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S E C R E T SECTION 01 OF 03 TEGUCIGALPA 000091 
 
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: 01/16/2032 
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: HONDURAN GOVERNMENT BLAMES OIL COMANIES; COMPLAINS 
USG CRITICISMS OF TAKEOVER PUT PRESIDENT IN PRECARIOUS 
POSITION 
 
REF: TEGU 0077 AND PREVIOUS 
 
Classified By: AMB Charles Ford for reasons 1.4 (b,d) 
 
¶1. (S/NF) Summary:  Ambassador, Charge, and EconChief met 
with Ministers Enrique Flores Lanza and Milton Jimenez on 
January 16 to discuss the announced GOH intent to seize 
control of U.S. owned oil storage facilities without the 
consent of the owners.  Both Ministers blamed the companies 
for failing to participate constructively in seeking a 
resolution to this matter, and said they did not understand 
the USG's continuing opposition to the plan.  Both claimed 
they support a liberalization of the sector in the medium 
term, but for political reasons need to demonstrate savings 
at the pump now, even if that means seizing investor assets. 
Ambassador and the Ministers agreed on the importance of 
keeping channels of communication open, and Ambassador 
expressed the USG's continuing support for any move towards 
liberalization that improves market conditions without 
violating exiting investor rights.  At Ambassador's urging, 
the GOH agreed to sit down with the companies one last time 
in search of a mutually acceptable exit strategy.  Post 
undertook to contact the companies and urge them to take this 
last chance seriously and come prepared to negotiate. End 
Summary. 
 
¶2. (S/NF) In a marathon two and one half hour meeting, 
Foreign Relations Minister Milton Jimenez and Minister 
Counselor for Legal Affairs Enrique Flores Lanza told the 
Ambassador the GOH is not acting against foreign oil 
companies when it forcibly takes over their facilities. They 
said the GOH is not a populist or leftist government, and is 
not seeking conflict with the USG.  They claimed the 
announced takeover of oil storage facilities by the GOH is 
not expropriation because the facilities will be taken over 
for only a temporary period of time, in accordance with 
contractual obligations, rather than making the GOH the 
permanent new owner of the facilities.  They complained that 
in focusing on investor rights and other commercial issues 
the USG is losing sight of the political context.  The USG 
needs to understand, they said, that President Jose Manuel 
"Mel" Zelaya Rosales is a politician, and if he feels his 
position is threatened he will act, even against investor 
interests. 
 
¶3. (SBU) This meeting came on the heels of a January 15 
interview in which Ambassador lamented the lack of respect 
for private property shown by the GOH when it passed a decree 
compelling the use of privately owned oil storage facilities 
without the consent of the owners.  One such owner is U.S. 
firm Esso (ExxonMobil).  He also noted that the announced 
unilateral GOH-imposed reductions in gasoline prices derive 
from changes in the pricing formula, not from saving on 
imports, calling into question the benefit of a year-long 
process by which the GOH sought to nationalize imports to 
obtain lower costs. 
 
¶4. (S/NF) The Ministers complained that they could not count 
on the companies to cooperate in this process.  (Note:  It 
has long been the position of the GOH that the fundamental 
problem is the oil companies' refusal to rent their 
facilities to the GOH to allow them to nationalize and 
monopolize the fuels sector.  The GOH has known for nearly a 
year that these firms would not supply storage for this 
scheme.  End note.) Flores Lanza blamed the oil companies' 
intransigence on "not believing the GOH would go all the way" 
with the process of taking over the sector.  Lanza complained 
that at every stage the companies could have avoided such an 
outcome by making a deal with the GOH, but that each 
opportunity was missed.  He dismissed any criticisms of the 
process based on obtaining no savings, noting that the winner 
has been decided, and any analysis of actual savings would at 
this point be merely academic.  Lanza admitted that there 
 
TEGUCIGALP 00000091  002 OF 003 
 
 
might be no savings at all, as lower prices for super 
unleaded gasoline are offset by higher prices for regular and 
diesel.  But, he said, super unleaded is the "symbol" of the 
process, so lower prices there perpetuates the perception of 
savings in the eyes of the public, which is the real goal of 
the process. 
 
¶5. (S/NF) Jimenez said he still does not understand the 
Embassy's position on this matter since, he claimed, the GOH 
actions are neither against the companies nor populist in 
nature.  He termed the Embassy position a "misunderstanding" 
of the Honduran position and assumed the Embassy was 
misinformed.  He urged us to speak with "credible" 
interlocutors.  (Comment:  Post has spoken in the last 
several days with Vice President Elvin Santos, Minister of 
the Presidency Yani Rosenthal, the President's representative 
on fuel Arturo Corrales, and most of the affected companies. 
With the possible exception of President Zelaya himself, the 
Embassy has spoken to the most credible interlocutors 
involved in the issue.  End Comment.) Jimenez claimed the GOH 
has been open throughout this process, bizarrely citing 
Zelaya's threat in Managua to turn to Venezuela's President 
Chavez for assistance if the USG did not force U.S. firms to 
capitulate.  That threat was made openly, he said, which is 
proof that the GOH has no hidden agenda. 
 
