US embassy cable - 03TEGUCIGALPA2385

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 002385 
 
SIPDIS 
 
SENSITIVE 
 
GUATEMALA FOR COMATT 
STATE FOR WHA/CEN AND EB 
 
E.O. 12958: N/A 
TAGS: ENRG, EPET, EINV, ECON, PGOV, PINR, HO 
SUBJECT: Honduran Gasoline Pricing: Tempest in a Teapot 
 
 
1. (SBU) Summary.  In September, former Industry and Trade 
Minister for President Maduro Juliet Handal began a public 
campaign to criticize the Honduran government's method of 
establishing maximum gasoline prices.  Handal has argued in 
press conferences and appearances in front of the Honduran 
National Congress, that the GOH's pricing formula 
incorrectly uses a wrong reference price for the cost of 
gasoline, that other Central American countries have 
switched to a different reference price and that the cost of 
gasoline for consumers could be lowered significantly if the 
policy were corrected.  Industry contacts maintain that 
Handal's arguments are wrong in almost all the particulars. 
Chevron-Texaco (the largest oil products importer in 
Honduras) has provided data to the GOH to use as appropriate 
to clarify the situation and demonstrate that the costs of 
oil products in Honduras are similar to those used in other 
Central American countries.  End Summary. 
 
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The Attack: GOH Missing the Boat on Gas Price Regulations 
--------------------------------------------- ------------ 
 
2. (U) Juliet Handal's argument to the press and the 
Congress has been that a 1996 report, sponsored by 
international organizations such as the UN's Economic 
Commission for Latin America (ECLAC), demonstrated that 
Central American countries could lower Honduras' cost of 
gasoline by at least 500 million lempiras (USD 28.5 million) 
by using the Gulf port reference price instead of the 
Caribbean posting (which is usually higher).  Handal has 
claimed that all other Central American countries have 
switched to this system, and Honduras' delay in doing so is 
costing the public dearly.  Handal has been working closely 
with old-style Latin American economist Miguel Angel Funes, 
a long-time critic of multinationals, especially oil 
companies. 
 
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The Response: She Got All Her Facts Wrong 
----------------------------------------- 
 
3. (SBU) Privately, executives of Chevron-Texaco (which has 
a 70 percent market share in petroleum products sold in 
Honduras) have told emboffs that the argument is incorrect 
on all counts.  First, the GOH, in regulating the market, 
only sets a maximum pump price for gasoline - any gasoline 
retailer is free to sell gasoline at a lower price.  The 
maximum price is calculated based on a complex formula that 
includes many factors beyond this cost of imported product 
measure. 
 
4. (SBU) Chevron-Texaco explains that the Gulf Coast posting 
is a measure of the cost in larger importers; it is based on 
large shipments of a single fuel product, with lower risk 
and insurance, and different fuel specifications.  The 
Caribbean posting, in contrast, best fits the average cost 
of gasoline imported into a small market like Honduras 
(30,000 barrels a day).  The government is free to use any 
reference price it would like in the formula; however, 
according to Texaco, some kind of premium would have to be 
added to fully reflect the real cost of imported product. 
The actual source of supply appears to be unrelated to the 
argument - Chevron-Texaco usually sources its oil purchases 
for Honduras from Venezuela. 
 
5. (SBU) According to Texaco Caribbean Assistant Manager 
Mario del Cid, who provided econoffs with a copy of a 
presentation created for Honduran President Maduro's 
economic advisors, Handal's and Funes' claim that the other 
Central American countries use the Gulf Port posting is 
totally off base as well.  Del Cid said that Guatemala (and 
probably Nicaragua) are free markets and no reference price 
is used at all.  El Salvador did try, after release of the 
ECLAC report in 1996 to change to using a Gulf posting with 
a 4.5 cent premium; the oil companies challenged the low 
level of the premium (arguing for one of 5.3 cents) and the 
government eventually went to a free market.  Costa Rica, 
del Cid said, is a special case because the oil market is a 
state-run monopoly. 
 
6. (SBU) A chart in the Texaco presentation that compares 
gasoline prices in Central America and eight other countries 
shows that the net price of gas (pump price minus taxes) in 
Honduras is similar to the net price in other Central 
American countries, with Guatemala's and Costa Rica's 
slightly lower and El Salvador's and Nicaragua's slightly 
higher.  The pump price in Honduras and Costa Rica are the 
highest (almost $2.50 per gallon) because of the taxes 
levied in those countries.  The tax on gasoline in Honduras 
is now usd 1.05 per gallon (changed in April from an ad 
valorem to a flat tax). 
 
--------------------------------------------- ------------- 
The Motivation: Simply An Attempt to Get in the Limelight? 
--------------------------------------------- ------------- 
 
7. (SBU) It is not clear exactly what triggered Handal's 
decision to attack the government on this particular issue 
without talking directly with the major oil companies to 
hear their side of the story.  She served for approximately 
eight months as Minister of Industry and Trade at the 
beginning of the Maduro administration.  There was friction 
from the start between Handal and President Maduro's closest 
advisors, particularly Minister of the Presidency Luis 
Cosenza, and she had problems with Presidential access.  The 
trigger for her resignation was the GOH's announced 
intention of taking the responsibility for trade 
negotiations out of her Ministry.  Prior to government 
service, she served as President of the umbrella private 
sector organization COHEP and frequently used her position 
as a bully pulpit to call for policy changes from the Flores 
government that preceded Maduro. It is possible that she 
decided to use this issue simply to get back into the public 
limelight during this early period of the Presidential 
campaign, when pre-candidates are forming their circle of 
advisors.  The same is generally believed of Miguel Angel 
Funes, a consultant who has been on a job hunt for some 
time. 
 
8. (SBU) Embassy Comment.  We expect the debate to calm down 
shortly as the true facts come to light.  The U.S. companies 
operating in Honduras - Chevron-Texaco and Exxon - have not 
requested Embassy advocacy, but rather are working closely 
with the GOH. End Comment. 
 
PALMER