US embassy cable - 05TEGUCIGALPA1648

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001648 
 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, WHA/EX, EB/OIA/IFD 
TREASURY FOR DDOUGLASS 
STATE PASS AID (LAC/CAM) 
STATE PASS OPIC, EXIM 
 
E.O. 12958: DECL: 08/04/2015 
TAGS: ECON, EAID, EFIN, PREL, KMCA, HO 
SUBJECT: MCA HONDURAS MOVING FORWARD 
 
 
Classified By: Classified by EconChief PDunn for reasons 1.4(b) and (d) 
 
1. (C) Summary: MCC and the GOH continue to make progress 
towards MCA-Honduras implementation. MCC has now filled the 
position of Mission Director for Honduras.  GOH domestic 
legislation to bring the Compact agreement with Millennium 
Challenge Corporation into force is quietly making the rounds 
in the National Congress. Two issues within the MCA-Honduras 
legislation could prove contentious:  highway tolls and the 
MCC salary structure.  A number of legal/contractual matters 
remain to be worked out as well, including drafting a 
disbursement agreement, a term sheet, a procurement 
agreement, a monitoring and evaluation plan, governance 
regulations, a fiscal agent agreement, and a bank agreement. 
The selection process for Director of the Program Management 
Unit -- essentially the senior position within MCA-Honduras 
-- is nearing completion. End Summary. 
 
2. (C) GOH domestic legislation to bring the Compact 
agreement with Millennium Challenge Corporation into force 
and create the Honduran entity that would administer the 
grant -- known as MCA-Honduras -- is quietly making the 
rounds in the National Congress.  President of Congress 
Porfirio "Pepe" Lobo Sosa and Minister of the Presidency 
Ramon Medina Luna are personally shepherding the bill through 
its markup process.  Because any changes to the bill could 
imply very difficult changes to the underlying Compact, few 
actual markups are expected.  Medina told EconChief and 
MCCDir recently that this is "a delicate process," 
considering the difficulty of submitting a law to Congress 
with the instructions that they can change nothing in it. 
The draft legislation was submitted to Congress on July 28. 
No date for passage of the bill has been set, but Lobo has 
pledged to move the legislation to a vote before Congress 
recesses on September 15. 
 
3. (C) A number of legal/contractual matters remain to be 
worked out as well, including drafting a disbursement 
agreement, a term sheet, a procurement agreement, a 
monitoring and evaluation plan, governance regulations, a 
fiscal agent agreement, and a bank agreement.  While complex, 
these documents are considered to be international business 
standards and should pose few problems for drafting and 
approval.  An MCC team will visit Honduras beginning August 8 
to continue work on these and other legal matters. 
 
4. (C) Two issues within the MCA-Honduras legislation could 
prove contentious:  highway tolls and the MCC salary 
structure.  On the former, the MCC required the GOH to 
indicate how it would make the operations and maintenance of 
the highway portion of the project sustainable over the long 
term.  The GOH has adopted an Interamerican Development Bank 
(IDB) proposal (also proposed for other, non-MCC portions of 
the highway system) that would authorize levying a toll of 
one centavo (about 1/20 of a U.S. cent) per axel per 
kilometer.  It is estimated (though not yet rigorously 
calculated by the IDB) that this toll would on average add up 
to 25% of the fuel bill to the total cost of a trip.  MCA 
believes the cost savings in time on the shorter, better 
maintained route will more than offset this cost. 
Nevertheless, there are concerns that the new toll idea could 
cause political unrest in an election year, particularly in 
the face of widespread anxiety over high gasoline prices. 
For these reasons, this provision was removed from the 
legislation, which might ease passage but will only delay 
Congressional consideration of a separate bill on this topic 
later in this session. 
 
5. (C) The second issue, that of salaries, is also related to 
an outside concern:  a recent political tempest over 
consultancy fees for the modernization of the parastatal 
electric company, ENEE.  In that instance, opponents of 
organizational reform of ENEE turned the consultancy fees of 
the review commission (up to $1,000 per day per consultant) 
into a cause celebre, ultimately pressuring the Congress to 
cancel the contract.  There is therefore great sensitivity in 
Congress about salaries paid to so-called "consultants," and 
that has lead to scrutiny of the pay scale proposed by 
MCA-Honduras for its almost-entirely-Honduran staff. 
 
6. (C) The selection process for Director of the Program 
Management Unit -- essentially the senior position within 
MCA-Honduras -- is nearing completion.  Of over 28 
applicants, 5 were short-listed by a Honduran selection 
committee and three identified as finalists.  MCC is 
currently considering, with other USG agencies' input, the 
suitability of the three candidates.  The selectee is to be 
chosen from the three by a Honduran board.  Other 
MCA-Honduras positions (roughly equivalent to Vice 
Presidents) are to be selected via the same process, but 
those lists continue to lag behind schedule, with no 
short-lists yet completed. 
 
7. (C) The GOH, with MCC oversight and assistance, has begun 
the procurements that are necessary to avoid delaying 
implementation.  Bidding documents for the Transportation 
Program Manager, the farmer training and development 
coordinator, and the procurement supervisor are in final 
stages of preparation and are expected to be published soon. 
 
8. (U) Finally, it should be noted that MCC has now filled 
the position of Mission Director for Honduras.  John Wingle, 
who also helped design and negotiate the Honduran Compact, 
arrived at Post on July 18.  He can be reached at 
WingleJX(at)state.gov. 
 
9. (C) Comment:  Much remains to be done, as an organization 
that began as a mere legal framework must learn to first 
crawl and then walk towards implementation.  The GOH 
continues to demonstrate strong political will to keep the 
project moving forward, though there is general consensus 
that actual first disbursement could be delayed until the 
first quarter of CY 2006.  Post and MCC remain vigilant to 
any weaknesses in the new structure that could permit 
corruption to creep in.  End Comment. 
 
Tuebner