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C O N F I D E N T I A L SECTION 01 OF 04 TEGUCIGALPA 000368 
 
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: 02/26/2017 
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: OFFSTAGE, HONDURAN FUELS ISSUE NEARS RESOLUTION; 
ONSTAGE, THE THEATRE OF THE ABSURD 
 
REF: A) TEGU 336 AND PREVIOUS 
 
Classified By: AMB Charles Ford for reasons 1.4 (b,d) 
 
¶1. (C/NF) Summary:  President Zelaya continues to shift his 
position on fuels to one increasingly aligned with the USG 
market-orientation.  His public remarks have moderated 
significantly, triggering suspicion and even attacks from his 
former allies in the fight to nationalize fuel imports that 
he has now abandoned.  It is important to discern the 
difference between Zelaya's previous public remarks, which 
were largely political theatre, from the real developments 
taking place off-stage.  Much of this confusion was cleared 
away in a GOH communique dated February 22, that makes it 
explicit that the GOH does not expect to continue the bid 
solicitation process, does not foresee signing a monopoly 
supplier contract with Conoco, and reiterates its belief that 
the only way to guarantee the best prices for the consumer is 
to move towards a more open and competitive fuels market. 
Texaco has submitted a formal proposal and is optimistic a 
deal is ready to be signed.  GOH advisor Arturo Corrales has 
reportedly been tasked with drafting a new GOH decree 
memorializing this historic decision, but we won't truly 
believe we have a deal until the new decree is promulgated. 
End Summary. 
 
¶2. (SBU) The continuing saga of the GOH plan to either 
nationalize or liberalize the fuels import sector lately 
appears to be more farce than tragedy.  Politicians are 
openly accusing each other of political theatre, the press 
now mocks the process as a "soap-opera," and the melodramatic 
posturing of leader of the Patriotic Coalition Juliette 
Handal has begun to alienate even some members of the public. 
 At heart, however, the critics are correct:  nearly all of 
the public remarks of the last week have indeed been 
political theatre, while a potentially durable solution to 
this self-inflicted crisis has been quietly negotiated 
off-stage. 
 
The Cast 
-------- 
 
¶3. (SBU) The Hero:  President Jose Manuel "Mel" Zelaya 
Rosales continues to play the leading man, portraying himself 
as steadfast in his defense of the Honduran consumer and 
defiant in the face of (he would have us believe) 
overwhelming opposition from the international oil companies. 
 That said, his public rhetoric has shifted recently from the 
two-dimensional populism of last year (attacking the 
"commercial tyranny" of "warmongering multinationals") to 
that of a more nuanced, three-dimensional character.  Zelaya 
now openly proclaims the virtues of market opening and 
increased competitiveness. 
 
¶4. (SBU) The Sidekick:  Arturo Corrales, one of the original 
members of the Commission of Notables formed to seek lower 
fuel prices, provides running commentary on events as they 
develop, patiently and calmly explaining to the audience what 
is happening on stage.  While his actions will prove to be 
key in the victory by the good-guys, he nevertheless politely 
declines to take any credit, pointing instead to the 
President as the courageous man of action. 
 
¶5. (SBU) The Chorus:  Led by Minister Counselor for Legal 
Affairs Enrique Flores Lanza, the supporting players amplify 
the central themes established by the President.  When Zelaya 
attacked the IOCs, the chorus was vitriolically 
anti-multinational.  Now that the President has shifted to a 
free-market stance, the chorus sings the praises of 
competition.  Though not the most important players on stage, 
the Chorus often drowned out the other dialogue, striving 
instead to sway the audience through repetitive emotional 
appeals. 
 
 
TEGUCIGALP 00000368  002 OF 004 
 
 
¶6. (SBU) The Jilted Lover: Juliette Handal, leader of the 
Patriotic Coalition and zealous supporter of nationalization, 
began Act I as the object of the President's political 
affections.  Blind to her flaws, he courted her and showered 
her with support, adopting her cause as his own.  By Act III, 
however, the President has had a change of heart: he has 
resolved to leave her and instead seeks to find an 
accommodation with the oil companies.  Playing every inch the 
spurned lover, Handal has accused the President of treachery 
and betrayal, and vowed that "God would judge him" for his 
actions.  She sought public sympathy with an allegedly broken 
arm (one that equally mysteriously was healed a week later), 
and darkly accused "outside forces" of trying to destroy her 
and her plan for nationalization of the oil sector.  Her 
increasingly shrill statements have left some observers 
(including the radio commentators who hosted one of her 
recent interviews) wondering aloud about her emotional 
stability.  Many, however, have merely tired of her 
over-emoting in her role as perpetual victim, and wish she 
would just exit the stage. 
 
