US embassy cable - 05TEGUCIGALPA546

C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 000546 
 
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: 03/08/2015 
TAGS: EWWT, ETRD, ECPS, EINV, PGOV, KMCA, HO 
SUBJECT: HONDURAS:  PORT FEE NOT SUSPENDED AFTER ALL; 
PRIVATE SECTOR FEELS BETRAYED 
 
REF: A. A) TEGUCIGALPA 399 
 
     B. B) TEGUCIGALPA 363 
     C. C) TEGUCIGALPA 331 
     D. D) TEGUCIGALPA 341 
 
Classified By: Economic Chief Patrick Dunn for reasons 1.4 (b) and (d). 
 
 1. (C) Summary:  Contrary to alleged assurances made by 
President Maduro on February 11 that he would suspend 
publication and entry into force of the controversial new 
contract for x-ray scanning at Puerto Cortes, the contract 
was published in the official Gaceta on February 15.  The 
question of who will pay the contracted fee of $55 per 
container remains unanswered.  A united private sector group 
believed it had succeeded in temporarily halting the entry 
into force of the contract, fearing the potential economic 
damage that the fee would do to Honduran competitiveness. 
Now, citing perfidy by the GOH, the private sector is 
threatening to sue, while the GOH alleges a conspiracy 
against it by shadowy forces seeking to block security 
improvements at the port.  Post will continue to stress to 
all parties that an efficient, secure, and competitive port 
is the key infrastructural element in Honduras' strategy of 
export-driven growth.  End Summary. 
 
2. (C) The GOH recently approved a USD 55 per container fee 
for x-ray scanning at Puerto Cortes (Ref C).  This fee, if 
passed on to port users, will dramatically increase port 
costs, potentially rendering the port uncompetitive and 
diverting trade and investment away from Honduras (Ref D). 
The private sector is united in opposing this new fee (Ref 
B).  On February 11, the private sector approached the 
President to request that he delay publication of the 
approved contract.  Post previously reported (Ref A) that at 
that time the President undertook to consult with his 
advisors and reply to the group in the next few days, but 
that there was apparently no firm guarantee that the contract 
would not be published.  Subsequently, several private sector 
sources have told Econ Chief that they left that meeting with 
the understanding that publication would indeed be delayed. 
 
3. (C) In actuality, the printing request had been submitted 
weeks before, on February 3, and was already scheduled for 
printing on February 15.  Mechanical difficulties delayed 
printing until February 17 (though when printed the Gaceta -- 
Federal Register equivalent -- was back-dated to February 
15).  On Friday, February 18, Minister of the Presidency Luis 
Cosenza delivered a written reply to the private sector's 
appeal of February 10, in which he wrote that the GOH had no 
power to delay printing and that to do so would have been an 
"abuse of authority."  (Comment:  If true, this rule is 
honored in the breach:  the GOH has a history of not 
publishing legislation as a means of delaying entry into 
force.  More frustrating for the private sector, Cosenza did 
not raise this objection at the February 11 meeting, instead 
allowing them to think the matter was in suspension pending 
discussions when, in fact, the contract was already at the 
printing office.  End Comment.) 
 
4. (C) In his February 18 letter, Cosenza also said that at 
no time has the GOH claimed that the project was mandated by 
the USG to assure certification of Puerto Cortes.  Several 
sources, including GOH Congressmen, claim administration 
officials said precisely that to Congress to get the bill 
passed.  Cosenza also wrote that the question of who pays the 
fees is yet to be worked out and that he awaits the results 
of the Alvarado Commission before he will "sit down to listen 
to the point of view" of the private sector.  The private 
sector counters that the Commission headed by former Minister 
of Finance Arturo Alvarado, tasked with considering payment 
methods for the fees, has not been called to session in the 
last two weeks.  Some are beginning to suspect the Commission 
is a stalling tactic and that the fee structure will be 
sprung on them as a fait accompli, as were both the passage 
of the bill through Congress and its publication in the 
Gaceta. 
 
5. (C) Comment:  Post finds Alvarado a credible and honest 
interlocutor and does not believe he personally is stringing 
the private sector along.  That said, he has been given the 
nearly impossible task of finding a source for USD 55 per 
container in new fees.  Unless the GOH is willing to pay much 
of this new fee from increased customs revenues -- and we 
have no indication they are willing to do so -- then the 
Commission will have no choice but to recommend the fees be 
passed on to port users.  This will appear to the private 
sector to confirm their worst fears, that the entire exercise 
was for show, that the GOH intended to stick them with the 
fees all along, and that the Commission was a farce.  The 
fact that the Commission is not actively meeting (which the 
GOH attributes to intransigence on the part of the private 
sector), and that Minister Cosenza refuses to even listen to 
the private sector point of view until the Commission reports 
its findings, only deepens private sector cynicism.  However, 
this stonewalling method is used frequently to settle 
disputes in Honduras, leading to de facto acceptance of new 
policies over time.  End Comment. 
 