¶6. (S/NF) Jimenez then noted that Honduras is a factor for 
stability in the region, and that a radical Nicaragua or 
stronger Chavista influence in the regional would not benefit 
anyone.  He objected to press accounts of the GOH seizure of 
oil company installations, complaining that Honduras is not 
like Venezuela or Bolivia and that troops have not taken the 
facilities by force.  Jimenez implied Honduras is the bulwark 
in Central America against the spread of Chavista radicalism 
when he said that the Venezuelans could have been persuaded 
to present a winning offer during the bid solicitations, but 
that such an outcome "would not have been convenient" for 
Honduras.  He also criticized USG support for DIPPSA's calls 
for transparency in the award process, noting that DIPPSA's 
partner Trafigura likely receives support from Venezuela, and 
therefore that defending DIPPSA was in essence defending 
Chavez.  (Comment:  We pointed out that our interest is in 
promoting transparency and credibility of the process, not in 
defending any particular firm.  End Comment.) 
 
¶7. (S/NF) During the discussion, both Jimenez and Flores 
Lanza claimed that the GOH remains dedicated to market 
liberalization.  However, both were critical of the 
President's representative to those talks, Arturo Corrales. 
In support of his mandate to promote a dialogue on 
liberalization, Corrales has publicly said that the bid 
solicitation did not yield sufficient savings and that a 
broader effort must be launched to open the market.  Jimenez 
and Flores Lanza were critical of Corrales for saying 
anything that makes the bid solicitation look bad, and they 
accused him of using "the oil companies' words."  Jimenez 
professed ignorance of Corrales' continuing dialogue with the 
companies about liberalization measures.  Flores Lanza noted 
that Corrales had been given until January 12 to get an 
agreement from the companies (presumably including storage). 
When Corrales set up a series of meetings for January 15-17, 
Zelaya decided the companies must be stalling and therefore 
took the action on January 13 to seize the installations 
without consent. 
 
¶8. (S/NF) Ambassador said the USG continues to support 
liberalization of the market and seeks neither a legal nor a 
diplomatic battle with the GOH.  That said, the GOH crossed a 
line when it decided to seize private assets, and this is 
difficult for Post to reconcile with the GOH's allegedly 
pro-market stance when explaining events to investors or to 
officials in Washington.  While the USG does not advocate 
leaving the fuels market as it currently is, Ambassador 
 
TEGUCIGALP 00000091  003 OF 003 
 
 
stressed that an exit strategy must be found that recognizes 
the legitimate interests of both sides and moves the market 
towards greater efficiency and transparency.  It would be 
best to use the current momentum and dynamism of this 
discussion to propel efforts at reform, and not let debate 
over the bid solicitation delay or substitute for a broader 
meaningful dialogue on market liberalization. 
 
¶9. (S/NF) Turning to the bilateral impact of this issue, 
Ambassador noted that relations between the two countries 
have been excellent on a range of issues, with the exception 
of the GOH proposal to nationalize all fuel imports.  The USG 
has been very clear and forthcoming in its questions and 
concerns about this bid solicitation throughout the process, 
but has been consistently supportive of finding a mutually 
acceptable exit strategy.  The USG remains committed to that 
outcome, and stands ready to use its good offices to 
encourage a resumption of such a dialogue.  The goal should 
be to formulate a medium-term strategy that incorporates 
these disparate elements into an overall thrust towards 
liberalization, in a way that allows the GOH to take public 
credit for the move but without prejudicing the interests of 
U.S. investors. 
 
¶10. (S/NF) Flores Lanza reiterated that in the GOH view, it 
is the oil companies that have failed to put a constructive 
offer on the table, and that the GOH continues to wait for 
such an offer.  (Note:  Flores Lanza did not mention, 
however, that the companies could not produce such an offer 
because the GOH failed for those three weeks to provide the 
financial analysis of the bid solicitation to them.  End 
Comment.)  However, Flores Lanza also said that talks with 
bid solicitation winner ConocoPhillips resume next week, so 
any offer must be delivered before then.  That leaves just 
three work days to arrive at a resolution that has eluded 
private sector and GOH officials for nearly a year. 
 
Ford 
 
 
 
FORD