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UNCLAS SECTION 01 OF 02 TEGUCIGALPA 001285 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG EPET ETRD HO
SUBJECT: TFHO1: CHEVRON SENDS MIXED MESSAGES ON LEAVING 
HONDURAS 
 
REF: A. TEGUCIGALPA 466 
     ¶B. TEGUCIGALPA 357 
     ¶C. 08 TEGUCIGALPA 526 
 
¶1.  (SBU)  Summary: In meetings with the Ambassador and 
economic officers, Chevron representatives expressed concern 
about continuing financial losses tied to the GOH's 
application of an unfavorable formula for the pricing of 
finished oil products.  The Chevron representatives said that 
the company will probably pull out of Honduras if the issue 
is not resolved by the end of the first quarter of 2010.  The 
de facto commerce minister told Chevron that he would raise 
the issue in an upcoming Council of Ministers meeting but 
indicated that the regime may not be able to act given its 
interim status.  A decision on the issue is likely to be left 
for President-elect Pepe Lobo.  End summary. 
 
¶2.  (SBU)  After the Embassy received word that a senior 
Chevron executive had told Department of Commerce officials 
in Washington that the company was considering withdrawing 
from Honduras, the Ambassador asked to meet with local 
Chevron representatives.  In the November 25 meeting, the 
Ambassador told El Salvador District Manager Carlos Reyes, 
who is covering Honduras in the absence of Honduras District 
Manager Ana Belinda Martinez, that this problem remains a 
serious concern for the Embassy.  He asked Reyes about 
Chevron's future in Honduras.  Reyes dismissed reports of the 
company's possible closure as a rumor. 
 
¶3.  (SBU)  However, in a December 8 meeting with the Economic 
Counselor and Economic Officer, Miami-based Chevron executive 
Kevin Wolahan confirmed that Chevron's top management is 
considering closing the Honduras operation if the fuel 
formula issue is not resolved by the end of the first quarter 
of 2010.  Reyes and consultant Eduardo Del Valle, who has 
been retained by Chevron to work on the issue, also attended 
the meeting.  Wolahan emphasized the urgency of the problem 
of the pricing formula, which, with its lack of connection to 
market realities, is causing persistent losses for Chevron. 
Although the pricing formula has been problematic since its 
inception in 2007, Del Valle said that the situation has 
become more serious since the June 28 coup.  Petroleos de 
Venezuela, S.A., the state-owned Venezuelan petroleum 
company, cut off fuel bound for Honduras from its Curacao 
refinery after the coup.  No U.S. or Caribbean refinery is 
willing to load the quantity or quality of fuel needed at 
prices in line with the formula.  U.S. refineries in the Gulf 
are designed to supply the mainland via pipeline, not sea 
bound export.  JetA1 fuel for Honduras is hard to come by, 
since it is not used in the U.S. market.  To meet these 
needs, Chevron must often shop around to locate product and 
wait in line at public docks to load it.  All of these 
factors increase costs, which the pricing formula does not 
take into account.  Del Valle noted that Honduras is the only 
Latin American country where freight logistics are not 
figured into the import parity formula. 
 
¶4.  (SBU)  Walahan said that the company is continuing to 
work on repairs of the terminal in Puerto Cortes, which 
sustained $9 million in damages in an earthquake in May 2009 
and currently operates at just a fraction of original 
capacity.  However, management is beginning to question the 
wisdom of continuing to invest in the terminal repairs if the 
company continues to lose money on operations within 
Honduras. 
 
¶5.  (SBU)  According to Walahan, Chevron is focusing 
primarily on the two most urgent priorities: a removal of the 
requirement that the wholesale price of premium gasoline be 
the same as regular, and an elimination of an arbitrary 
negative discount affixed at the terminal.  If these concerns 
are addressed, he said, Chevron will consider that the 
climate is improving and will not take immediate action to 
suspend operations in Honduras.  Another key issue the 
company hopes to resolve is the GOH requirement that oil be 
invoiced by its volume at 60 degrees rather than at the 
ambient temperature.  Asked by 
the Economic Counselor whether Chevron considers free-market 
pricing a realistic goal in the longer term, Walahan said 
that the removal of price controls in El Salvador was a good 
sign in this regard. 
 
¶6.  (SBU)  The Chevron executives said that they had met with 
de facto Minister of Industry and Commerce Benjamin Bogran 
 
TEGUCIGALP 00001285  002 OF 002 
 
 
regarding the issue.  Bogran told them that a positive 
resolution may not be possible given the interim nature of 
the current administration, but he promised to raise the 
issue in an upcoming Council of Ministers meeting.  He said 
he hoped to have an answer for the Chevron executives by 
Christmas.  Bogran also promised to raise the issue with the 
minister-designate in the incoming administration of 
President-elect Pepe Lobo, once one is named.  The Chevron 
officials had scheduled a meeting with Lobo, but it was 
canceled, and they were trying to schedule a meeting with his 
transition team. 
 
¶7.  (SBU)  Walahan asked whether the Embassy could intervene 
with the de facto regime on the pricing formula issue.  The 
Economic Counselor replied that, while this is a 
high-priority issue for the Embassy, raising the issue with 
Honduran officials would not be possible given the fact that 
the U.S. government does not recognize the regime. (Note: 
The Ambassador plans to mention the issue to President-elect 
Lobo and make clear that this is an important investor issue 
he needs to look at carefully. End Note) 
 
¶8.  (SBU)  Comment:  Despite Bogran's promise to raise the 
issue in the Council of Ministers, it is unlikely that the de 
facto regime will make the politically unpopular move of 
changing the fuel formula during its remaining weeks in 
office.  The issue will probably be left to Lobo, who has 
already taken on the separate but related issue of gasoline 
subsidies.  In one of his first speeches after the election, 
Lobo noted that 80 percent of the value of gasoline subsidies 
goes to the richest 20 percent of the population.  He pledged 
to abolish subsidies like this that do not benefit the poor. 
Although taking on the fuel formula issue will be politically 
difficult for the new president, losing a major fuel supplier 
would hurt Honduras more in the long term.  Once political 
conditions allow us to engage with the Honduran government, 
this issue will be high on our agenda.  End comment. 
LLORENS