6. (SBU) On February 22, private sector representatives, 
meeting to discuss next steps, expressed anger and resentment 
at the GOH's response to their concerns.  The group reviewed 
its litany of complaints (reported extensively in reftels) 
about the bid solicitation, the pricing structure, and the 
likely impacts on competitiveness.  Honduran Industrialists 
Association (ANDI) President Adolfo Facusse then noted that 
the Port Authority (ENP) generates net revenues of 
approximately 280 million lempiras annually, of which 33.6 
million are transferred to local government and 210 million 
to the central government, leaving the port with 38 million 
lempiras (about USD 2 million) in profits.  Using the 
contractually-stipulated baseline of 300,000 containers per 
year (well above the 240,000 that actually arrived in 2004, 
another source of contention), the scanning consortium will 
be owed approximately 195 million lempiras in payments per 
year.  Obviously, Facusse said, the Port Authority could not 
pay these fees, as that would entirely exhaust the entire 
year's cash flow and bankrupt the port.  Some other source 
must be found to pay, and he is convinced the GOH intends 
that it be the private sector. 
 
7. (SBU) Some present noted that physical constraints made it 
impossible for everyone to abandon Puerto Cortes at the same 
time.  Additionally, for some Honduran shippers, the costs of 
doing so would be prohibitive.  Finally, the Honduran Private 
Enterprise Council (COHEP) representative asked how shippers 
would get all those goods to Guatemalan ports?  If the 
private shippers tried to set up their own firm just to 
transport goods to Guatemala, he said, "the truckers' unions 
would take over the highways" in protest.  Many agreed with 
these points but noted that Maersk and Crowley, two major 
shippers with regional traffic sourced from Nicaragua and El 
Salvador, have each announced plans to abandon Cortes if fees 
are set too high.  Since both previously used Guatemalan 
ports, before being lured away by price cuts and preferential 
treatment at Cortes, their threat to return to Guatemalan 
ports is a credible one and could cost Puerto Cortes up to 
100 million lempiras annually, according to some published 
estimates.  Maersk officials claim they could switch ports 
over a period of just eight days. 
 
8. (SBU) The group brainstormed options, eventually listing 
nine for consideration:  (1) demand a new contract; (2) 
demand the GOH pay the entire fee; (3) launch a PR campaign 
alleging corruption; (4) open the scanning service to 
multiple providers to spur competition and lower prices; (5) 
listen to the "siren song" of the Alvarado Commission and 
hope for the best; (6) launch a legal fight to have the 
contract voided; (7) open negotiations with Santo Tomas and 
other Guatemalan ports; (8) meet with President of Congress 
and Presidential candidate Porfirio "Pepe" Lobo and emphasize 
the political damage this fee could do to his campaign; and 
(9) demand that Minister Cosenza engage immediately in this 
discussion.  Many of these options can be undertaken 
simultaneously, but the group decided first to seek 
nullification of the entire contract via a legal challenge. 
 
9. (C) On February 25, the issue again exploded into the 
press, with public announcements by a number of companies 
that they intend to consider switching their shipping to 
Santo Tomas in Guatemala.  The GOH immediately responded, 
ignoring the private sector's expressed support for the goals 
of reducing customs fraud and improving security and instead 
deliberately misrepresenting the private sector's concern not 
as one of costs but as one of opposition to the objectives. 
In public remarks, Minister Cosenza said (incorrectly) that 
the groups that are complaining have refused to support the 
work of the Alvarado Commission and that opposing this 
project is the same as supporting smuggling and tax evasion. 
President Maduro extended this ad-hominem attack by saying 
that those opposed to the scanning contract fees are 
smugglers and tax evaders and saying that "there are always 
those that oppose the imposition of order."  Privately, 
Cosenza made similar remarks to Charge, alleging that the 
private sector's complaint is merely a front for shadowy 
criminal elements conspiring to ensure the GOH cannot crack 
down on corruption or tighten security.  (Comment:  Cosenza's 
comments are disturbing, as they reflect what others involved 
in port security privately believe about resistance to the 
new fees, to wit, that there is opposition to enhanced port 
security by many who benefit for the existing security 
loopholes.  However, neither he nor these others have 
presented any evidence to support these charges.  End 
Comment.) 
 
10 (C) Comment:  Post is increasingly concerned by the GOH's 
refusal to accept that this fee, if passed on to port users, 
could be damaging to Honduran competitiveness.  For that 
reason, the private sector has legitimate concerns that merit 
careful consideration.  GOH actions to date (skipping second 
and third legislative readings by pushing the bill through 
Congress as an "urgent" measure; and allegedly falsely 
claiming it was required by the USG for port certification; 
publishing the law despite alleged agreement to suspend such 
action pending further consideration) force us to question 
whether the GOH is fully considering the impact these fees 
could have on its export sector.  Finally, if private sector 
estimates are correct, the apparent windfall from the 
scanning fees seems excessive and raises the specter that the 
project, while based on laudable goals, is being set up as a 
cash cow for crony interests, such as potentially financing 
the incumbent party's national campaign this fall.  End 
comment. 
 
Palmer 
Palmer