (U) In a January 11 press conference, President Jose 
Manuel "Mel" Zelaya Rosales accused the international oil 
companies (IOCs) in Honduras of being "energy terrorists" for 
refusing to allow the GOH to use their oil storage 
facilities.  He said that an emergency Council of Ministers 
meeting would be convened on January 13 to takes "sovereign 
 
TEGUCIGALP 00000076  002 OF 004 
 
 
decisions" to resolve the matter once and for all.  Asked if 
this meant nationalization of the facilities owned by 
companies including U.S. firms Exxon and Texaco, Zelaya 
replied "Picture it happening (Imagineselas)." 
 
¶5. (S/NF) In a meeting with Charge the evening of January 11, 
Minister of Foreign Relations Milton Jimenez sounded 
desperate, pleading for the Ambassador,s help in getting the 
U.S. companies to "collaborate". He argued that Texaco and 
Exxon must help Honduras out of its political problem.  He 
said that the country is destabilized by the companies' 
refusal to participate in the bid, by their refusal to rent 
their fuel storage facilities, and by their delaying 
deliveries.  Jimenez continued to maintain that the 
government wants to liberalize the market, but that the 
companies won't participate in this process either.  He 
requested that Ambassador Ford somehow help Honduras by 
getting the U.S. companies to cooperate. 
 
¶6. (C/NF) The GOH believes that it owes Mel's election to his 
promise of lowering prices at the gas pump and that he can 
not fail to do this.  Post has pointed out in the past that 
the government sets the price here ) not the companies ) 
and that the GOH could lower prices today by changing their 
pricing formula, which benefits private gas station owners 
and transporters.  It is clear, however, that Zelaya will not 
substantially alter the formula because he is afraid of 
street demonstrations led by Juliette Handal's Patriotic 
Coalition.  Charge replied that the companies are in fact 
willing to discuss liberalization of the markets.  But, from 
their point of view, they already have the right of access to 
the market and they have contractual agreements with their 
suppliers that they must meet.  For those reasons, they chose 
not to participate in the bid, which they think is illegal. 
He added that we do not have any information as to whether 
they intend to sue or not, but this is something the 
companies themselves need to determine. 
 
¶7. (C/NF) According to Presidential confidant and designated 
negotiator with the oil companies, Arturo Corrales, Zelaya's 
anger was sparked by reports that Shell and Texaco had 
organized a boycott of deliveries of gasoline to Honduras. 
These reports were false and were immediately rebutted by 
Shell and Texaco, which pointed out that at the moment the 
President was making this accusation, a gasoline tanker 
bearing a mixed Shell and Texaco shipment was being unloaded 
in Puerto Cortes.  Corrales believes the disinformation was 
spread by Juliette Handal, President of the Patriotic 
Coalition, the group that pushed for the nationalization of 
all fuel imports into Honduras.  When a careful analysis of 
the savings is conducted, Corrales says, the import scheme 
Handal favors saves only 0.3 lempiras, or less than USD 0.02 
per gallon -- far less than advertised and too little to 
justify a move to a monopoly system administered by the 
state.  Unable to show big savings, Handal is seeking other 
ways to attack the current importers, Corrales said. 
 
¶8. (C/NF) Corrales told EconChief he has now been formally 
appointed the President's representative to the companies on 
this issue (a role he has unofficially encumbered since 
November). In that role, Corrales will be meeting 
individually and as a group with the affected companies, 
seeking a resolution that meets the political needs of 
lowering prices while respecting investor rights and existing 
contracts. Representatives of the U.S. firms confirmed to 
EconChief that these meetings are ongoing.  It is unclear 
what the elements of such a deal would look like, but it 
would include changes to the margins applied in the fuel 
pricing formula. Post assesses that the deal would also have 
to reaffirm the current importers' right to continue 
importing fuel. 
 
¶9. (C/NF) Asked if this means the GOH will declare the fuel 
solicitation process void, Corrales proposed a politically 
brilliant alternative:  that the GOH declare the solicitation 
 
TEGUCIGALP 00000076  003 OF 004 
 
 
process was entirely successful, because it banished forever 
the illusion that there are major cost savings to be had in 
fuel imports (that is, the false accusation that importers 
are gouging Honduras).  Instead, the proposal would be to 
affirm that only very thin savings can be obtained at the 
point of import, but other, more significant savings could 
come from reforming the pricing formula.  EconChief 
reiterated, and Corrales agreed, that this reform to the 
state-run pricing formula must be done in the context of a 
medium-term strategy to liberalize the fuels market, not 
instead of it. 
 
