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C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 000336 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
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: 02/20/2017 
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: HONDURAN PRESIDENT ATTACKS PRO-NATIONALIZATION 
FUEL COALITION; DENOUNCES CONOCO CONTRACT 
 
REF: A) TEGU 302 AND PREVIOUS 
 
Classified By: AMB Charles Ford for reasons 1.4 (b,d) 
 
¶1. (C/NF) Summary:  Recently President Zelaya has become 
openly critical of his former allies, the Patriotic Coalition 
(the group led by Juliette Handal that seeks lower fuel 
prices through nationalization of all imports).  Zelaya has 
also criticized the pressure tactics employed by 
ConocoPhillips in presenting the GOH with a signed 
sole-source contract making Conoco the monopoly fuel supplier 
to Honduras.  Zelaya also implicitly criticized the U.S. 
citizen consultant responsible for the fuel import 
nationalization plan and the Conoco contract.  With these 
statements, Zelaya has for the first time distanced himself 
from Juliette Handal and the coalition she heads, and has 
strengthened his building case for ultimately rejecting her 
proposal to nationalize imports.  Post's most significant 
doubt about the outcome of the struggle to prevent that 
nationalization had been precisely whether Zelaya would be 
willing to confront Handal.  It appears Zelaya has now done 
so, preparing his exit from the fuel imports controversy that 
for over a year has both buoyed his popularity with the poor 
and threatened to poison his relations with investors. There 
is no final deal yet between the GOH and Texaco and Shell, 
but according to the GOH one is in the offing, perhaps as 
soon as February 21.  End Summary. 
 
¶2. (SBU) Over the last several days, President Jose Manuel 
"Mel" Zelaya Rosales has become increasingly critical in his 
public remarks of the Patriotic Coalition (the group led by 
Juliette Handal that seeks lower fuel prices through 
nationalization of all imports.) Since January 18, Zelaya has 
been moving steadily towards a decision to abandon the fuel 
import solicitation plan in favor of liberalizing the fuels 
market in Honduras.  Because such a move always implied 
Zelaya would need to confront the popular but disruptive 
Handal and the Patriotic Coalition, Post had doubts about 
whether Zelaya would follow through. This week, Zelaya 
clearly stood up to Handal, openly taking on the Coalition 
and reinforcing in even more explicit terms that no new 
savings would be forthcoming even if the GOH were to conclude 
the fuel import solicitation. 
 
¶3. (SBU) In public remarks on February 14, Zelaya said, 
"There will be no more price reductions, or rather, they have 
already happened, specifically because I issued an executive 
decree in the Council of Ministers, before any boat came as 
part of the bid solicitation.  I reformed the fuels pricing 
formula.  There will be no further price cuts or other 
benefits, whether the Conoco boat comes or not." (Note: U.S. 
firm ConocoPhillips won the GOH bid solicitation to provide 
all Honduras' fuel imports for the next year, but has not yet 
concluded a contract with the GOH.  Had the GOH determined to 
move forward with the nationalization of the sector, Conoco 
would have been contracted as the monopoly supplier to the 
GOH, closing the market to current importers Esso, Texaco, 
and Shell. End note.) 
 
¶4. (C/NF) In a letter to President Zelaya on February 12 and 
in subsequent public remarks, Handal and others from the 
Patriotic Coalition pushed back, saying that anyone who 
opposes the nationalization plan "is working against the 
national interest."  Her strident tone and the implication 
that the President himself is working against the national 
interest reportedly provoked Zelaya to anger, and may have 
hardened his stance in favor of liberalization.  (Comment: 
It was perhaps inevitable that Zelaya would have to confront 
Handal, a firebrand who has caused Zelaya no end of troubles 
over the last year.  As long as Zelaya sought to pressure the 
international oil companies, Handal's zealotry was useful to 
him.  Now that he is preparing to change course, she has 
become both a liability and a potential political rival. End 
Comment.) 
 
