VZCZCXRO1513
OO RUEHLMC
DE RUEHTG #0098/01 0181421
ZNY CCCCC ZZH
O 181421Z JAN 07
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4652
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHCV/AMEMBASSY CARACAS PRIORITY 0519
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC PRIORITY 0567

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