US embassy cable - 05TEGUCIGALPA2044

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 002044 
 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, EB/ESC 
ENERGY FOR IA 
 
E.O. 12958: N/A 
TAGS: EPET, ENRG, EINV, ECON, PGOV, PBTS, HO 
SUBJECT:  Honduran Gasoline Price Freeze Extended; More 
Hope Sunk into Domestic Oil Exploration, PetroCaribe. 
 
 
C O R R E C T E D  C O P Y (REMOVED SENSITIVE CAPTION, ADDED TAGS) 
 
REF:  A: Tegucigalpa 01910 
      B: Tegucigalpa 01970 
 
1. (U) Summary: The Honduran "notables" committee selected 
to review gas prices and investigate short and long term 
solutions has recommended continuing the current price 
freeze until October 16.  What group will pay the estimated 
$250,000 USD per day differential is still in doubt. 
Pressure to find a long-term solution has put renewed 
interest in Venzuela's PetroCaribe program and even sparked 
interest in off shore drilling, which has a long history of 
disappointing results and border disputes.  End Summary. 
 
2. (U) As the last gasoline price freeze recommended by the 
Honduran "notables" Commission (reftel A) was set to expire 
on Tuesday, September 27, the group recommended once again 
to continue the price freeze at the August 26 price of 68 
Lempiras (approx $3.60) per gallon for unleaded regular 
gasoline until October 16.  The price freeze was initially 
instituted on September 7 for ten days, then extended on 
September 17 for an indefinite period, widely assumed to be 
for another ten days, though without a formal Congressional 
Decree specifying this. 
 
3. (U) Cardinal Oscar Rodriguez, head of the commission, 
continued his more subdued rhetoric.  While initially 
calling the large price increases "immoral" and demanding 
accountability, he has supported the price freezes as 
"temporary solutions" and called for the people to 
eventually "confront the reality" of higher gasoline 
prices.   "The problem (of high gasoline prices) is not 
just a problem for the Government, or the Congress, or the 
Commission, but for all of Honduras," he said. 
 
4. (U) At issue is who will pay the differential between 
the current market prices and the fixed 68 Lempira retail 
price, estimated at around $250,000 USD per day.  The GOH 
will pay the differential for the first 10 day price 
freeze, but its plans to have the six major gasoline 
distributors pay for the second ten day price freeze has 
met some industry resistance (reftel B).  In addition, 
without a formal Congressional decree establishing the 
price freeze, foreign firms fear that the freeze could be 
viewed as collusive price setting and therefore as a 
violation of U.S. anti-trust laws.  According to Texaco 
managers that attended a September 27 meeting with 
President Maduro, the GOH has specifically asked that they 
pay the differential only for the period covering October 3 
to 16, with the GOH paying the differential up to October 
2. 
 
5. (U) President Maduro stated that if the importers do not 
agree to pay the differential during the latest price 
freeze, the GOH may use a Congressional decree to import 
gasoline directly and use private industry (mainly Texaco) 
storage facilities (on market terms).  This may open the 
door to refined gasoline purchases from Venezuela, which 
would require a Caribbean port to store and distribute 
supplies.  President Maduro has requested a meeting with 
Venezuelan President Hugo Chavez, and Minister of Industry 
and Trade Irving Guerrero plans to travel to Venezuela 
within the next two weeks.  Texaco managers have already 
received specific pricing requests for the use of their 
facilities. 
 
6. (U) The search for longer term solutions has also 
renewed interest in potential domestic oil production in 
waters off Honduras' Caribbean coast.  Over the past 85 
years, 18 oil wells have been sunk in the region, with only 
a few barrels of Brent-grade crude extracted.  While 
previous industry studies have concluded the area is not 
sufficiently productive to justify development, calls 
continue to reinvestigate potential production and the GOH 
has announced plans to open permits for exploration.  In 
the meantime, Nicaragua has announced plans to concession 
oil exploration rights off its Atlantic coast, including in 
waters north of the 15th parallel.  Honduras has a 
competing claim to these waters, and has publicly announced 
that any oil concessions granted in the contested waters 
would be legally null and void.  This maritime border 
dispute with Nicaragua, going on since the early 1980's, is 
now in the hands of an international court. 
 
7. (U) Comment: The third in the continuing series of 
gasoline price freezes is the GOH's latest attempt to avoid 
social strife while hoping that world gasoline prices will 
come down before the November 27 presidential elections. 
Publicly, the GOH appears to be using this extension to 
drive home the message that high gasoline prices are out of 
their control and could continue for the foreseeable 
future.  Commission member Cardinal Rodriguez, whose early 
strong reaction against the price increases helped foment 
the social opposition and sparked widespread taxi strikes 
and street blockages on September 6 and 7, has moderated 
his recent remarks, warning the public that higher prices 
are likely in the offing.  History would suggest that 
drilling for oil in the historically unproductive Honduran 
offshore is unlikely to yield much (and certainly not in 
the short term), but today's historically high prices for 
crude oil significantly expand the definition of an 
economically viable oil well.  To date, Post is aware of 
slight interest by oil companies in exploring in Honduras, 
but Post will continue to follow developments with 
interest.  Post assesses the GOH engagement with Venezuela 
and its PetroCaribe initiative as little more than 
political theatre, but will watch that relationship 
closely.  End Comment. 
 
Williard