US embassy cable - 05TEGUCIGALPA399

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 000399 
 
SIPDIS 
 
STATE FOR EB/TRA, WHA/EPSC, AND WHA/CEN 
STATE FOR EB/TRA (DHAYWOOD) 
TREASURY FOR DDOUGLASS 
COMMERCE FOR AVANVUREN, MSIEGELMAN 
STATE PASS AID FOR LAC/CAM 
 
E.O. 12958: DECL: 02/18/2015 
TAGS: EWWT, ETRD, ECPS, EINV, PGOV, KMCA, HO 
SUBJECT: HONDURAS:  PORT FEE IMPLEMENTATION SUSPENDED 
 
REF: A. A) 05 TEGUCIGALPA 363 
 
     B. B) 05 TEGUCIGALPA 331 
     C. C) 05 TEGUCIGALPA 341 
     D. D) 04 TEGUCIGALPA 2165 
     E. E) 04 TEGUCIGALPA 2267 
 
Classified By: Economic Chief Patrick Dunn for reasons 1.4 (b) and (d) 
 
 1. (U) Summary:  A united private sector has succeeded in 
temporarily halting the entry into force of a contract for 
x-ray scanning at Puerto Cortes, citing the potential 
economic damage that the contracted fee of USD 55 per 
container would do to Honduran competitiveness.  The respite 
is temporary, and talks continue with the GOH.  End Summary. 
 
2. (C) Background:  The GOH had recently approved a USD 55 
per container fee for x-ray scanning at Puerto Cortes (Ref 
B).  This fee, if passed on to port users, would have nearly 
doubled port costs, rendering the port uncompetitive and 
possibly diverting trade and investment away from Honduras 
(Ref C).  The private sector united in opposing this new fee 
(Ref A).  The decree containing the contract terms and fees, 
already approved by the National Congress, was transmitted in 
mid-January to President Maduro, who signed it despite a 
written request from the Honduran Private Enterprise Council 
(COHEP) strongly urging him to veto the bill.  Until it is 
published in the Gaceta (the GOH Federal Register 
equivalent), the contract does not become official.  On 
February 11, the private sector approached the President to 
request that he delay publication of the approved contract. 
(For additional background on the controversy surrounding the 
procurement of this contract, see Refs D and E.) 
 
3. (C) The petition was presented to the President by a 
united private sector front consisting of representatives of 
COHEP, the Honduran Industrialists Association (ANDI), the 
Chamber of Commerce of Cortes, the Chamber of Commerce of 
Tegucigalpa, the Honduran Manufacturers Association, and 
AmCham members Dole and Chiquita.  All had previously 
publicly agreed on their opposition to the new fees as 
non-transparent and potentially economically devastating.  On 
February 16, EconChief spoke with the COHEP Executive 
Director Benjamin Bogran, who said that the President told 
the group it had been his understanding that the project 
would be fully financed from increased customs revenues and 
fines.  In response to the group's complaint, the President 
undertook to consult with his advisors and reply to the group 
in the next few days.  In the meantime, there is apparently 
no firm guarantee that the contract will not be published. 
According to Bogran, it was not published yesterday as 
expected because of a mechanical failure in one of the 
typesetting machines.  ("You have to believe me," Bogran told 
EconChief, "it really was an accident!") 
 
4. (C) The private sector group is now preparing for two 
future courses of action.  First, the group hopes that the 
President will revisit the issue and will open a dialogue 
that results in no pass-through of fees to port users or 
pass-through only to importers, while exempting exporters. 
Even in that case, Bogran noted, the GOH should pay a 
substantial part of the fee from customs revenues, with much 
of the remainder paid for by fines on customs violators. 
Additionally, he said, the overall cost structure of the deal 
should be examined, since it appears to many that the 
per-container fee proposed is simply too high to begin with. 
As a second course of action, should the first fail, the 
group has asked lawyers to prepare legal motions seeking to 
declare the entire bid solicitation process invalid and 
unconstitutional. 
 
5. (U) According to Adolfo Facusse, President of ANDI, the 
private sector's principal objection to the proposed fees was 
the concern that the high fees will price Honduran ports and 
Honduran producers out of the market.  According to figures 
presented by the group, Puerto Cortes was already the most 
expensive port in the region, even before the new proposed 
fees are added.  Including all handling fees, wharfage, and 
other costs, port fees in Cortes were estimated to be USD 
171, where costs in nearby Guatemalan ports of Santo Tomas 
and Barrios were notably lower, at USD 133.83 and USD 136.72 
respectively.  Puerto Limon, Costa Rica, was the least 
expensive, at just USD 75.09.  Facusse told one reporter, "If 
Costa Rica can sustain port operation for this little, why 
can't we do the same?  Instead, we risk losing the 
competitiveness of Puerto Cortes." 
 
6. (C) Comment:  The private sector has repeatedly assured 
both Post and the GOH that it is not opposed to increased 
security, improved port efficiency, or fighting corruption in 
the Customs Service.  If a way can be found for the x-ray 
contract to self-finance (for example, out of the increased 
customs revenue it is expected to generate) then the private 
sector would likely support it.  That said, Post agrees with 
the private sector that adding up to USD 55 in additional 
user fees to the port threatened the port's competitiveness 
and the viability of economic development strategies 
(including CAFTA and MCC) predicated on exports via Cortes. 
Post encouraged the private sector to make a strong, 
well-researched economic argument against full pass-through 
of the fees.  Post also approached senior GOH officials to 
express our concerns.  This two-pronged approach appears to 
have worked, as the GOH has agreed to pause to reconsider the 
level of the fees and seek an appropriate way to apportion 
them that will not prejudice Honduran competitiveness.  We 
will continue to follow this issue closely as it develops. 
End comment. 
 
Pierce 
Pierce