¶7. (SBU) The Mad Scientist: The U.S. citizen consultant who 
designed the nationalization scheme was introduced to the 
audience as the expert who would assist the President in 
saving the day.  Recently, however, public opinion has turned 
on him, as questions have been raised about his ethics, and 
about whether his elaborate scheme was ever a good idea. 
Even Juliette Handal, a long-time friend and the person who 
brought him into this production, now publicly shuns him and 
declares that she barely knows him.  He has, as the press 
delights in pointing out, become a soap opera caricature: 
the good-guy turned bad-guy.  Some now wonder whether he will 
be forced to flee in the night, pursued by a crowd bearing 
pitchforks and torches.  (Note: Both his lionization last 
year and his demonization more recently are overdone, and 
Post has no evidence of any illegal acts on his part. End 
note.) 
 
¶8. (SBU) The Innocent Man, Wrongly Accused:  The 
international oil companies found themselves cast in the role 
of villain.  At first they tried to persuade the audience 
that they were innocent of the crimes of which they stood 
accused, but their early dialogue was poorly written and 
poorly delivered, and left the audience unconvinced and 
unmoved.  The President's charismatic and populist rhetoric 
held them in its sway.  By Act II, the companies had realized 
it is not the audience, but the President who must be 
convinced, and that they could only do this off-stage. Yet 
they remained troubled by the disconnect between the content 
of those private talks and the President's words on stage. 
Post reminded the companies that the President's fiery 
speeches on stage are, after all, theatrics, and that the 
more meaningful words are those he says in private. 
 
¶9. (SBU) The audience: The Honduran public continues to watch 
the action, more bemused than amused.  As the plot twists 
become increasingly improbable, the artifice has worn off and 
the public has begun to see through to the true story 
underneath.  The President remains popular for his defense of 
lower prices, even if the public is no longer sure if they 
entirely believe him.  Some have gradually appreciated 
Corrales' repeated presentations and they now understand some 
of the core market concepts. (This will also help the 
President sell his new strategy when the time comes.)  Some 
of those that Corrales could not rally through reasoned 
argument have been brought along through sentiment as Flores 
Lanza and others continue to drive home the key messages. 
The Honduran public is increasingly suspicious of the 
consultant, and some have grown tired of Handal relentlessly 
overplaying her part. 
 
This Week's Exciting Chapter 
---------------------------- 
 
 
TEGUCIGALP 00000368  003 OF 004 
 
 
¶10. (C/NF) On February 19, a delegation of senior officials 
from U.S. oil company ChevronTexaco met with GOH officials to 
seek a resolution to the current situation.  They emerged 
from talks "calm" and "comfortable" that they understood what 
the GOH needed from them in order to accept a deal.  On 
February 21, ChevronTexaco presented a formal offer to the 
GOH, outlining their proposal for restructuring the fuel 
pricing formula in a way that would allow the GOH to claim 
price reductions, while safeguarding the long-term interests 
of the company and setting Honduras on a path towards rapid 
market liberalization.  On February 23, ChevronTexaco 
representatives told EconChief that the offer had been well 
received by Zelaya, and that they were confident a deal might 
be announced the week of February 26. 
 
¶11. (C/NF) In the meantime, Handal openly and increasingly 
stridently accused the GOH of conspiring to undermine the 
fuel import nationalization scheme and of seeking an 
arrangement with the IOCs.  (Comment:  In this, she was 
absolutely correct.  She hoped that by saying this aloud, the 
public would rise up and demand the GOH return to the 
nationalization process.  That they have not done so must be 
a bitter disappointment to her.  End comment.)  When her 
denunciations of GOH perfidy failed to rouse a public outcry, 
Handal took the most drastic step remaining to her:  she and 
the other "witnesses of honor" to the nationalization process 
resigned.  Their resignations went largely unnoticed, and 
within a day had disappeared from the news.  The President, 
when asked later about the resignations, merely thanked the 
witnesses for their hard work and support throughout the 
process.  This left the impression (carefully cultivated by 
Corrales as well) that the fuel imports bid solicitation 
process had not broken down, but had simply run its course. 
The GOH, Corrales implied, is not abandoning the process so 
much as moving beyond it in search of bigger savings and 
better efficiency improvements.  In the minds of the public, 
Handal's resignation -- intended to be in protest -- thus 
became instead her stepping down at the conclusion of a long 
but fruitful process.  Making another attempt to rally her 
waning base of support, Handal has called for another meeting 
of the Patriotic Coalition to "endorse" the resignations and 
call on the GOH to continue forward with the nationalization 
process. 
 