TEGUCIGALP 00000336  002 OF 003 
 
 
 
¶5. (SBU)  Zelaya also implicitly criticized the U.S. citizen 
consultant advising the Patriotic Coalition and the GOH on 
the fuel import solicitation.  In private remarks to 
EconChief, Minister Enrique Flores Lanza said the consultant 
had encouraged Conoco to submit a signed, revised draft 
contract to the GOH, to pressure them to conclude the 
nationalization scheme and agree to make Conoco the sole 
importer.  (In his public remarks Flores Lanza has been much 
more circumspect.)  News of the signed contract leaked to the 
press on February 15.  Zelaya responded sharply, criticizing 
the new contract as "unilateral, incorrect, and a 
straightjacket" for Honduras.  Zelaya went on to say, "I 
don't want to judge anyone, but I did not like what happened 
(with the contract).  It seems to me that was not done using 
appropriate business sense and that they have gone too far 
with these kinds of arrangements, which have not been 
approved either by those overseeing the process or by the 
government.  It is incorrect that they have unilaterally sent 
me a signed contract in which they have altered ten important 
clauses without having first consulted the government.  In a 
process of negotiation, you don't send a signed contract; you 
send an unsigned one for analysis."  Zelaya then said he 
would question the U.S. citizen consultant about "what's 
really going on here."  Asked on February 16 about the 
consultant, Flores Lanza remarked to the press that, "If one 
loses confidence in a consultant, well, quite simply, that 
relationship must be ended." 
 
¶6. (C/NF) Comment: Whatever his flaws, Zelaya is a gifted 
retail politician, one who chooses his battles carefully and 
only ones he feels he can win.  That he has taken on the 
Patriotic Coalition and Juliette Handal frontally signals 
that he is perhaps prepared to end this debate once and for 
all, and remove that group as a potential threat to his 
popularity and stability as President.  Flores Lanza has made 
several statements explicitly impugning the U.S. consultant 
(a close friend and supporter of Handal), and several media 
outlets from all parties have joined in the attack on the bid 
solicitation process (noting, for example, that following 
through with nationalization would create legal problems and 
not create additional savings, so why do it?).  It seems 
clear to Post that this is a coordinated attack on Handal and 
her supporters.  To his credit, Zelaya realized (albeit only 
after more than a year of pressure from Post and the private 
sector) that his populist fuel import scheme would not work, 
and he has repeatedly assured Ambassador that he has changed 
course dramatically and embraced market liberalization. 
Handal lacks the intellectual integrity to admit her plan 
does not work, and the political smarts to change course with 
her President.  Her tenacious and ultimately self-destructive 
refusal to let go of this misguided scheme ha put her in 
conflict with Zelaya, a conflict he wll likely win. 
 
¶7. (C/NF) Comment, continued:  Hving come out even more 
forcefully against the ntionalization option, Zelaya seems 
to us now to e even more committed to a strategy of market 
lieralization.  There is no deal yet in hand with Texco and 
Shell, but according to the GOH one is inthe offing, perhaps 
as soon as February 21.  Shel has reportedly come to terms 
with the GOH, whie Texaco sent a senior-level delegation on 
Februry 19 to discuss next steps and could potentially t 
close the deal in the next few days.  Esso remans reluctant 
and will have to engage the GOH at ome point, when and if it 
feels comfortable doin so.  DIPPSA/Trafigura remains a wild 
card, as i faces several pending lawsuits (over storage 
tans and over allegations of selling at inflated prics to 
its distributors) and could itself launch aseries of 
lawsuits at the GOH for the losses it s suffering under the 
new pricing scheme.  Neverheless, DIPPSA/Trafigura could be 
one of the bestpositioned to benefit from a market 
liberalizatin.  An uncharacteristically ebullient Flores 
Lana told Ambassador on February 15 that he felt all arties 
were on the verge of closing a deal and fnally ending this 
 
TEGUCIGALP 00000336  003 OF 003 
 
 
year-long saga.  Post will continue to track developments 
with interest. 
 
Ford 
FORD