¶10. (C/NF) Corrales told EconChief that he believes he has 
succeeded in convincing the President that he was 
misinformed.  He has proposed and feels "90 percent" 
confident that the Council of Ministers will request nothing 
more than a thorough review of the proposals and their 
projected savings, perhaps by January 17.  That should give 
Corrales and the companies more time to continue talks, and 
for the issue (and perhaps the President) to cool down. 
 
¶11.  (S/NF) Late on January 12, Vice President Santos called 
Charge to relay Zelaya's remarks to him that nationalization 
would not be raised at the Council of Ministers meeting on 
January 13.  This follows the Charge's emphatic remarks to 
Santos that such an action would severely damage Honduras' 
image, both in the eyes of investors and of U.S. 
policymakers.  In Charge's presence, Santos had contacted 
Minister Rosenthal and delivered the same message, concluding 
with a clear declaration that he opposed any move to 
nationalization.  Rosenthal apparently carried this message 
to Zelaya, who upon reflection appears to have decided to 
de-escalate the situation, at least temporarily. 
 
¶12.  (C/NF) In his call to Charge, Santos also conveyed 
Zelaya's new bottom line:  Zelaya would be willing to end the 
year-long stalemate over oil imports under one of three 
scenarios.  First, if the current importers can beat 
ConocoPhillips offer, Zelaya would vacate the bid process and 
use the new offer as a benchmark price for continued imports 
by current importers.  Second, the importers could "loan" 
their storage facilities to the GOH for a year to allow them 
to move forward with nationalization of imports and a move to 
monopolization of the sector.  Third, the firms could lease 
the tanks to the GOH for the same period and for the same 
reason. 
 
¶13.  (C/NF) Comment:  Post views the second and third options 
as likely non-starters with the companies, each of which has 
repeatedly refused to loan or lease their storage several 
times already during this process.  While presented as a 
compromise exit strategy, these two offers are at base 
nothing more than a request that the GOH get its way and the 
firms capitulate.  That seems unlikely.  The final 
alternative -- beating the ConocoPhillips price -- might be 
negotiable, but probably poses legal problems for the firms. 
The firms cannot legally collude on pricing.  Further, such a 
process might be condemned as non-transparent, and might open 
the firms to charges of price gouging in the past.  Post 
notes this GOH proposal with interest, but feels constrained 
in its ability to present it to the U.S. firms, since that 
could be viewed by ConocoPhillips as assisting one group of 
U.S. firms (Esso and Texaco) to out-bid another U.S. firm 
(ConocoPhillips).  Such a proposal is likely already at the 
heart of ongoing talks hosted by Corrales with the companies. 
 
¶14. (S/NF) Comment continued:  This episode highlights 
several disturbing aspects of Honduras' self-inflicted fuel 
crisis.  First, the President is receiving deliberately 
incorrect information from politically motivated groups, and 
is acting on it without first conducting minimal due 
diligence to see if it is correct.  Second, Post is very 
concerned that Zelaya's instinctive reaction was to threaten 
the companies with expropriation.  Even had the rumors of 
supply shortages been true, this reaction was demagogic and 
 
TEGUCIGALP 00000076  004 OF 004 
 
 
exaggerated.  The mere threat, whether carried out or not, 
will further damage Honduras' reputation in the eyes of 
future potential investors.  Finally, Post notes that this 
outburst occurred just as Zelaya returned from the 
inauguration of newly-elected leftist President Daniel Ortega 
of Nicaragua, on the margins of which ceremony Zelaya also 
reportedly met with Venezuelan President Hugo Chavez and 
reassured him that Honduras remained open to PDVSA.  Post 
assesses that Zelaya's threat to turn to Venezuela if he 
doesn't get his way is a real one, and could open the door to 
significantly stronger Venezuelan influence in both Nicaragua 
and Honduras. 
 
Williard 
WILLIARD