¶12. (C/NF) Reportedly on the advice of the U.S. citizen 
consultant working for the GOH, U.S. firm ConocoPhillips 
submitted a signed contract to the GOH for approval.  (Note: 
Under the nationalization scheme, Conoco was to have been 
awarded a contract as the monopoly supplier of fuels to 
Honduras, excluding from the market several current 
suppliers, including U.S. firms Texaco and Esso.  End note.) 
The GOH objected that Conoco had made substantial changes to 
the draft contract, that those changes would need to be 
reviewed and agreed upon, and therefore it was inappropriate 
and disrespectful for Conoco to have submitted the contract 
already signed.  Allegations quickly spread that the U.S. 
consultant had "negotiated" a deal with the firm without the 
GOH's consent.  Other stories circulated that the consultant 
sought to claim his USD 1 million bonus for cost savings, 
even though those savings resulted from GOH action on pricing 
and not from the consultant's work on the import scheme. 
(Comment:  According to GOH sources, this is accurate.  The 
consultant's contract apparently does give him credit for 
changes to domestic policies that result in savings, and not 
just for savings resulting from his own work on imports. 
When informed of this fact, President Zelaya was reportedly 
furious.  End Comment.) 
 
¶13. (C/NF) As a result, the public is demonizing the 
consultant, and the press portrays him as treacherous and 
greedy.  Conoco, meanwhile, has not made any public 
statements in over two weeks, nor has it sent a delegation to 
meet with the GOH.  Conoco had given the GOH until February 
24 to resolve the pending issue of storage facilities and to 
 
TEGUCIGALP 00000368  004 OF 004 
 
 
sign a contract with them.  Since that deadline has now 
arrived with no deal and no likelihood of such a deal, Post 
assesses that Conoco might be losing interest in concluding 
this relatively minor but increasingly nettlesome matter. 
(At only 8 million barrels of product per year, a Conoco 
official recently told EconChief the deal was "peanuts" for 
the firm.) 
 
¶14. (C/NF) DIPPSA President Henry Arevalo remains in hiding, 
seeking to avoid being served with a court order to allow GOH 
use of his oil storage facilities.  The GOH's inability to 
secure these facilities held up and might in the end have 
scuttled the import nationalization plan and the resulting 
Conoco deal.  Recently, DIPPSA has appealed the original 
ruling, further dragging out the proceedings.  (Comment: Post 
assesses that these dilatory tactics are deliberate and have 
likely been approved by Zelaya.  It is clear that by January 
18 Zelaya had decided not to pursue a nationalization scheme. 
 He therefore needed time to shift his position and prepare 
the public for his decision not to sign with Conoco. 
DIPPSA's refusal to turn over its tanks and subsequent legal 
maneuvering gave Zelaya the time he needed.  End Comment.) 
 
¶15. (SBU) On February 22, Zelaya made his intentions plain 
for all to see.  Flanked by Vice President Elvin Santos and 
Foreign Minister Milton Jimenez, Zelaya released a GOH 
communique on the fuel situation.  Among its five brief 
points, the communique requires that the IOCs continue to 
offer the lowest possible fuels prices.  It also says the GOH 
will not sign with Conoco ("for now"); will promote renewable 
energy; and will halt the bid solicitation process ("for 
reasons entirely outside the control" of the GOH).  They key 
sentence, however, appears in point five, in which the GOH 
"holds that the only way to benefit consumers with fair 
prices is by opening the market to true competition, 
guaranteed by the state and in the national interest." 
 
¶16. (C/NF) Comment:  With each of his action over the last 
three weeks, Zelaya has strengthened our credence in his 
claims that he has embraced the idea of market competition as 
the only durable long-term solution to his fuel import 
concerns.  We are far less concerned about the theatrics, 
whether his or the oppositions', and we have the impression 
that the Honduran public's attention is also waning.  As 
Flores Lanza recently told EconChief, "The public doesn't 
care if we sign the contract (with Conoco.) They already have 
their savings."  We do not discount the possibility that 
Handal will seek to stir up social unrest in reaction to her 
defeat.  However, it seems clear that Zelaya has steeled 
himself to deal firmly with her, should the need arise. 
(This impression was further reinforced by his surprise 
decision two weeks ago to use troops to clear protestors from 
a highway in Olancho.  Zelaya is clearly sending a signal to 
social groups that law and order will be imposed, and that 
taking highways -- one of Handal's favorite tactics -- will 
no longer be tolerated.)  We are pleased Texaco is optimistic 
about a deal.  Corrales has been instructed by Zelaya to meet 
with Petroleum Administration head Lucy Bu to craft a new 
decree memorializing the accord, but we won't truly believe 
we have a deal until the new decree is promulgated.  In the 
meantime, the show must go on. 
 
Ford 
FORD